DDIT, Hyderabad V. Vasavi Seva Kendram, Hyderabad

ITA 488/HYD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1385 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Assessment Year: 2002-2003
• Appeal Filed On: 13-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H PHANI RAJU
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Charitable institution; Benefit of exemption
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.488/HYD/07 (ASSESSMENT YEAR - 2002-03) DY. DIRECTOR OF INCOME- TAX(EXEMPTION)-2, HYDERABAD V/S M/S. VASAVI SEVA KENDRAM, HYDERABAD. (PAN - AAATV 2869 F ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.PHANI RAJU RESPONDENT BY : SHRI S.RAMA RAO O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THIS APPEAL, FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A), VIJAYAWADA DATED 12.1.2007 FOR THE ASSESSMENT YEAR 2002-03. 2. THE ONLY EFFECTIVE GRIEVANCE OF THE REVENUE IN TH IS APPEAL IS THAT THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE HAS N OT CARRIED OUT CHARITABLE ACTIVITIES EXCLUSIVELY FOR THE BENEFIT OF AN Y PARTICULAR CASTE AND THUS THE ASSESSEE IS ELIGIBLE FOR EXEMPTION UNDER S. 11 OF THE ACT. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER APPEAL ON 28.10. 2002 CLAIMING EXEMPTION IN RESPECT OF ITS INCOME UNDER S.11 OF THE ACT . DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE ITA NO.488/HYD/2007 M/.S. VASAVI SEVA KENDRAM, HYDERABAD. . 2 WAS CARRYING OUT ITS ACTIVITIES ON COMMERCIAL LINES, I.E. FOR THE PURPOSE OF EARNING PROFIT BY CHARGING RENT AT A FIXED RATE AND THE INCOME GENERATED FROM THE COMMERCIAL ACTIVITIES WAS UTILISED FOR THE BENEF IT OF A PARTICULAR COMMUNITY NAMELY, VYSYAS. WHILE SCRUTINIZING THE RECORDS OF THE CASE AND INCOME AND EXPENDITURE OF THE ASSESSEE, THE ASSESSING OF FICER NOTICED THAT ALL THE BENEFICIARIES ARE PERSONS BELONGING TO A SINGLE COMMUNITY, I.E. VYSYAS. IT WAS CONTENDED BY THE ASSESSEE B EFORE THE ASSESSING OFFICER THAT AT NO POINT OF TIME, ASSESSEE CHARGED RENT FOR THE KALYANA MANTAPAM AND IT WAS ONLY THAT THE MANAGEMENT CONVINCED THE PARTIES TO DONATE THE AMOUNTS. IT WAS ALSO PLEADED TH AT THE BUILDINGS WERE CREATED FOR USE BY THE GENERAL PUBLIC AND THE AM OUNTS COLLECTED AS DONATIONS ARE VERY LESS COMPARED TO DEPRECIATION AND MAI NTENANCE COSTS. IT IS ALSO PLEADED THAT THE ASSESSEE WAS CHARGING VER Y NOMINAL AMOUNT FOR PROVIDING ACCOMMODATION IN GUEST HOUSE AND M EDICAL AID WAS GIVEN NOT ONLY TO PEOPLE OF VYSYA COMMUNITY BUT AL SO TO OTHERS. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THIS EXPLANAT ION OF THE ASSESSEE. HE NOTED THAT THE COLLECTIONS MADE BY THE ASSESSEE ARE BEING ACCOUNTED AS DONATIONS IN ITS BOOKS OF ACCOUNT, THOUGH THE SAME WERE COLLECTED AT A FIXED RATE OF RS.5,000 PER DAY -NOT A R UPEE LESS NOR A RUPEE MORE. HE WAS OF THE VIEW THAT THE MANNER OF EN TRIES MADE IN THE BOOKS DO NOT ALTER THE REAL NATURE OF COLLECTION AND THE CONTENTION OF THE ASSESSEE THAT THE KENDRAM IS PERSUADING THE