Sree Karunakaran Charitable Trust, Alappuzha V. CIT, Kottayam

ITA 538/COCH/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0987 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 18-12-2012
• Assessment Year: misc
• Appeal Filed On: 21-07-2011
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Charitable institution
• Section: 80G; 12A; 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 538/COCH/2011 & 557/COCH/2009 ASSESSMENT YEAR : - SREE KARUNAKARAN CHARITABLE TRUST, SHANTI BHAVAN, ALEPPEY-688 001. [PAN:AAATS 7075B] VS. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY DR. ANITA SUMANTH, ADV. REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 18/12/2012 DATE OF PRONOUNCEMENT 15/02/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BY FILING THESE APPEALS, THE ASSESSEE IS CHALL ENGING THE SEPARATE ORDERS PASSED BY THE LD. CIT, KOTTAYAM REFUSING TO GRANT RENEWAL OF APPROVAL U/S. 80G(5)(VI) OF THE INCOME TAX ACT IN RESPONSE TO THE TWO SEPARATE APPL ICATIONS FILED BY THE ASSESSEE BEFORE HIM. 2. THE FACTS RELATING TO THE ISSUE UNDER CONSIDERAT ION ARE STATED IN BRIEF. THE ASSESSEE-TRUST WAS REGISTERED AS A CHARITABLE TRUST U/S. 12AA OF THE ACT BY THE THEN COMMISSIONER OF INCOME-TAX, KERALA VIDE HIS ORDER D ATED 1 ST FEBRUARY, 1974. THE ASSESSEE-TRUST WAS ALSO ENJOYING RECOGNITION U/S. 8 0G OF THE INCOME TAX ACT UP TO THE ASSESSMENT YEAR 2008-09. ON EXPIRY OF THE EARLIER APPROVAL, THE ASSESSEE FILED AN APPLICATION DATED 17-03-2009 BEFORE LD CIT SEEKING RENEWAL OF APPROVAL GRANTED TO IT U/S. 80G OF THE ACT. HOWEVER, THE SAID APPLICATION WAS REJECTED BY THE LD. CIT, KOTTAYAM, VIDE HIS ORDER DATED 25-09-2009. THE ASS ESSEE PREFERRED APPEAL BEFORE THE I.T.A. NOS.538/COCH/2011 & 557/COCH/2009 2 TRIBUNAL CHALLENGING THE ABOVE SAID ORDER PASSED BY THE LD. CIT AND THE SAME WAS NUMBERED AS ITA 557/COCH/09. WHILE THE APPEAL IS P ENDING BEFORE THE TRIBUNAL, THE ASSESSEE MOVED ANOTHER APPLICATION BEFORE THE LD. C IT, KOTTAYAM AGAIN SEEKING RENEWAL OF APPROVAL U/S. 80G OF THE ACT AND THE SAI D APPLICATION WAS ALSO REJECTED BY THE LD. CIT, VIDE HER ORDER DATED 19-05-2011. AGGR IEVED BY THE SAID ORDER, THE ASSESSEE HAS FILED ANOTHER APPEAL BEFORE THE TRIBUN AL AND THE SAME WAS NUMBERED AS ITA 538/COCH/11. THUS TWO APPEALS CAME TO BE FILED BY THE ASSESSEE BEFORE THE TRIBUNAL ON THE VERY SAME ISSUE. SINCE BOTH THE AP PEALS HAVE BEEN PREFERRED CHALLENGING THE REFUSAL OF LD CIT TO RENEW THE RECO GNITION GRANTED TO THE ASSESSEE, IF WE DISPOSE OF THE APPEAL NUMBERED AS ITA 557/COCH/0 9, THE OTHER APPEAL WOULD BECOME INFRUCTUOUS. 