Avadhana Saraswati Peetham, Hyderabad V. DIT, Hyderabad

ITA 496/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61949 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K VISWANATHAM
• Assessee Lawyers: S RAMA RAO
• Keywords: Charitable institution
• Section: 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.496/HYD/2010 : ASSESSMENT YEAR 2009-10 AVADHANA SARASWATI PEETHAM, HYDERABAD ( PAN - AAATA 5272 A ) V/S DIRECTOR OF INCOME - TAX(EXEMPTION) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.RAMA RAO RESPONDENT BY : SHRI K.VISWANATHAM DATE OF HEARING 12.6.2012 DATE OF PRONOUNCEMENT 28.6.2012 O R D E R PER D.KARUNAKARA RAO, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE DIRECTOR OF INCOME-TAX(EXEMPTION) HYDERABAD DAT ED 25.2.2010, REJECTING THE APPLICATION OF THE ASSESSEE IN FORM 1 0G FOR GRANT OF APPROVAL UNDER S.80G(5) OF THE ACT. 2. EFFECTIVE GROUNDS OF THE ASSESSEE IN THIS APPEA L READ AS FOLLOWS- THE ORDER OF THE DIRECTOR OF INCOME-TAX(EXEMPTION) IS BAD IN LAW AND FACTS OF THE CASE. 1. THE ACTION OF THE DIRECTOR OF INCOME-TAX(EXEMPTION) IS ARBITRARY IN REFUSING TO GRANT EXEMPTION U/S. 80G, WITHOUT APPRECIATING THE ACTIVITIES OF THE PEETHAM PROPERLY . 2. YOUR APPELLANT, THEREFORE PRAYS FOR GRANTING EXEMPT ION U/S. 80G AS CLAIMED. 3. DURING THE COURSE OF THE PROCEEDINGS BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE, SHRI S.RAMA RAO READ OUT THE CONTENTS OF THE IMPUGNED ORDER DATED 25.2.2010 OF THE DIRECTOR OF I NCOME- ITA NO.496/HYD/2010 AVADHANA SARASWATI PEETHAM, HYDERABAD 2 TAX(EXEMPTION), HYDERABAD AND MENTIONED THAT THERE ARE ESSENTIALLY 3-4 OBJECTIONS RAISED BY THE DIRECTOR FOR DENIAL OF THE ASSESSEES REQUEST FOR APPROVAL UNDER S.80G OF THE ACT. 4. DEALING WITH THE FIRST OBJECTION OF THE DIR ECTOR OF INCOME- TAX(EXEMPTION) WITH REGARD TO EXPENDITURE ON RELIGI OUS ACTIVITIES OF THE ASSESSEE, HE SUBMITTED THAT THERE IS EXISTENCE OF A SMALL TEMPLE OF GODDESS SARASWATHI IN THE PREMISES OF THE ASSESSEE, AND THE SAME WAS BEING USED BY THE DEVOTEES OF THE LOCALITY. THE DE PARTMENT HAS COME TO A CONCLUSION THAT THE TRUSTS ACTIVITIES INCLUDE ON E OF RELIGIOUS NATURE AND THEREFORE, THE BENEFIT OF THE PROVISIONS OF S.80G S HOULD NOT BE RENEWED. IN THIS REGARD, LEARNED COUNSEL SUBMITTED RELYING O N THE PAPERS FILED BEFORE US IN THE FORM OF PAPER-BOOK THAT THE TEMPLE IN QUESTION IS VERY SMALL IN SIZE AND THE SAME WAS NOT CONSTRUCTED BY T HE TRUST, AS EVIDENT FROM THE BALANCE SHEET AND FIXED ASSETS SCHEDULE. H E FURTHER MENTIONED THAT THE SAID TEMPLE WAS CONSTRUCTED BY THE LOCAL D EVOTEES FOR THEIR USE, AND OF COURSE, THE TRUST MERELY PERMITTED THE ERECT ION OF THE TEMPLE ON THE PREMISES BELONGING TO THE ASSESSEE-TRUST. HE M ENTIONED THAT THE VALUE OF THE SAID LAND IS VERY