BENEFICIARIE S TO 'DONATE' A UNIFORM AMOUNTS OF RS.5,000 PER DAY INDEED IS A VALIAN T ATTEMPT ON ITS PART. HE ALSO OBSERVED THAT THOUGH IT IS TRUE THAT THE STRUCTURE OF KALYANA MANTAPAM IS CREATED FOR THE USE OF GENERAL PUB LIC, WHILE THE OBJECTS SPEAK OF PROVIDING KALYANA MANTAPAM WITHOUT CHA RGING RENT, IN ACTUAL PRACTICE, RENT IS BEING CHARGED IN THE FORM OF D ONATIONS. HE ALSO OBSERVED THAT THE DONATIONS COLLECTED INDEED LEFT A HEF TY PROFIT MARGIN AND HENCE, IT IS NOT CORRECT TO SAY THAT WHAT WAS COLLECTED IS LESS WHEN ITA NO.488/HYD/2007 M/.S. VASAVI SEVA KENDRAM, HYDERABAD. . 3 COMPARED TO DEPRECIATION AND MAINTENANCE COSTS. EVEN CHA RGING OF RENT FROM THE GUEST HOUSE, IS FOUND TO BE NOT IN CONFORMITY WITH THE OBJECTS OF THE SOCIETY. ANALYSING THE LIST OF PERSONS TO WHOM M EDICAL AID WAS PROVIDED, THE ASSESSING OFFICER NOTICED THAT THE ONLY PER SONS BELONGING TO THE NON-VYSYA COMMUNITY TO WHOM MEDICAL AID WAS PR OVIDED ARE ONLY THREE IN NUMBER, AND THEY TOO ARE THE EMPLOYEE S OF THE SOCIETY WHILE REST OF THE BENEFICIARIES ARE ALL FROM VYSYA COMM UNITY ONLY. HENCE, NOT CONVINCED WITH THE ARGUMENTS OF THE ASSESSEE, THE ASSESSING OFFICER, OBSERVING THAT THE PROVISIONS OF S.13(1)(B) AR E ATTRACTED TO THE FACTS OF THE PRESENT CASE, DENIED EXEMPTION UNDER S.11 OF THE ACT, AND COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.19,07,170 , VIDE ORDER OF ASSESSMENT DATED 10.3.2005, PASSED UNDER S.143(3) OF THE ACT. 4. ON APPEAL, THE CIT(A) OBSERVING THAT THERE WAS NO EVIDENCE WITH THE ASSESSING OFFICER FOR PROVING THAT THE FINANCI AL AIDS HAVE BEEN GIVEN EXCLUSIVELY TO PEOPLE FROM VYSYA COMMUNITY AND T HE ASSESSING OFFICER HAS ALSO NOT BROUGHT ON RECORD THAT ALL EXPENSES HAVE BEEN INCURRED EXCLUSIVELY TOWARDS 'VYSYA' COMMUNITY HELD THA T THE ASSESSEE HAS NOT CARRIED OUT CHARITABLE ACTIVITIES EXCLUSIVELY FOR THE BENEFIT OF ANY PARTICULAR CASTE AND CONSEQUENTLY THE ASSESSEE IS ELIGIBLE FO R EXEMPTION UNDER S.11 OF THE ACT. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), REVENUE I S IN APPEAL BEFORE US. 6. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THA T IT IS CLEAR FROM THE ORDER OF ASSESSMENT THAT THERE WAS GLARING EVIDENCE WITH THE ASSESSING OFFICER TO PROVE THAT FINANCIAL AID HAS BEE N GIVEN EXCLUSIVELY TO PEOPLE FROM VYSYA COMMUNITY. IT IS ALSO SUBMITTED THAT ITA NO.488/HYD/2007 M/.S. VASAVI SEVA KENDRAM, HYDERABAD. . 4 NINE OUT OF TEN ALLOTMENTS IN RESPECT OF KALYANA MANTA PAM WITHOUT ANY RENT/DONATION WERE MADE TO PEOPLE FROM VYSYA COMMUNI TY. EVEN THE ARGUMENT OF THE SOCIETY THAT THE SOCIETY IS A CO-SPONSOR OF INDIAN INSTITUTE OF MANAGEMENT AND VASAVI MEDICAL AND RESEARCH CENTRE CAN BE OF NO AVAIL TO THE ASSESSEE, SINCE THEY ARE INDEPENDEN T BODIES THOUGH SOCIETY IS PURELY A CHARITABLE ORGANIZATION AS PE R OBJECTS CLAUSE OF THE SOCIETY, IT IS MEANT FOR A PARTICULAR CASTE/COMMUN ITY, AND AS SUCH THE PROVISIONS OF S.13(1)(B) OF THE ACT ARE ATTRACTED. FURTHER, THE SOCIETY DEVIATED FROM THE MAIN