M/s Association for welfare of poor & handicapped, Calicut V. CIT, Calicut

ITA 503/COCH/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4572 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 18-01-2011
• Assessment Year: misc
• Appeal Filed On: 01-10-2009
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Competent authority
• Section: 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NO. 503/COCH/2009 ASSESSMENT YEAR: NOT APPLICABLE M/S. ASSOCIATION FOR WELFARE OF POOR AND HANDICAPPED, PUTHIYARA, CALICUT [PAN:AACTA 3692G] VS. THE COMMISSIONER OF INCOME TAX, AYAKAR BHAVAN, NORTH BLOCK, KOZHIKODE-673001. (ASSESSEEAPPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY DR. K.B. MOHAMMED KUTTY, SR. ADVOCATE REVENUE BY SHRI T.J.VINCENT, DR O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX, CALICUT U/S. 12AA(1)(B)(II) OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER), REJECTING THE ASSESSEES APPLICATION FOR GRANT OF REGISTRATIO N. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE-APPELLANT IS A SOCIETY REGISTERED WITH THE DISTRICT REGISTRAR, KOZHIKODE UNDER THE SO CIETIES REGISTRATION ACT, 1860 ON 25.6.2008. IT APPLIED FOR REGISTRATION U/S. 12AA OF THE ACT ON 13.1.2009, FILING ALONGWITH ITS AUDITED ACCOUNTS FOR FINANCIAL YEAR (F.Y. 2005- 06) DATED 10.11.2008. THE LD. CIT OBSERVED THAT THE FIRST OBJECT OF THE OBJECT CLAUSE OF THE APPLICANT-SOCIETY PROVIDED FOR ESTABLISHING AND MAINTENANCE OF EDUCATIONAL INSTITU TIONS FOR PROVIDING BETTER EDUCATION TO THE MUSLIM MINORITY COMMUNITY AND FOR THE UPLIFTMEN T, THEREBY, OF ITS MORAL, SOCIAL AND ECONOMIC STATUS. HE, ACCORDINGLY, WAS OF THE VIEW THAT THE SOCIETY IS SET UP FOR THE BENEFIT OF THE MUSLIM COMMUNITY AND, THUS, HIT BY S . 13(1)(B), AS THE MUSLIM COMMUNITY, THOUGH MAY BE BACKWARD IN KERALA IS NOT SO GENERALL Y, AS HELD BY THE APEX COURT IN THE CASE OF CIT V. PALGHAT SHADI MAHAL TRUST (2002) 254 ITR 212 (SC). THE REGISTRATION SOUGHT WAS, THEREFORE, DENIED. AGGRIEVED, THE ASSE SSEE IS IN APPEAL. ITA NO.503 /COCH/2009 2 3.1 BEFORE US, ELABORATE ARGUMENTS WERE ADVANCED BY THE LD. AR. THE LD. CIT HAS BASED HIS CONCLUSION OF THE APPLICANT-SOCIETY BEING ESTABLISHED FOR THE BENEFIT OF THE MUSLIM COMMUNITY ONLY ON THE BASIS OF CL. 5(A) OF T HE OBJECT CLAUSE (5) OF ITS MEMORANDUM OF ASSOCIATION (MOA). A MERE BROWSE OF T HE OTHER OBJECT CLAUSES, I.E., CL. 5(B) THROUGH CL. 5(K), WOULD SHOW WITHOUT DOUBT THA T THE SOCIETY IS PURELY CHARITABLE OPEN TO ALL, IRRESPECTIVE