MEAGER AND THAT COUL D BE COVERED BY THE PROVISIONS OF EXPLANATION (I) TO S.80G OF THE ACT. 5. FURTHER, REFERRING TO THE JEWELLERY OF RS.4,21 ,753 MEANT FOR DRESSING UP OF GODDESS SARASWATHI, LEARNED COUNSEL MENTIONED THAT THE SAME IS ALSO SMALL VIS-A-VIS THE SIZE OF THE FUNDS AVAILABLE IN THE CAPITAL ACCOUNT OF THE ASSESSEE WHICH REFLECTS A BALANCE OF RS.2,63,67,977. BOTH THE AMOUNTS PUT TOGETHER SHOWED LESS THAN 5% OF THE CAPITAL OF THE TRUST. FURTHER, HE CONCLUDED BY STATING THAT THE A BOVE ARGUMENTS ON THE APPLICABILITY OF CLAUSE (II) OF EXPLANATION 2 OF S. 80G AND THE RESTRICTION OF 5% MENTIONED IN THE CAPITAL OF THE TRUST PROVIDED THEREIN, WHICH WERE NOT RAISED OR CONSIDERED BY THE DIRECTOR OF INCOME- TAX(EXEMPTION), HYDERABAD, AND HENCE THE MATTER CAN NOW BE REFERRED BACK TO THE FILE OF ITA NO.496/HYD/2010 AVADHANA SARASWATI PEETHAM, HYDERABAD 3 THE DIRECTOR OF INCOME-TAX(EXEMPTION), FOR RE-ADJUD ICATION OF THE MATTER AFRESH IN THE LIGHT OF THE SAID EXPLANATION AND AFT ER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE MENTIONED BY STATING THAT THE RELATIONSHIP OF 5% VI S--VIS CAPITAL ACCOUNT NEEDS TO BE EXAMINED IN THE YEAR IN WHICH SUCH INVE STMENT VIS-A-VIS THE SIZE OF CAPITAL ACCOUNT OF THAT YEAR. 7. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS ON THESE ASPECTS OF THE MATTER, WE FIND MERIT IN THE ABOVE A RGUMENTS OF THE PARTIES AND THEREFORE, WE CONSIDER IT PROPER THAT T HESE MATTERS SHOULD BE SET ASIDE TO THE FILES OF THE DIRECTOR OF INCOME-TA X(EXEMPTION) FOR FRESH EXAMINATION OF THE ABOVE ARGUMENTS AND COUNTER ARGU MENTS, IN ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPP ORTUNITY OF HEARING TO THE ASSESSEE. 8. FURTHER, REFERRING TO THE ALLEGATION AS TO TH E APPLICABILITY OF CLAUSE (B) OF SUB-SECTION 2 OF S.13, UNDER THE HEA DING S.11 NOT TO APPLY FOR CERTAIN CASES , LEARNED COUNSEL MENTIONED THAT THE DIRECTOR OF IN COME- TAX(EXEMPTION) REJECTED THE REQUEST FOR RENEWAL OF APPROVAL UNDER S.80G STATING THAT THE TRUST PREMISES WAS GIVEN ON RENT T O DR.MADUGULA NAGA PHANI SHARMA, WITHOUT CHARGING ADEQUATE COMPENSATIO N. IN THIS REGARD, THE LEARNED COUNSEL SUBMITTED THE FACT THAT SHRI S HARMA IS CHAIRMAN OF THE TRUST, WHICH IS MAINLY ENGAGED IN CONDUCTING ME MORY CLASSES FOR THE OBJECTS OF THE TRUST. FURTHER, HE MENTIONED THAT SR I SHARMA IS AN AVADHANI AND HE SPENDS MOST OF HIS TIME WITH THE TR UST IN CONDUCTING SUCH MEMORY CLASSES IMPARTING HIS KNOWLEDGE TO THE STUDENTS WHO HAVE ENROLLED WITH THE TRUST FOR THE SAID PURPOSES. HE RENDERS SERVICES TO THE TRUST WITHOUT CHARGING ANY FEE. IN THIS REGARD, LE ARNED COUNSEL MENTIONED THAT SERVICES RENDERED BY DR.SHARMA SHOUL D BE DEEMED AS ITA NO.496/HYD/2010 AVADHANA SARASWATI PEETHAM, HYDERABAD 4 OTHER COMPENSATION EXPRESSED IN