3. THE SOLITARY ISSUE URGED BEFORE US IS WHETHER TH E LD CIT WAS JUSTIFIED IN REFUSING TO RENEW THE RECOGNITION GRANTED TO THE ASSESSEE U/ S 80G(5)(VI) OF THE ACT. THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE-TRUST IS RUNNING A MUSEUM WITHOUT ANY PROFIT MOTIVE AND THE SAID MUSEU M HOUSES IN ARTICLES OF GREAT CULTURAL AND INFORMATION VALUE. THUS THE MUSEUM IS RUN SOLELY FOR THE BENEFIT OF PUBLIC AND IS ALSO A PROCESS OF EDUCATION TO THE PUBLIC. ADVERTING OUR ATTENTION TO THE VARIOUS NEWS PAPER REPORTS PLACED IN THE PAPER BOOK FILED B Y THE ASSESSEE, THE LD A.R SUBMITTED THAT THE ACTIVITIES CARRIED ON BY THE ASS ESSEE TRUST IS BEING HAILED BY THE PUBLIC AT LARGE. SHE FURTHER SUBMITTED THAT THE AS SESSEE IS COLLECTING ENTRANCE FEES IN ORDER TO MEET THE EXPENSES ON MAINTAINING THE ASSET S KEPT IN THE MUSEUM. ACCORDINGLY, THE LD. AR SUBMITTED THAT THE ENTRANCE FEE COLLECTED BY THE ASSESSEE DOES NOT AMOUNT TO CARRYING ON ANY BUSINESS ACTIVITY AS OBSERVED BY THE LD. CIT IN HIS ORDER DATED 25-09-2009. THE LD. AR FURTHER SUBMITTED THA T THE LD. CIT IN HER ORDER DATED 19-05-2011 HAS FAILED TO APPRECIATE THAT THE ASSESS EE-TRUST HAD AMENDED ITS TRUST DEED BY REMOVING THE CLAUSES RELATING TO CARRYING O N ANY BUSINESS ACTIVITY. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS SATISFIED A LL THE CONDITIONS SPECIFIED U/S. 80G(5)(VI) OF THE ACT AND HENCE, THE LD. CIT WAS NO T RIGHT IN LAW IN REFUSING TO GRANT APPROVAL U/S. 80G OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED ON THE FOLLOWING CASE LAW IN SUPPORT OF HER SUBMISSIONS: I.T.A. NOS.538/COCH/2011 & 557/COCH/2009 3 A) N.N. DESAI CHARITABLE TRUST VS. CIT (246 ITR 4 52) (GUJ.). B) SONEPAT HINDU EDUCATIONAL AND CHARITABLE S OCIETY VS. CIT (278 ITR 262) (P&H) C) AGRAWAL METAL WORKS CHARITABLE TRUST V S. CIT, 125 TTJ (DEL.) 400. 4. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE A CTIVITY OF RUNNING THE MUSEUM CANNOT BE CONSIDERED AS EDUCATIONAL ACTIVITY. THE LD D.R SUBMITTED THAT TERM EDUCATION REFERRED IN SEC. 2(15) OF THE ACT ONLY REFER TO FORMAL EDUCATION. ACCORDINGLY, THE LD D.R SUBMITTED THAT THE ACTIVITY OF RUNNING THE MUSEUM MAY FALL UNDER THE RESIDUARY CLAUSE, VIZ., OBJECT OF GENER AL PUBLIC UTILITY, AS DEFINED IN SEC. 2(15) OF THE ACT. THE LD. DR FURTHER SUBMITTED THA T THE CASE LAW RELIED UPON BY THE LD. AR ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT C ASE. ADVERTING OUR ATTENTION TO THE ORDERS OF THE LD. CIT, THE LD. DR SUBMITTED THAT TH E LD CIT HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE-TRUST DID NOT CARRY ON AN Y CHARITABLE ACTIVITY. ACCORDINGLY THE LD. DR SUBMITTED THAT LD. CIT WAS RIGHT IN LAW IN R EJECTING THE APPLICATION FILED BY THE ASSESSEE SEEKING RENEWAL OF RECOGNITION U/S. 80G OF THE ACT. 5. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE ASSESSEE TRUST HAS BEEN CARRYING ON CHARITABLE ACTIVITIES AND THE SAME WAS EVIDENT F ROM THE FINANCIAL STATEMENTS FILED BEFORE THE TAX AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. ON A PERUSAL OF THE ORDER DATED 25-09-2009 PASSED BY THE LD. CIT, WE NOTICE THAT THE ADMINISTRATIVE COMMISSIONER HAS REFUSED TO RENEW TH E APPROVAL U/S 80G OF THE ACT FOR THE FOLLOWING REASONS:- AS A RESULT OF THE RECTIFICATION TO THE TRUST DEED , THE TRUST IS NOT AUTHORISED TO CARRY ON ANY BUSINESS OR TO INVEST IN ANY BUSINESS UNDERTAKING OF WHATEVER NATURE, AND TRUST PROPERTIES ARE NOT STATED TO INCL UDE ANY BUSINESS UNDERTAKING. HOWEVER, IT HAS BEEN NOTICED FROM THE ACCOUNTS FILE D, THE APPLICANT IS RUNNING A PRIVATE MUSEUM AS EVIDENCED BY THE MUSEUM COLLECTIO N RECEIPTS OF RS. 64,850/-, RS. 1,86,350/- AND RS. 2,48,600/- CREDITED IN THE I NCOME AND EXPENDITURE ACCOUNTS FOR THE YEARS ENDED 31-03-2007, 31-03-2008 AND 31-03-2009 RESPECTIVELY. IT HAS ALSO BEEN NOTICED THAT AN AMO UNT OF RS. 39,500/- DEBITED IN THE INCOME & EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31-03-2008. THUS, IT IS I.T.A. NOS.538/COCH/2011 & 557/COCH/2009 4 CLEAR THAT THE MUSEUM IS RUN AS A BUSINESS, AN ACTI VITY WHICH IS NOT AUTHORIZED BY THE TRUST DEED. SINCE THE TRUST IS RUNNING A BUSINESS, ITS ACTIVITIES HAVE CEASED TO BE CHARITABLE, PARTICULAR LY IN VIEW OF THE DEFINITION OF CHARITABLE PURPOSE IN SECTION 2(15) W.E.F. 01-04- 2009. IT MAY ALSO BE NOTED THAT THE APPLICANT IS CARRIED OUT ANY CHARITABLE AC TIVITY BY WAY OF EDUCATION, MEDICAL RELIEF OR RELIEF OF THE POOR. IT HAS FURTH ER BEEN NOTICED THAT COMPARED TO THE GROSS RECEIPTS OF RS.2,06,802/- FOR THE YEAR EN DED 31-03-2008, THE AMOUNT APPLIED FOR CHARITY WAS RS. 17,500/- ONLY. 4. EXEMPTION UNDER SECTIONS 11 AND 80G ARE INTEN DED FOR THOSE INSTITUTIONS CARRYING ON CHARITABLE ACTIVITIES. MERE NARRATION OF CHARITABLE PURPOSES IN THE OBJECT CLAUSE WILL NOT BY ITSELF JUSTIFY EXEMPTION. ABSENCE OF ANY CHARITABLE ACTIVITY MAY LOSE THE BENEFIT OF SECTION 80G TILL S UCH ACTIVITIES ARE RESUMED. 7. IN THE ORDER DATED 19-05-2011 PASSED BY THE LD. CIT, THE FOLLOWING REASONS HAVE BEEN CITED FOR REJECTION OF THE APPROVAL. 3. AS PER THE COPY OF THE TRUST DEED ON PLAIN PAP ER SUB-CLAUSE (A) TO (G) OF CLAUSE 11, THE ACTIVITIES MENTIONED THEREIN RELATE TO INVESTMENT IN BUSINESS AND SPECULATIVE BUSINESS. 4. EXEMPTION UNDER SECTIONS 11 AND 80G ARE INTENDED FOR THOSE INSTITUTIONS CARRYING ON CHARITABLE ACTIVITIES. MERE NARRATION OF CHARITABLE PURPOSES IN THE OBJECT CLAUSE WILL NOT BY ITSELF JUSTIFY EXEMPTION . ABSENCE OF ANY CHARITABLE ACTIVITY MAY LOSE THE BENEFIT OF SECTION 80G TILL SUCH ACTIVITIES ARE RETURNED. 5. IN VIEW OF THE ABOVE, I AM NOT SATISFIED THAT T HE TRUST FULFILS ALL THE CONDITIONS LAID DOWN IN SECTION 80G(5)(VI) OF THE INCOME TAX ACT TO RENEW THE APPROVAL GRANTED UP TO 31-03-2008. AS THERE IS NO CHARITAB LE ACTIVITY CARRIED OUT BY THE APPLICANT, THE APPLICATION FOR RENEWAL OF APPROVAL U/S. 80G(5)(VI) OF THE INCOME TAX ACT IS REJECTED. 8. THUS, IT IS SEEN THAT THE LD CIT HAS MAINLY REJECTED THE APPLICATION OF THE ASSESSEE ON THE REASONING THAT THE ACTIVITY OF RUNN ING A MUSEUM AMOUNTS TO RUNNING OF A BUSINESS ACTIVITY, WHICH ACCORDING TO LD CIT WAS NOT PERMITTED BY THE TRUST DEED OF THE ASSESSEE. ON THE OTHER HAND, THE CASE OF THE A SSESSEE IS THAT IT IS COLLECTING ONLY ENTRANCE FEE FROM THE VISITORS AND THE SAME IS UTIL ISED FOR THE UPKEEP OF THE MUSEUM. IN OUR VIEW, THE COLLECTION OF ENTRANCE FEE WOULD N OT AMOUNT TO RUNNING OF A BUSINESS ACTIVITY AND HENCE WE ARE UNABLE TO AGREE WITH THE LD CIT ON THIS POINT. I.T.A. NOS.538/COCH/2011 & 557/COCH/2009 5 9. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE TRUST IS REGISTERED AS A CHARITABLE TRUST U/S 12A OF THE ACT. IT WAS ALSO GRANTED RECOGNITION U/S 80G OF THE ACT UP TO THE ASSESSMENT YEAR 2008-09. THE SAID RECOGNITION ENTITLES THE PERSONS GIVING DONATION TO THE ASSESSEE TRUST TO CLAIM DEDU CTION U/S 80G OF THE ACT AS PER THE PROVISIONS OF SUB-CLAUSE (IV) TO CLAUSE (A) OF SUB- SECTION 2 OF 80G OF THE ACT. HENCE THE ASSESSEE HAS FILED APPLICATION BEFORE LD CIT SEEKIN G RENEWAL OF THE RECOGNITION, WHICH WOULD ENABLE IT TO COLLECT DONATIONS. THE SUB SE C. 5 OF 80G PRESCRIBES THE CONDITIONS FOR ALLOWING DEDUCTION U/S. 80G OF THE ACT IN RESP ECT OF DONATIONS REFERRED IN SEC. 80G(2)(A)(IV) OF THE ACT. FOR THE SAKE OF CONVENIE NCE, WE EXTRACT BELOW THE RELEVANT PROVISIONS:- (5) THIS SECTION APPLIES TO DONATIONS TO ANY INSTI TUTION OR FUND REFERRED TO IN SUB-CLAUSE (IV) OF CLAUSE (A) OF SUB-SECTION (2), ONLY IF IT IS ESTABLISHED IN INDIA FOR A CHARITABLE PURPOSE AND IF IT FULFILS THE FOL LOWING CONDITIONS, NAMELY:- (I) WHERE THE INSTITUTION OR FUND DERIVES ANY INCOM E, SUCH INCOME WOULD NOT BE LIABLE TO INCLUSION IN ITS TOTAL INCOME UNDE R THE PROVISIONS OF SECTIONS 11 & 12 OR CLAUSE (23AA) (OR CLAUSE 23C)O F SECTION 10: PROVIDED THAT WHERE AN INSTITUTION OR FUND DERIVES ANY INCOME, BEING PROFITS AND GAINS OF BUSINESS, THE CONDITION THAT S UCH INCOME OF SECTION 11 SHALL NOT APPLY IN RELATION TO SUCH INCOME, IF (A) THE INSTITUTION OR FUND MAINTAINS SEPARATE BOOK S OF ACCOUNT IN RESPECT OF SUCH BUSINESS. (B) THE DONATIONS MADE TO THE INSTITUTION OR FUND A RE NOT USED BY IT DIRECTLY OR INDIRECTLY, FOR THE PURPOSES OF SUCH BU SINESS; AND (C) THE INSTITUTION OR FUND ISSUES TO A PERSON MAKI NG THE DONATION A CERTIFICATE TO THE EFFECT THAT IT MAINTAINS SEPARA TE BOOKS OF ACCOUNT IN RESPECT OF SUCH BUSINESS AND THAT THE DONATIONS RECEIVED BY IT WILL NOT BE USED, DIRECTLY OR INDIRECTLY FOR THE PU RPOSES OF SUCH BUSINESS. (II) THE INSTRUMENT UNDER WHICH THE INSTITUTION OR FUND IS CONSTITUTED DOES NOT, OR THE RULES GOVERNING THE INSTITUTION OR FUND DO NOT, CONTAIN ANY PROVISION FOR THE TRANSFER OR APPLICATION AT ANY TI ME OF THE WHOLE OR ANY I.T.A. NOS.538/COCH/2011 & 557/COCH/2009 6 PART OF THE INCOME OR ASSETS OF THE INSTITUTION OR FUND FOR ANY PURPOSE OTHER THAN A CHARITABLE PURPOSE; (III) THE