OF CASTE AND CREED, EVEN AS PR OVIDED BY CLAUSE 5(K). A DOCUMENT, IT IS TRITE, HAS TO BE READ AS A WHOLE. THE LD. CIT HAD, HE CONTINUED, BY OVERLOOKING AND IN DISREGARD OF THE OTHER OBJECT CLAUSES OF THE SOCIET Y, EQUALLY VALID AND APPLICABLE, ERRED IN LAW AND ON FACTS, ALSO INVOKING THE DOCTRINE OF CYP RESS, FOR WHICH HE ADVERTED TO THE DECISION IN THE CASE OF CIT VS. KAMLA TOWN TRUST AIR 1996 (SC) 620. FURTHER, EVEN CONSIDERING CLAUSE 5(A), I.E., ON A STAND-ALONE BAS IS, THE TRUST COULD NOT, ON THAT SCORE, BE REGARDED AS NON-CHARITABLE, AS STANDS ACCEPTED PER A NUMBER OF DECISIONS, VIZ. CIT VS. AHMEDABAD RANA CASTE ASSOCIATION (1971) 82 ITR 704; CIT V. BAR COUNCIL OF MAHARASHTRA (1981) 130 ITR 28 (SC); CIT VS. ANDHRA CHAMBER (1965) 55 ITR 722 (SC); CIT V . SOCIAL SERVICE CENTRE (2001) 250 ITR 39 (AP). THIRDLY, THE SCOPE OF THE POWER WITH THE CIT U/S. 12AA IS LIMITED TO EXAMININ G THE GENUINENESS OF THE ACTIVITIES, I.E., WHETHER THE APPLICANT IS A SHAM ENTITY OR FUN CTIONING FOR THE DECLARED PURPOSE(S), AND THAT HE HAS NO JURISDICTION TO EXAMINE WHETHER THE OBJECT CLAUSE IS CHARITABLE OR NOT. FURTHER, THE MUSLIM COMMUNITY IS BACKWARD IN GENERA L AND, THEREFORE, THE RELIANCE ON THE DECISION IN THE CASE OF PALGHAT SHADI MAHAL TRUST (SUPRA) IS MISPLACED. FINALLY, THE IMPUGNED ORDER STANDS PASSED WITHOUT GIVING A PROPO SAL NOTICE TO REJECT THE APPLICATION, SO THAT THERE HAS BEEN A CLEAR VIOLATION OF THE PRI NCIPLES OF NATURAL JUSTICE, AS WELL AS OF THE PROVISIONS OF S. 12AA OF THE ACT. 3.2 THE LD. DR, ON THE OTHER HAND, RELIED ON THE IM PUGNED ORDER, STATING IT TO BE COGENT AND BASED ON A CLEAR FINDING, WHICH STANDS UNREBUTT ED. IT IS CLEAR THAT THE OBJECT CLAUSE 5(A) EXTENDS NOT ONLY TO THE MUSLIM COMMUNITY IN KE RALA, OR TO THE BACKWARD CLASSES THEREIN, BUT TO ALL OF THEM, AND WHICH CANNOT BE RE GARDED AS BACKWARD IN GENERAL, FOR THE ASSESSEE TO CONTEND OF IT BEING SAVED BY THE EXCLUS ION OF EXPLANATION 2 TO S. 13, CARVING OUT AN EXCEPTION TO S. 13(1)(B) IN RESPECT OF SCHED ULE CASTES, SCHEDULE TRIBES, BACKWARD ITA NO.503 /COCH/2009 3 CLASSES OR WOMEN AND CHILDREN. THE ASSESSEE, AS IT WOULD APPEAR, IS AGGRIEVED NOT BY THE CONTENTS OF THE IMPUGNED ORDER, BUT BY ITS MODE AND MANNER. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, INCLUDING THE CASE LAW CITED. 