SAID CLAUSE (B) OF SUB-SECTION (2) OF S.13 OF THE ACT. HE FURTHER ARGUED STATING THAT CH ARGING FEE BY SHRI SHARMA FROM THE TRUST FOR CONDUCTING CLASSES, AND O FFERING RENT FOR THE PREMISES TAKEN ON RENT WOULD BE DEEMED AS ADEQUATE CONSIDERATION OR OTHER COMPENSATION. FURTHER IN THIS REGARD, LEARNE D COUNSEL MENTIONED THAT THIS KIND OF CALCULATIONS IN FACT WERE NOT MEN TIONED BY THE TRUST DEED. IN REALITY, IT DOES NOT MAKE ANY DIFFERENCE, AS LONG AS THE TRUST IS NOT PUT TO ANY LOSS, IF THE CHARGES ARE PAID ON EQU ITABLE BASIS BY THE TRUST TO SHRI SHARMA VIS--VIS THE RENTS PAYABLE BY HIM F OR THE PREMISES TAKEN BY HIM ON HIRE. 9. AFTER HEARING IN REPLY, THE LEARNED DEPARTMENT AL REPRESENTATIVE ON THIS ASPECT OF THE OBJECTION RAIS ED BY THE DIRECTOR OF INCOME-TAX(EXEMPTION) IN THE IMPUGNED ORDER, WE FI ND MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE. T HIS ISSUE ALSO, IN OUR VIEW, MAY BE SET ASIDE TO THE FILE OF THE DIRECTOR OF INCOME- TAX(EXEMPTION), FOR EXAMINING THE SAID ARGUMENT OF THE ASSESSEE, BY ASCERTAINING THE RENTAL INCOME THAT THE TRUST WOULD HAVE RECEIVED FROM SHRI SHARMA VIS--VIS THE CHARGES THAT WOULD HAVE T O BE PAID BY THE TRUST TO SHRI SHARMA FOR THE SERVICES RENDERED BY HIM TO THE TRUST IN CONDUCTING THE CLASSES. THE DIRECTOR OF INCOME-TAX (EXEMPTION) SHOULD ALSO ESTIMATE THE RENT PAYABLE BY SHRI SHARMA TO T HE TRUST AFTER HEARING THE ASSESSEE. THE ASSESSEE IS DIRECTED TO SUBMIT RE QUISITE CALCULATIONS OF RENT PAYABLE BY SHRI SHARMA AND THE NATURE OF SERVI CES RENDERED BY HIM. THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE DIRE CTOR OF INCOME- TAX(EXEMPTION). 10. REFERRING TO THE THIRD OBJECTION OF THE DIRE CTOR OF INCOME- TAX(EXEMPTION) IN THE IMPUGNED ORDER, ABOUT DENIAL OF DEDUCTION, INSTEAD OF EXEMPTION IN RESPECT OF ITS INCOME IN IT S ENTIRETY, FOR VIOLATION OF S.13(2)(B) OF THE ACT, LEARNED COUNSEL MENTIONED THAT THIS ISSUE IS ITA NO.496/HYD/2010 AVADHANA SARASWATI PEETHAM, HYDERABAD 5 CONSEQUENTIAL TO THE ASPECT RELATING TO VIOLATION OF PROVISIONS OF S.13(2)(B ) OF THE ACT, AND IN VIEW OF OUR FINDINGS HEREINABOVE ON THAT ISSUE, ON THIS ASPECT ALSO, IMPUGNED ORDER OF THE D IRECTOR OF INCOME- TAX(EXEMPTION) IS SET ASIDE, AND THE MATTER IS REST ORED TO HIS FILE FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW, AND IN CONSONA NCE WITH THE VIEW THAT HE MAY TAKE ON OTHER ASPECTS RESTORED TO HIS FILE, AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 11. THE LAST ISSUE RAISED BY THE ASSESSEE RELATES TO THE DIRECTOR OF INCOME-TAX(EXEMPTION)S FINDING IN PARA 3(IV) OF TH E ACT. THE SAID PARA READS AS UNDER- 3 (IV) FURTHER, THE ASSESSEE IS ALSO CARRYING ON THE BUSINESS IN THE TRUST PREMISES. THE TRUST IS SELLING MEDICINES, BOO KS & COMPACT DISCS. THE SAID SALE