OBJECT AND WAS PROVIDING KALYANA MANTAPAM AND GUEST HOUSE WITHOUT CHARGING MONIES ONLY FO R THE ALLOTTEES BELONGING TO A PARTICULAR CASTE/COMMUNITY. TH E CIT(A) RELIED ON DECISIONS WHICH HAVE NO BEARING TO THE FACTS OF THE PR ESENT CASE. THOSE DECISIONS WERE RENDERED IN THE CONTEXT OF S.4(3)(I ) OF THE INDIAN INCOME TAX ACT, 1922 OR IN RESPECT OF TRUSTS/INSTITUTIONS ESTABLISHED BEFORE THE COMMENCEMENT OF THE INCOME-TAX ACT, 1961. THE CIT(A) OVERLOOKED THE SPECIFIC FINDINGS OF THE ASSESSING OFFICER IN HIS ORDER WHICH CLEARLY ESTABLISH THAT ALL THE BENEFICIARIES WERE SELECTED FROM THE SAME COMMUNITY THROUGH A NET WORK OF PARTICULAR CASTE ASSO CIATIONS LOCATED IN DIFFERENT LOCALITIES. HENCE, THE ASSESSING OFFICER IS JUSTIFIED IN DENYING EXEMPTION UNDER S.11 OF THE ACT FOR THE YEA R UNDER CONSIDERATION. AS SUCH, THE CIT(A) IS NOT JUSTIFIED IN INTERFERING WITH THE ORDER OF THE ASSESSING OFFICER IN THIS BEHALF. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE, REITERATING THE CONTENTIONS URGED BEFORE THE LOWER AU THORITIES SUBMITTED THAT THE MAIN OBJECTS OF THE TRUST ARE NEVER MEANT TO FACILITATE ONLY A PARTICULAR CASTE/COMMUNITY. IN THIS REGARD, HE RELIED ON A DOCUMENT, TITLED AS 'CONSTITUTION' WHICH GOVERNS THE FORMATION A ND FUNCTIONING OF THE TRUST. THE KALYANA MANTAPAM WAS USED BY THE PUBLI C IN GENERAL ITA NO.488/HYD/2007 M/.S. VASAVI SEVA KENDRAM, HYDERABAD. . 5 IRRESPECTIVE OF CASTE/RELIGION TO WHICH ONE MAY BELONG. HE ALSO SUBMITTED THAT THE FINANCIAL ASSISTANCE APPLICATION FORM DOES NOT REVEAL THAT THE APPLICANT SHOULD BE ONLY FROM A SPECIFIC CASTE/ COMMUNITY. HE SUBMITTED THEREFORE, THE PROVISIONS OF S.13(1)(B) OF THE ACT ARE NOT ATTRACTED. HE ALSO RELIED ON THE DECISION OF THE SUPREM E COURT IN THE CASE OF AHMEDABAD RANA CASTE ASSOCIATION V/S. CIT(82ITR 7 04) WHREIN IT WAS HELD THAT TO CONSTITUTE A CHARITABLE PURPOSE, IT IS NOT NECESSARY THAT THE OBJECTS OF THE TRUST SHOULD BE BENEFICIAL TO TH E WHOLE MANKIND OR ALL PERSONS IN THE STATE AND IT IS SUFFICIENT IF THE OBJECTS ARE FOR THE BENEFIT OF SECTION OF THE PUBLIC. HENCE, IT WAS HELD IN THAT CASE THAT THE TRUST CREATED FOR THE BENEFIT OF THE RANA COMMUNITY I S A CHARITABLE TRUST ENTITLED FOR EXEMPTION. LEARNED COUNSEL ALSO RE LIED ON THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF CIT V/S PALAGH AT SHADI MAHAL TRUST (236 ITR 723) IN SUPPORT OF THE ABOVE CONTENTION S. 8. IN REPLY, THE LEARNED DEPARTMENTAL REPRESENTATIV E DISTINGUISHED THE CASE LAW RELIED UPON BY THE LEARNED CO UNSEL. IN THE CASE OF PALAGHAT SHADI MAHAL TRUST (SUPRA), HE SUBMITTED THAT THE TRUST WAS CREATED MAINLY FOR THE BACKWARD COMMUNITY WHICH COVE RS A LARGER SECTION INCLUDING ENTIRE MUSLIM COMMUNITY WHICH IN THE STATE OF KERALA WAS CONSIDERED AS A BACKWARD CLASS BY THE NOTIFICATION OF THE GOVERNMENT. IN SUPPORT OF THIS POINT OF DISTINCTION B ROUGHT OUT BY HIM, HE ALSO INVITED OUR SPECIFIC ATTENTION TO EXPLANATION TO S.13 OF THE ACT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS AN UNDISPUTED FA CT THAT AS PER THE OBJECTS CLAUSE OF THE ASSESSEE-TRUST, THE ASSESSEE HAS TO PROVID E THE KALYANA MANTAPAM WITHOUT CHARGING ANY RENT. IT IS T HE CASE OF THE ASSESSEE THAT IT HAS BEEN IN FACT PROVIDING THE FACILITY W ITHOUT CHARGING ITA NO.488/HYD/2007 M/.S. VASAVI SEVA KENDRAM, HYDERABAD. . 6 ANY RENT. EVEN THE FINDING OF THE ASSESSING OFFICER IS T HAT THE ASSESSEE HAS BEEN COLLECTING DONATIONS AT A UNIFORM RATE OF RS.5, 000 PER DAY, WHICH IS NOTHING BUT THE RENT. IT IS THE CASE OF THE ASSESSE E THAT THE ASSESSEE HAS BEEN CONVINCING THE USERS OF KALYANA MANTAPAM, AS TO THE SERVICES RENDERED, AND PERSUADING THEM TO DONATE THE AM OUNTS IN QUESTION. IN SUPPORT OF HIS INFERENCE THAT THE DONATI ON SO COLLECTED IS NOTHING BUT RENT, ASSESSING OFFICER HAS NOT BROUGHT ON RE CORD ANY SPECIFIC MATERIAL. THE ALLEGATION OF THE ASSESSING OFFICER IN THE CIRCUMSTANCES IS BASED ON MERE SUSPICION, SURMISES AND CONJECTURE S. WITH REGARD TO THE MEDICAL AID ALSO, EVEN THOUGH THE ASSESSING OFFICER HAS NOTED THAT EXCEPT FOR THE EMPLOYEES OF THE ASSESSEE WH O BELONG TO NON-VYSYA COMMUNITY, REST OF THE BENEFICIARIES ARE FROM VYSYA COMMUNITY ONLY, THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY MATERIAL TO POINT OUT THAT THE SERVICES OF THE ASSESSEE TR UST ARE MEANT EXCLUSIVELY FOR THE BENEFIT OF PEOPLE FROM ONE CASTE/COM MUNITY. THE FINDING THAT THE BENEFICIARIES IN A YEAR ARE ONLY FRO M ONE COMMUNITY IS DIFFERENT FROM THE FINDING THAT THE ASSESSEE-TRUST IS MEA NT FOR THE BENEFIT OF ONLY ONE COMMUNITY TO THE EXCLUSION OF THE OTHERS. MERELY BECAUSE THE BENEFICIARIES ARE PREDOMINANTLY FROM ONE CA STE OR COMMUNITY, ASSESSEE CANNOT BE DENIED THE EXEMPTION UNDER S.11 OF THE ACT. UNLESS IT IS FOUND THAT THE BENEFITS OF THE ASSESSEE TRUST ARE MEANT FOR ONLY ONE CASTE/COMMUNITY TO THE EXCLUSION OF THE OTH ERS, ASSESSEE CANNOT BE DENIED THE BENEFIT OF EXEMPTION UNDER S.11 OF THE ACT. IN THE ABSENCE OF ANY CLAUSE IN THE CONSTITUTION OF THE ASSESS EE TRUST COPY OF WHICH IS FILED BEFORE US, AND IN THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SAY THAT THE BENEFIT S OF THE ASSESSEE TRUST ARE MEANT FOR ONLY ONE CASTE/COMMUNITY TO TH E EXCLUSION OF THE OTHERS, THE CIT(A) IN OUR CONSIDERED OPINION IS JUSTIFIED IN GRANTING EXEMPTION UNDER S.11 OF THE ACT TO THE ASSESSEE . IN THIS VIEW ITA NO.488/HYD/2007 M/.S. VASAVI SEVA KENDRAM, HYDERABAD. . 7 OF THE MATTER, WE UPHOLD THE IMPUGNED ORDER OF THE CIT(A) AND REJECT THE GROUNDS OF THE REVENUE IN THIS APPEAL. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE COURT ON 13..11.2009 SD/- SD/- (N.R.S.GANESAN) (AKBER BASHA) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 13TH NOVEMBER, 2009. COPY FORWARDED TO: 1. M/.S. VASAVI SEVA KENDRAM, 6-1-91, VASAVI NAGAR, P OTTI SRI RAMULU MARG, LAKDIKAPUL, HYDERABAD. 2. DY. DIRECTOR OF INCOME-TAX (EXEMPTION)-II, HYDERABA D. 3. CIT(A) VIJAYAWADA 4. COMMISSIONER OF INCOME TAX VIJAYAWADA 5. THE D.R., ITAT, HYDERABAD. B.V.S.