4.1 WE SHALL PROCEED TO CONSIDER THE CORE ISSUE ARISING FOR OUR CONSIDERATION AND ADJUDICATION IN THE PRESENT CASE. THAT IS, WHETHER , GIVEN CLAUSES 5(A) TO 5(K) OF THE MOA, COULD IT BE SAID THAT THE APPLICANT-INSTITUTION IS CREATED OR ESTABLISHED FOR THE BENEFIT OF ANY PARTICULAR RELIGIOUS COMMUNITY OR CASTE, I.E., THE DISQUALIFYING CRITERION SPECIFIED U/S. 13(1)(B). THIS IS AS THE MUSLIM COMMUNITY, BEING A CLASSIFICATION BASED ON RELIGION/RELIGIOUS IDENTITY, WOULD STAND TO BE COVE RED BY THE SAME. FOR THIS, THE ASSESSEE RELIES ON THE BASIC PRINCIPLE OF INTERPRETATION, I. E., THAT A DOCUMENT, WHERE RELIED UPON, HAS TO BE READ AS A WHOLE AND, SECONDLY, THE DECISIONS BY THE HIGHER COURTS (IN APPARENT REFERENCE TO THE DECISION IN THE CASE OF CIT VS. PALGHAT SHADI MAHAL TRUS T (SUPRA)), ARE NOT BE CONSTRUED AND READ AS THESE WERE STATUTES. F URTHER, THE COURTS SHOULD NOT PLACE RELIANCE ON DECISIONS WITHOUT DISCUSSING AS TO HOW THE FACT SITUATION OF THE DECISION ON WHICH RELIANCE IS PLACED FITS WITH THE FACT SITUATI ON OF THE CASE BEING DECIDED (BHARAT PETROLEUM CORPORATION LTD. VS. N.R. VAIRAMANI AND A NR. , AIR 2004 SC 4778). THE DECISION IS AN AUTHORITY FOR WHAT IT ACTUALLY DECID ES, AND NOT WHAT LOGICALLY FLOWS FROM IT ( AMBICA QUARRY WORKS VS. STATE OF GUJARAT AND OTHERS (1987) 1 SCC 213, PARA 8). 4.2 WE FIND FORCE IN THE ARGUMENT OF THE ASSES SEE. IT IS WELL-SETTLED THAT THE CHARACTER OF THE INSTITUTION/TRUST, WHICH IS TO BE DETERMINED TO DECIDE THE ISSUE AT HAND, I.E., OF IT BEING DISQUALIFIED U/S. 13(1)(B) OR NOT, IS TO BE G ATHERED AND DISCERNED BY READING THE DOCUMENT AS A WHOLE. IF, ON THE BASIS THEREOF, IT E MERGES THAT THE DOMINANT CHARACTER IS TO SERVE A PARTICULAR RELIGIOUS COMMUNITY OR CASTE, I. E., ITS DENOMINATIONAL CHARACTER IS NOT SECULAR, IT WOULD, SUBJECT TO THE SAVING BY EXPLANATION 2 TO S. 13, STAND TO BE DISQUALIFIED THEREUNDER. FURTHER, THE RATIO OF ANY DECISION IS T O BE UNDERSTOOD IN THE BACKGROUND OF THE FACTS OF THAT CASE, AND THAT A LITTLE DIFFERENCE OR ONE ADDITIONAL FACT COULD MAKE A LOT OF DIFFERENCE IN THE PRECEDENT VALUE OF THE DECISION ( BHAVANAGAR UNIVERSITY VS. PALITANA SUGAR MILLS PVT. LTD. (2003) 2 SCC 111, PARA 59). ITA NO.503 /COCH/2009 4 4.3 WE SHALL PROCEED FURTHER BY EXAMINING THE FAC TS IN THE CASE OF PALGHAT SHADI MAHAL TRUST (SUPRA), BEING RELIED UPON BY THE REVENUE. THE TR UST IN THE SAID CASE WAS CREATED FOR THE PURPOSE OF ESTABLISHING INSTITUTION/S FOR T HE EDUCATIONAL, SOCIAL AND ECONOMIC ADVANTAGE OF MUSLIMS, AND FOR THE RELIGIOUS AND CHA RITABLE OBJECTS RECOGNISED BY MUSLIM LAW, VIDE A TRUST DEED DATED APRIL 14, 1975. VIDE A GENERAL