PROCEEDS ARE REFLECTED IN THE P&L ACCOUNT FOR THE FINANCIAL YEAR ENDED ON 31.03.2009. THE ACTIVIT Y OF SELLING CDS, MEDICINES AND BOOKS IS SYSTEMATIC AND IS IN THE NAT URE OF BUSINESS. THUS, THE ASSESSEE IS ALSO COVERED BY THE PROVISO TO SECTION 2(15) OF THE I.T. ACT. THUS, THE ASSESSEE IS NOT A CHARITABLE INSTITUTION, WHICH IS A PRE-REQUISITE FO R ACCORDING RECOGNITION U/S. 80G. IN THIS REGARD, LEARNED COUNSEL MENTIONED THAT THE SALE CDS, MEDICINES, ETC. ARE INTRINSICALLY LINKED CONNECTED WITH THE TR UST ACTIVITY OF TEACHING AND CONDUCTING MEMORY CLASSES AND GIVING PERIODICAL INFORMATION. THEREFORE, THE SAID BUSINESS ACTIVITY SHOULD NOT BE SEEN IN ISOLATION OR AS A STAND-ALONE ACTIVITY OF BUSINESS NATURE. THEREFO RE, THE DIRECTOR OF INCOME-TAX(EXEMPTION) HAS ERRED IN INVOKING THE PRO VISIONS OF PROVISO TO S.2(15) OF THE ACT. IN THIS REGARD, LEARNED COUNSE L PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE TRIBUNAL, AND SUBMITTED THAT CARRYING ON OF INCIDENTAL ACTIVITIES OF SALE OF TEACHING MATERIAL, MEDICINES ETC. WHICH TOO PROMOTE THE OBJECTS OF THE TRUST, WOULD NOT IN ANY WAY EFFECT THE CHARITABLE NATURE OF THE ASSESSEE TRUST. ITA NO.496/HYD/2010 AVADHANA SARASWATI PEETHAM, HYDERABAD 6 (A) ITO V/S. LOKMANYA SHIKSHA SAMITI (ITA NO.639/IND/20 06) (2008)3 DTR 452-IND. (B) ITO V/S. BRAHMAN KARYALAYA (73 ITD 456)-PUNE (C) PRASANNA TRUST V/S. DIRECTOR OF INCOME-TAX(EXEMPTI ON) (36 SOT 135)-BANG. A COPY EACH OF THE ABOVE DECISIONS OF THE TRIBUNAL HAVE ALSO BEEN FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US, ALO NGWITH WRITTEN SUBMISSIONS FILED IN SUPPORT OF THE CASE OF THE ASS ESSEE 12. WE HEARD BOTH SIDES AND PERUSED THE MATERIAL A VAILABLE ON RECORD, IN RELATION TO THIS OBJECTION OF THE DIRECT OR OF INCOME- TAX(EXEMPTION). THERE IS NO MATERIAL FACT TO KNOW THE CONTENTS OF THE SAID CDS AND OTHER MATERIALS BEING SOLD. FOR WANT OF THESE PRIMARY FACTS, WE SET ASIDE THE RELEVANT PORTIONS OF THE IMPUGNED ORDER OF THE DIRECTOR OF INCOME-TAX(EXEMPTION) AND RESTORE THE MATTER TO HIS FILE FOR FRESH ADJUDICATION, AFTER DULY CONSIDERING THE RATIO OF THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL BEFORE US AND NOTED ABOVE, I N ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 13. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 28.6.2012 SD/- SD/- (SAKTIJIT DEY) (D.KARUNAKARA RAO) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 28TH JUNE 2012 ITA NO.496/HYD/2010 AVADHANA SARASWATI PEETHAM, HYDERABAD 7 COPY FORWARDED TO: 1. 2. 3 4. AVADHANA SARASWATI PEETHAM, SURFVEY NO.42, KHANAMET , SARADABAD, NCA RAOD, HITECH CITY, HYDERABAD DIRECTOR OF INCOME-TAX(EXEMPTION) HYDERABAD DY. DIRECTOR OF INCOME-TAX(EXEMPTION), HYDERABAD DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD B.V.S.