INSTITUTION OR FUND IS NOT EXPRESSED TO B E FOR THE BENEFIT OF ANY PARTICULAR RELIGIOUS COMMUNITY OR CASTE; (IV) THE INSTITUTION OR FUND MAINTAINS REGULAR AC COUNTS OF ITS RECEIPTS AND EXPENDITURE; (V) THE INSTITUTION OR FUND IS EITHER CONSTITUTED A S A PUBLIC CHARITABLE TRUST OR REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (2) OF 1860), OR UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE OR IN ANY PART OF INDIA OR U/S. 25 OF THE COMPANIES ACT, 1956 (1 OF 1956), OR IS A UNIVERSITY ESTABLISHED BY LAW, OR IS ANY OTHER EDUCATIONAL INS TITUTION RECOGNISED BY THE GOVERNMENT OR BY A UNIVERSITY ESTABLISHED BY LA W OR AFFILIATED TO ANY UNIVERSITY ESTABLISHED BY LAW, INSTITUTION FINANCED WHOLLY OR IN PART BY THE GOVERNMENT OR A LOCAL AUTHORITY. (VI) IN RELATION TO DONATIONS MADE AFTER THE 31 ST DAY OF MARCH, 1992, THE INSTITUTION OR FUND IS FOR THE TIME BEING APPROVE D BY THE COMMISSIONER IN ACCORDANCE WITH THE RULES MADE IN THIS BEHALF. 10. ON A CAREFUL PERUSAL OF THE ORDERS PASSED B Y THE LD. CIT, WE NOTICE THAT THE LD. CIT HAS NOT BROUGHT OUT ANY MATERIAL TO SHOW THAT T HE ASSESSEE-TRUST DID NOT COMPLY WITH ANY OF THE CONDITIONS SPECIFIED IN SUB-SECTION (5) OF SECTION 80G OF THE ACT, WHICH WOULD MAKE IT INELIGIBLE FOR RECOGNITION U/S 80G OF THE ACT. INSTEAD, IN OUR VIEW, THE LD CIT HAS MISDIRECTED HIMSELF IN DISCUSSING ABOUT THE ACTIVITIES OF MUSEUM, WHICH ARE REQUIRED TO BE EXAMINED AT THE ASSESSMENT LEVEL. H ENCE, IN OUR VIEW, THE ORDERS PASSED BY THE LD. CIT(A) ARE NOT IN ACCORDANCE WITH THE EXPRESS PROVISIONS STATED IN SEC. 80G(5) OF THE ACT, I.E., IN OUR VIEW, THE LD. CIT HAS NOT PROCESSED THE APPLICATIONS FILED BY THE ASSESSEE SEEKING RENEWAL OF RECOGNITIO N U/S. 80G OF THE ACT IN TERMS OF RELEVANT PROVISIONS OF THE ACT. ACCORDINGLY, IN OU R VIEW, THE APPLICATION FILED BY THE ASSESSEE ON 17.03.2009 NEEDS TO BE EXAMINED AFRESH AND IN THAT CASE, THE SECOND APPLICATION FILED BY THE ASSESSEE ON 29-11-2010 SHA LL BECOME INFRUCTUOUS. ACCORDINGLY, WE SET ASIDE BOTH THE IMPUGNED ORDERS PASSED BY LD CIT AND DIRECT HIM TO PROCESS THE APPLICATION FILED BY THE ASSESSEE ON 17.3.2009 IN T ERMS OF THE PROVISIONS OF SEC. 80G OF THE ACT AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. I.T.A. NOS.538/COCH/2011 & 557/COCH/2009 7 11. IN THE RESULT, THE APPEAL NUMBERED AS ITA 5 57/COCH/2009 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE OTHER APPEAL OF TH E ASSESSEE IS DISMISSED AS INFRUCTUOUS. PRONOUNCED ACCORDINGLY ON 15-02 -2013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 15TH FEBRUARY, 2013 GJ COPY TO: 1. SREE KARUNAKARAN CHARITABLE TRUST, SHANTI BHAVAN , ALLEPPEY-688 001. 2. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 3. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 4. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR ) I.T.A.T, COCHIN