BODY MEETING DATED APRIL 20, 1975, SEEKING TO CLARIFY THE CLAUSE IN THE TRUS T DEED REGARDING THE PURPOSE OF THE TRUST, IT WAS RESOLVED THAT THE INCOME OF THE TRUST, AS WE LL THE BUILDING PROPOSED TO BE ERECTED BY IT, SHALL BE MADE AVAILABLE TO ALL, IRRESPECTIVE OF RELIGION, CASTE OR CREED. THE TRIBUNAL AND THE HONBLE JURISDICTIONAL HIGH COURT DECIDED IN FA VOUR OF THE ASSESSEE ON THE BASIS THAT THE MUSLIM COMMUNITY WAS NOTIFIED AS BACKWARD IN KERALA . IN APPEAL, THE APEX COURT REVERSED THE SAME, HOLDING THAT THERE WAS NO LIMITA TION IN THE TRUST DEED IN REGARD TO WHICH MUSLIMS CAN AVAIL OF THE BENEFIT OF THE TRUST , SO THAT IT COVERED MUSLIMS ALL OVER THE WORLD, AND NOT ONLY IN KERALA, WHEREAT ONLY THE Y WERE A BACKWARD COMMUNITY. THE BENEFIT OF EXPLANATION TO THE SECTION WOULD, THEREFORE, NOT BE AVAILABLE. THE GENERAL BODY RESOLUTION DID NOT DECIDE THE MEANING AND SCOP E OF A CLAUSE OF THE TRUST DEED, BUT WAS AN ATTEMPT TO CHANGE THE OBJECTS OF THE TRUST, SO THAT THE BENEFIT THERE-UNDER IS MADE AVAILABLE TO ALL COMMUNITIES. THE SAME ONLY AMOUNT S TO AN ALTERATION OF THE TRUST DEED, WHICH COULD BE DONE ONLY BY MEANS OF AN AMENDMENT T HERETO BY THE SETTLORS. FINALLY, THE CONTENTION THAT THE TRUST INURES ONLY FOR THE BENEF IT OF THE RESIDENTS OF THE LOCALITY, AND IS SO USED, WAS ALSO FOUND UNACCEPTABLE, AS THE SAME I GNORED THE OBJECTS OF THE TRUST AS SET- OUT IN THE TRUST DEED. 4.4 IN THE INSTANT CASE, THE OBJECT CLAUSE OF THE T RUST IS SET OUT IN TEN DIFFERENT SUB- CLAUSES, I.E., CLS. 5(A) TO 5(K), ALL OF WHICH, EXC EPT CL. 5(A), ARE IN AGREEMENT WITH THE CONDITION OF THE GRANT OF EXEMPTION UNDER S. 11 R/W S. 13(1)(B). COULD IT THEREFORE BE SAID THAT THE TRUST IS SET-UP OR ESTABLISHED FOR THE BEN EFIT OF A PARTICULAR RELIGIOUS COMMUNITY OR CASTE ? IT IS TRITE THAT SUCH A FINDING IS TO BE BASED ON THE DOMINANT CHARACTER AS IT EMANATES AND IS DISCERNED ON THE READING THE CONSTI TUTING OR THE DEFINING DOCUMENT IN ITS ENTIRETY, I.E., AS A WHOLE. IT COULD BE ARGUED THA T THE TRUST MAY, AND PERFECTLY IN TERMS OF ITS CHARTER, LIMIT OR CONFINE ITSELF TO AN ACTIVITY , OR SET OF ACTIVITIES, IN PURSUANCE OF ITS OBJECT CLAUSE 5(A), OR, IN ANY CASE THE SAME MAY CO NSTITUTE ITS PRINCIPAL ACTIVITY AND, THUS, ITA NO.503 /COCH/2009 5 OBJECT. AND, IN WHICH CASE, IT WOULD STAND TO CLAIM EXEMPTION U/S. 11, EVEN AS IT IS ACTUALLY HIT BY S. 13(1)(B). IN THIS REGARD, WE CON SIDER THAT, FIRSTLY, ON THE BASIS OF THE CONSTITUTING DOCUMENT, DELINEATING THE OBJECTS OF T HE TRUST, IT IS NOT POSSIBLE TO SAY THAT ANY ONE OF THE TEN OBJECTS SET OUT IN THE DIFFERENT SUB-CLAUSES OF THE OBJECT CLAUSE (5) OF THE MOA CONSTITUTES THE PRINCIPAL OBJECT OF THE TRU ST, FOR WHICH IT COULD BE SAID TO BE, IN THE MAIN, CREATED. AS REGARDS THE POSSIBILITY OF TH E SAME, I.E., OF THE DISQUALIFYING OBJECT CONSTITUTING ITS ONLY OR PRINCIPAL ACTIVITY, AN OPP OSITE ARGUMENT, COULD BE EQUALLY VALIDLY TAKEN. JUST AS IT IS POSSIBLE FOR THE TRUST TO ESTA BLISH AN EDUCATIONAL INSTITUTION U/CL. 5(A), IT IS EQUALLY POSSIBLE FOR IT TO UNDERTAKE ACTIVITIES THAT FALL EXCLUSIVELY UNDER ONE OR MORE CLAUSES OF CL. (5), I.E., EXCEPT CL. 5(A), OR CL. 5 (B) TO CL. 5(K). WOULD IT, IN THAT CASE, BE POSSIBLE TO STATE THAT THE SAID INSTITUTION OR THE ASSESSEESOCIETY IS ESTABLISHED FOR THE BENEFIT OF A PARTICULAR RELIGIOUS COMMUNITY, SO AS TO ATTRACT S. 13(1)(B) ? PUT DIFFERENTLY, THE PROPOSITION ADVANCED IS DE HORS THE LEGAL REQUIREMENT, AND NOT PERMISSIBLE. WITHOU T DOUBT, IF THE OBJECT CLAUSE 5(A) WAS FOUND TO BE DE FINING THE CHARACTER OF THE TRUST, IT, RESERVING THEREBY THE POWER TO ITSELF TO UNDERTAKE A PROSCRIBED ACTIVITY, THE RIGOUR OF S. 13(1)(B) WOULD STAND ATTRACTED EVEN IF THE TRUST DI D NOT ACTUALLY ENGAGE IN SUCH AN ACTIVITY. HOWEVER, AS AFORE-NOTED, CLAUSE 5(A) CANNOT BE SAID TO BE A DOMINANT OBJECT OR OTHERWISE DEFINITIVE OF THE DENOMINATIONAL CHARACTER OF THE A PPELLANT TRUST. IT IS ALSO TO BE BORNE IN MIND THAT THE QU ESTION BEFORE THE APEX COURT IN THE CASE OF CIT V . PALGHAT SHADI MAHAL TRUST (SUPRA) WAS THE GRANT OF EXEMPTION U/S. 11, WHILE THE INSTANT CASE IS ONE OF GRANT OF REGISTRATION UNDER SECTION 12A, A PRE-REQUISITE FOR THE APPLICATION OF SS. 11 AND 12, SO THAT ITS NON-GRANT WOULD MEAN SHUTTING OUT THE DOORS ON AN INSTITUTION, ALL THE OBJECTS OF WHICH ARE CHARIT ABLE, AND ALL BUT ONE (CL. 5(A)), HIT BY S. 13(1)(B), SO AS TO DENY IT EXEMPTION U/S. 11 FOR AL L TIME IN FUTURE. IN OTHER WORDS, GRANT OF REGISTRATION DOES NOT IN ANY MANNER LEAD TO AN AUTO MATIC EXEMPTION U/S. 11, EACH OF THE CONDITIONS OF WHICH, INCLUDING S. 13(1)(B), WOULD W ARRANT SATISFACTION. FOR EACH YEAR, IT SHALL BE INCUMBENT ON THE ASSESSEE TO JUSTIFY ITS C LAIM U/S. 11, IMPLYING NON-APPLICATION OF S. 13(1)(B), EVEN AS THE APPLICATION OF THE PROVISI ON FOR ANY YEAR WOULD LEAD TO THE DENIAL OF EXEMPTION U/S. 11 ON ITS ENTIRE INCOME CLAIMED E XEMPT. EACH OF THE OBJECTS OF THE ASSESSEE-SOCIETY, INCLUDING CL. 5(A), IS A CHARITAB LE OBJECT U/S. 2(15), AND THE REVENUE WOULD BE, THEREFORE, PERFECTLY WITHIN THE PARAMETER S OF LAW, IN ALLOWING IT REGISTRATION U/S. ITA NO.503 /COCH/2009 6 12A, ENABLING IT TO MAKE A CLAIM(S) AS EXIGIBLE TO IT UNDER THE LAW. THERE CAN BE NO PRESUMPTION IN LAW THAT THE ASSESSEE WOULD MAKE A W RONG CLAIM(S) IN FUTURE, AND DENY IT AN OPPORTUNITY TO MAKE LEGALLY VALID CLAIMS ON THAT SCORE. THE MACHINERY PROVISIONS IN LAW ARE ADEQUATE TO MEET ANY SUCH/EMERGING SITUATIO N, WHICH CANNOT BE MADE THE BASIS FOR THE DENIAL OF REGISTRATION. IT DOES NOT REQUIR E, AS A MATTER OF LAW, A POSITIVE FINDING AS TO NON-APPLICATION OF THE S. 13(1)(B) FOR THE PURPO SE. THIS IS AS THE LAW RECOGNISES THAT THE OBJECTS, WHILE REMAINING CHARITABLE PER SE , COULD YET LEAD TO THE ATTRACTION OF S. 13(1)(B). NO DOUBT, IN THE CITED CASE TOO, A CONTENTION OF TH E ACTUAL WORKING OF THE TRUST AS NOT LEADING TO ATTRACTION OF S. 13(1)(B) WAS RAISED, ST ATING THAT IT INURED TO ALL THE RESIDENTS OF THE AREA WITHOUT DISTINCTION. HOWEVER, THIS CONTEN TION, WHICH WAS NOT BACKED BY ANY ACTUAL FINDING BY THE TRIBUNAL, WAS FOUND TO BE DE HORS THE OBJECT CLAUSE OF THE TRUST, WHICH REMAINED UNALTERED. IN THE PRESENT CASE, THE ASSESSEEAPPLICANT COULD VALIDLY MAKE SUCH A CLAIM, I.E., OF ITS ACTIVITIES BEING IN PURS UANCE TO CLS. 5(B) TO 5(K), SO THAT IT IS, IN FACT, NOT ESTABLISHED OR CREATED FOR THE BENEFIT OF A PARTICULAR RELIGIOUS MINORITY, SO AS TO BE HIT BY S. 13(1)(B). THE SAID CASE IS, THUS, DIS TINGUISHABLE ON FACTS. 5. IN VIEW OF THE FOREGOING, IT CANNOT BE SA ID THAT THE ASSESSEE-TRUST IS CREATED OR ESTABLISHED FOR THE BENEFIT OF ANY PARTICULAR RELIG IOUS COMMUNITY OR CASTE, SO AS TO BE HIT BY S. 13(1)(B) OF THE ACT. ITS CLAIM FOR REGISTRATI ON U/S. 12A IS THUS VALID, AND STANDS WRONGLY DENIED BY THE COMPETENT AUTHORITY. THE REVE NUE WOULD, NEVERTHELESS, BE AT FULL LIBERTY TO EXAMINE THE ASSESSEES CLAIM FOR EXEMPTI ON U/S. 11, FOR THE SATISFACTION OF THE CONDITIONS OF THE SAME, INCLUDING WITH REFERENCE TO ITS ACTIVITIES, FROM YEAR TO YEAR. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. . SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 29TH APRIL, 2011 GJ COPY TO: ITA NO.503 /COCH/2009 7 1. ASSOCIATION FOR THE WELFARE OF POOR AND HANDICAP PED, PUTHIYARA, CALICUT 2. THE COMMISSIONER OF INCOME TAX, AYAKAR BHAVAN, N ORTH BLOCK, KOZHIKODE-673001. 3. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 4. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR)