Sri Ram Samaj, CHENNAI V. JDIT, CHENNAI

ITA 664/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9616 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 09-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 31-03-2015
• Court: TRIBUNAL
• Assessee Lawyers: B RAMANA KUMAR
• Keywords: Gift; Business income; Depreciation; Charitable institution; Maximum Marginal Rate; Revenue expenditure
• Section: 143(3); 142(1); 12AA; 32; 12; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! ' #! ' $ . % , & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NOS. 664 & 665/MDS/2015 / ASSESSMENT YEARS : 2011-12 & 2010-11 M/S. SRI RAM SAMAJ, NO.47, ARYA GOWDA ROAD, WEST MAMBALAM, CHENNAI 600 033. PAN AACTSS5436N APPELLANT) V. THE JOINT DIRECTOR OF INCOME-TAX(EXEMPTIONS), CHENNAI 34. RESPONDENT) / APPELLANT BY : SHRI B. RAMANA KUMAR, ADVOCATE / RESPONDENT BY : SHRI SASIKUMAR, JCIT ! / DATE OF HEARING : 09.02.2016 '# ! / DATE OF PRONOUNCEMENT: 06.04.2016 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX(APP EALS) - - ITA 664 & 665/1 5 2 DATED 31.12.2014 FOR THE ASSESSMENT YEARS 2010-11 A ND 2011- 12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THESE APPEALS : 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOM E- TAX(APPEALS) VIII, CIT(A) IS CONTRARY TO THE LAW, AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. FOR THAT THE CIT(A) ERRED IN CONFIRMING ERRONEO USLY, THE CLASSIFICATION OF THE INCOME FROM HOUSE PROPERT Y AS INCOME FROM BUSINESS. 3. THE CIT(A) ERRED IN APPLYING THE PROVISIONS OF SEC.11(4A) TO ON THE INCOME OF THE ASSESSEE. 4. THE CIT(A) WAS MISTAKEN IN ASSUMING A PROFIT BASED MOTIVATION FOR INCOME EARNED AND THUS ERRED I N APPLYING THE PROVISIONS OF SEC.13(8) OF THE ACT TO ALL THE INCOMES OF THE ASSESSEE. 5. THE CIT(A) ERRED IN DISALLOWING EXEMPTION U/S 1 1 AND 12 OF THE ACT. 6. THE CIT(A) ERRED IN FAILING TO APPRECIATE THE CHARITABLE NATURE AND FUNCTIONS BEING CARRIED OUT B Y THE ASSESSEE. 7. FOR THESE GROUNDS AND SUCH OTHER GROUNDS THAT MAY BE ADDUCED BEFORE OR DURING THE HEARING OF THE APPEAL, IT IS PRAYED THAT THE HONBLE TRIBUNAL MAY BE PLEASED TO PASS SUCH OTHER ORDERS AS THE HONBLE TRIBUNAL DEEM FIT. 3. THE FACTS OF THE CASE AS NARRATED IN THE ASSESSM ENT YEAR - - ITA 664 & 665/1 5 3 2010-11, ARE THAT T HE ASSESSEE IS A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT. IT GOT ITS APPROVAL U/S 12AA OF THE ACT FROM THE CIT, TN-III, MADRAS VIDE HIS ORDER IN C.NO.1146-111(168)/80 DATED.09.06.1981. THE SOCIET Y FILED ITS RETURN FOR THE AY 2010-11 ON 21.10.2010 ADMITTI NG 'NIL' INCOME. THE CASE WAS SELECTED FOR SCRUTINY AND NOTI CE U/S 143(2) OF THE ACT WAS ISSUED ACCORDINGLY. NOTICE U/ S 142(1) OF THE ACT WAS ALSO ISSUED. IN RESPONSE TO THE NOTI CE, SHRI G.KUMAR, FCA APPEARED FROM TIME TO TIME AND FILED T HE DETAILS CALLED FOR. AFTER SCRUTINIZING THE DETAILS FILED AND DISCUSSING THE CASE WITH THE AUTHORIZED REPRESENTAT IVE, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 25.02.2013 DETERMINING THE TOTAL INCOME AT ` .25,42,950/-. 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO FOUND THAT THE ASSESSEE OPERATES A COMMUNITY HAL L, KALYANA MANDAPAM AND A UNIT TO CONDUCT TRADITIONAL AND CUSTOMARY RITES CONNECTED WITH FUNERAL OBSEQUIES AND CLAIMED THE INCOME FROM THESE PROPERTIES AS INC OME FROM HOUSE PROPERTY. THE AR CONTENDED BEFORE THE AO THAT THE ABOVE RECEIPTS ARE INCOME FROM HOUSE PROPERTY O NLY AND - - ITA 664 & 665/1 5 4 RELIED ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENT LIMITED, 136 TAXM AN 202. THE AO REJECTED THE ARGUMENTS OF THE AR AND HE LD THAT THE RUNNING AND MAINTENANCE OF THESE UNITS IN THE N ORMAL CIRCUMSTANCES WOULD BE IN THE NATURE OF BUSINESS IN COME. THE AO ALSO HELD THAT THE DEDUCTION U/S 24(A) IS AL SO NOT ALLOWABLE AND RELIED ON THE DECISION OF CALCUTTA HI GH COURT IN THE CASE OF DIT(E) VS GIRIDHARILAL SHEWNAR AIN TANTIA TRUST (1993) 199 ITR 215. 3.2 AFTER PERUSING THE OBJECTS OF THE SOCIETY, THE AO HELD THAT THEY ARE OBJECTS OF GENERAL PUBLIC UTILITY AND CANNOT BE STATED THAT THE SOCIETY EXISTS SOLELY FOR EDUCATION AL PURPOSES. RELIANCE WAS PLACED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT-L, PUNE VS RAJNEESH FOUNDATION (2005), 148 TAXMAN 396 AND MADRAS HIGH COURT DECISI ON IN THE CASE OF RAMALINGAM CHARITIES VS CIT, 12 TAXMANN .COM 114. THE AO ALSO OBSERVED THAT THE OBJECTS (A) TO ( D) ARE DIRECTED IN PROMOTING A PARTICULAR PHILOSOPHY. THE AO ALSO INVOKED PROVISO TO SEC.2(15) OF THE ACT TO HOLD THA T LETTING OUT - - ITA 664 & 665/1 5 5 OF MARRIAGE HALL IS A BUSINESS ACTIVITY AND RELIED ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF HALAI NEMON ASSOCIATION (2000), 243 ITR 439. THE AO OBSERVED T HAT THE CHARACTER OF APPLICATION OF INCOME SERVES NO PURPOS E AND THE CHARACTER OF INCOME HAS GAINED PREPONDERANCE IN THE NEWLY INSERTED PROVISO THEREBY MAKING THESE EARLIER PRECE DENTS INAPPLICABLE IN THE ALTERED SCENARIO. THE CLAIMS TO GET INCOME EXEMPTED LOSE RELEVANCE WHEN THE TRANSACTIONS UNDER TAKEN BY THE SOCIETY EXISTING FOR THE PURPOSE OF CHARITY BEING THE OBJECT OF GENERAL PUBLIC UTILITY ARE BUSINESS IN NATURE AND H IT BY PROVISO TO SEC.2(15) OF THE ACT. 3.3 THE AO HELD THAT THE BUSINESS OF RUNNING COMMUNITY HALL, MARRIAGE HALL AND FUNERAL CEREMONIES HALL CAN NOT BE TREATED AS INCIDENTAL BUSINESS ELIGIBLE FOR EXEMPTION U/S 1 1(4A) OF THE ACT. RELIANCE WAS PLACED ON THE DECISION OF SUPREM E COURT IN THE CASE OF ACIT VS THANTHI TRUST (200) 247 ITR 785. THE AO ALSO OBSERVED THAT THE ACTIVITIES OF THE SOCIETY ARE COVERED BY THE PROVISOS TO SEC.2(15) OF THE ACT AND RELIED ON THE FOLLOWING DECISIONS. 1. STATE OF GUJARAT VS RAIPUR MFG. CO. (1967) 19 STC 1 (SC). - - ITA 664 & 665/1 5 6 2.STATE OF AP VS H. ABDUL BAKHI & BROS. (1964) 15 S TC 664 (SC). SINCE THE PROVISO TO SEC.2(15) OF THE ACT IS INVOKE D, THE PROVISIONS OF SEC.11 & 12 OF THE ACT BECOME INOPERA TIVE. THE ENTIRE EARNINGS ARE THE INCOME OF THE SOCIETY. WHIL E THE REVENUE EXPENDITURE CORRESPONDING TO SUCH INCOME EA RNING ACTIVITY IS ALONE ALLOWED, EXPENSES OF CAPITAL NATU RE AND EXPENDITURE NOT CONNECTED TO THE INCOME EARNING ACT IVITY ARE NOT ELIGIBLE TO BE ALLOWED AS EXPENDITURE. THE TAXA TION OF INCOME IS NOT CONFINED TO THE INCOME DERIVED FROM T HE UNITS WHICH OPERATED LIKE A BUSINESS ENTITY. SEC.13(8) OF THE ACT PROHIBITS APPLICABILITY OF SEC. 11 & 12 OF THE ACT IN RESPECT OF ANY INCOME OF THE SOCIETY AND IS NOT RESTRICTED TO THE BUSINESS ACTIVITY OF THE SOCIETY. THEREFORE, THE SURPLUS DER IVED BY THE SOCIETY IS ENTIRELY BROUGHT TO TAXATION. THE AMOUNT SPENT TOWARDS CHARITABLE AND RELIGIOUS PURPOSES WERE NOT INCURRED TO EARN THE INCOME BROUGHT TO TAX AND HENCE NOT ALLOWA BLE AS EXPENDITURE. IN THE ABSENCE OF EXEMPTION U/S 11 AN D 12 OF THE ACT, THE SAME IS NOT TREATED AS APPLICATION. AS WELL. RELIANCE WAS PLACED ON THE DECISION OF DEL HI HIGH COURT IN THE CASE OF PT. KANHYA LAL PANJ CHARITABLE TRUST VS - - ITA 664 & 665/1 5 7 DIT(E) 297 ITR 66. THE AO ALSO BROUGHT TO TAX THE C ORPUS DONATION OF ` 8,07,017/- BY OBSERVING THAT SINCE SEC.11(1)(D) IS NOT IN FORCE, CORPUS DONATION IS TAXABLE. THE AO T REATED THE ASSESSEE AS AN AOP AND TAXED HE INCOME AT MMR. T HE FACTS ARE SIMILAR TO THE ASSESSMENT YEAR 2011-12, EXCEPT CHANGES IN FIGURES. AGAINST THIS, THE ASSESSEE WENT IN APPEA L BEFORE THE CIT(APPEALS), WHO CONFIRMED THE FINDINGS OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. AR SUBMITTED THAT THE AO TREATED THE RECEIPTS FROM LETTING OUT OF 'AYODHYA ASWAMEDHA MANDAPAM' 'MITHI!APURI KALYANA MANDAPAM' AND GNANAVAPI' AS BUSINESS INCOME AND THEREBY INVOKED T HE PROVISIONS OF SEC.2(15) OF THE ACT. IT WAS ALSO SU BMITTED THAT THE SOCIETY HAS MULTIPLE OBJECTS AND NONE OF THEM H AS PROFIT MOTIVE OR GENERAL PUBLIC UTILITY INVOLVING ANY ACTI VITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. IT WAS FURT HER SUBMITTED THAT THE AO INVOKED SEC.13(8) AND MADE SECTION 11 & 12 NOT APPLICABLE. IT WAS ALSO STATED THAT THE MAIN ACTIVITY NOW OF THE SOCIETY IS RUNNING THE SCH OOL FROM WHERE THE BULK OF RECEIPTS ARE COMING. - - ITA 664 & 665/1 5 8 4.1 THE LD. AR CONTENDED THAT THE AO ERRED IN TREATING THE RECEIPTS OF COMMUNITY HALL, MARRIAGE H ALL AND GNANAVAPI AS BUSINESS INCOME AND DENIED EXEMPTION U /S 11(4A) OF THE ACT. THE LD. AR ALSO CONTENDED THAT REGISTRATION U/S 12AA OF THE ACT WAS GRANTED TO THE ASSESSEE SEVERAL YEARS AGO AND THERE HAS BEEN NO QUESTION OF THE SOCIETY INDULGING IN ANY TRADE OR COMMERCE ACTIVITI ES TILL DATE. THE LD. AR FURTHER CONTENDED THAT THE OBJECTS OF TH E SOCIETY ARE MAINLY EDUCATION AND NOT GENERAL PUBLIC UTILITY AND AS SUCH THE PROVISO TO SEC.2(15) OF THE ACT WOULD NOT BE APPLICABLE TO IT CONSEQUENTLY MAKING SEC.11 & 12 OF THE ACT INOPERATIVE WAS ERRONEOUS AND BEYOND THE INTENTION OF THE LEGISLATION. THE LD. AR WAS ALSO CONTENDED THAT TH E RECEIPT FROM LETTING WERE USED TOWARDS EDUCATIONAL ACTIVITI ES, MEDICAL RELIEF AND RELIEF TO THE POOR WHICH AMPLY PROVIDES THAT SUCH ACTIVITY HAS BEEN CARRIED OUT TO ACCOMPLISH THE PRIMARY PURPOSE OF THE SOCIETY. 4.2. IN THE WRITTEN SUBMISSION, THE LD. AR ARGUED THAT THE QUESTION AS TO WHETHER A PARTICULAR ACTIVITY IS IN THE NATURE OF BUSINESS OR NOT HAS TO BE DECIDED ON A CASE TO C ASE - - ITA 664 & 665/1 5 9 BASIS. RELIANCE WAS PLACED BY THE ASSESSEE ON THE DECISION OF SUPREME COURT IN THE CASE OF SULTAN BROTHERS (P) LIMITED VS CIT (1964) 51 ITR 353 (SC). THE LD. AR ALSO ARGUED THAT THE SUPREME COURT DECISION IN THE CASE OF ACIT VS THANTHI TRUST (2001) 247 ITR 785 IS NOT APPLICABLE TO THE FACTS OF THIS CASE. HE FURTHER AR GUED THAT THE MAJOR ACTIVITY OF THE TRUST IS RUNNING OF THE E DUCATIONAL INSTITUTION, AS THE QUANTUM OF RECEIPTS SHOW. IT WA S ALSO ARGUED THAT THE RATES CHARGED FOR MANDAPAMS AND GNANAVAPI ARE SMALL AND NOT A COMMERCIAL RATE OF FE ES CHARGED FOR MANDAPAMS OF SIMILAR DIMENSIONS. IT WAS EMPHASIZED THAT THE SOCIETY HAS BEEN RUNNING THE EDUCATIONAL INSTITUTION SIMULTANEOUSLY WITH THE OTH ER ACTIVITIES. THE SURPLUS FROM THE OTHER ACTIVITIES W AS ONLY GOING TO MEET THE SHORTFALL IN THE INCOME OF THE ED UCATIONAL INSTITUTION. THE OTHER ACTIVITIES ARE NOT RUN ON CO MMERCIAL LINES WITH THE OBJECTIVE OF EARNING A PROFIT AND HENCE THE SURPLUS FROM THESE ACTIVITIES SHOULD BE EXEMPTED FROM TAX. IT WAS URGED THAT SEC.2(15) OF T HE ACT HAS NO APPLICATION IN THE CASE OF THE ASSESSEE AND PLEA - - ITA 664 & 665/1 5 10 WAS MADE TO DELETE THE ADDITIONS MADE. THE A.R STAT ED THAT THEY ARE NOT PRESSING THE RELIANCE PLACED ON T HE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS HALAI NEMON ASSOCIATION (2000) 243 ITR 439 WHEREIN IT WAS CLAIMED THAT HE WAS ENGAGED IN BUSINESS WHEREAS THE ASSESSEE SOCIETY'S ACTIVITIES ARE FOR CHARITABLE PU RPOSES ONLY. FURTHER, THE LD. AR RELIED ON THE JUDGMENT OF THE REPORTED IN 114 ITR 483 AND DIT VS. VILE PARLE KELA VANI MANDAL(23 TAXMAN 499) FOR THE PROPOSITION WHEN THE ASSESSEE ACQUIRED ASSETS FROM THE INCOME OF TRUST A ND DEPRECIATION WAS CLAIMED ON USE OF SUCH ASSETS. F URTHER, HE RELIED ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. SENGUNTHAR THIRUMANA MANDAPAM (283 I TR 355), WHEREIN IT WAS HELD THAT THE ASSESSEE BEING A REGISTERED SOCIETY, HAVING CONSTRUCTED A KALYANA MANDAPAM ON THE LAND ALLOTTED BY THE COLLECTOR FOR THE SAID PURPOSE AND LETTING OUT THE SAME FOR SOCIAL AND CHA RITABLE ACTIVITIES COLLECTING ONLY NOMINAL RENT AS PER AGRE ED TERMS OF GRANT, IT SUFFICIENTLY SATISFIED THE CHARITABLE OBJECT AND, THEREFORE, ASSESSEES CLAIM OF EXEMPTION U/S.11 COU LD NOT - - ITA 664 & 665/1 5 11 BE REJECTED MORE SO, WHEN REGISTRATION UNDER SEC.12 A WAS GRANTED TO THE ASSESSEE. HE HAS ALSO FILED WRITTEN SUBMISSIONS AND HE RELIED ON CBDT CIRCULAR NO.11/20 08 DATED 19 TH DECEMBER, 2008. 5 . ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDER S OF THE LOWER AUTHORITIES AND ALSO THE ORDER OF THE TRI BUNAL IN THE CASE OF ANJUMAN-E-HIMAYATH-E-ISLAM V. ACIT IN I TA NO.2271/MDS/2014 DATED 2.6.2015 FOR THE PROPOSITION THAT DEPRECIATION CLAIM WOULD MEAN DOUBLE DEDUCTION. 6 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAVING REGA RD TO THE TERMS OF THE TRUST DEED, IT CAN BE SAID THAT THE AC TIVITIES CARRIED ON BY THE ASSESSEE IN THE FORM OF RUNNING OF COMMUN ITY HALL, KALYANAMANDAPAM AND FUNERAL CEREMONY HALL WERE ITSE LF HELD UNDER THE TRUST. FOR THIS PURPOSE IT IS PROPER TO G O THROUGH THE OBJECTS FOR WHICH ASSESSEE-TRUST IS FORMED. THE OB JECTS FOR WHICH THE SOCIETY ESTABLISHED ARE : - - ITA 664 & 665/1 5 12 A. TO PROMOTE AND ENCOURAGE BHARATHIYA CULTURE, AR T & PHILOSOPHY AND TO CONDUCT PERIODICAL MEETINGS AND FUNCTIONS . B. TO ESTABLISH AND MAINTAIN WELL EQUIPPED LI BRARIES TO PROMOTE BHARATHIYA CULTURE, ART AND PHILOSOPHY. C. TO ORGANIZE CONFERENCES, LECTURES, MEETINGS, CLASSES, RECEPTIONS, COMPETITIONS, DISCOURSES TO PROMOTE BHARATHIYA CULTURE, ART AND PHILOSOPHY. D. TO ESTABLISH, MAINTAIN AND SUBSIDISE DISPENSARIE S TO GIVE OR AID IN GIVING FREE MEDICAL TREATMENT TO PEE R AND DESERVING. E.TO FEED AND TO GIVE CLOTHES, FREE OF COST TO THE POOR AND NEEDY, WITHOUT ANY DISTINCTION OF CASTE OR CREE D. F. TO FEED AND TO GIVE CLOTHES, FREE OF COST TO THE POOR AND NEEDY, WITHOUT ANY DISTINCTION OF CASTE OR CREE D. G. TO ESTABLISH SCHOOLS, COLLEGES, UNIVERSITIES, RESEARCH INSTITUTIONS AND PUBLIC LIBRARIES AS CENTERS OF LEARNING AND EDUCATION. H. TO INSTITUTE AND AWARD FELLOWSHIPS, SCHOLARSHIPS , SCHOOL OR COLLEGE FEES, GIFT OF SCHOOL OR COLLEGE B OOKS TO POOR AND DESERVING STUDENTS. I. TO PROVIDE FOR ESTABLISHMENT OF BUILDINGS WI TH FACILITIES FOR PERFORMANCES OF CUSTOMARY AND TRADIT IONAL RITES CONNECTED WITH FUNERAL OBSEQUIES TO POOR AND NE IRRESPECTIVE OF F CASTE, CREED OR RELIGION. J. TO SUBSCRIBE TO ANY PUBLIC CHARITABLE INSTITUT ION AND TO GRANT DONATION FOR ANY PUBLIC CHARITABLE PURPOSE S. K.TO TAKE OVER OR MERGE WITH ANY CHARITABLE INST ITUTION ESTABLISHED TO CARRY OUT ANY OR ALL OF THE OBJECTS OF THIS SOCIETY. L. TO PROVIDE FACILITIES FOR CONDUCT OF MARRIAGES AND - - ITA 664 & 665/1 5 13 SUCH OTHER AUSPICIOUS FUNCTIONS ACCORDING TO BHARATHIYA CULTURAL AND TRADITIONAL REQUIREMENTS AT REASONABLE RATES FOR THE POOR AND NEEDY WITHOUT ANY PROFIT MOTIVE. M. TO PROMOTE THE CAUSE OF VEGETARIANISM BY ISSUIN G PAMPHLETS, HOLDING SEMINARS, SYMPOSIUMS ETC. OR SUCH OTHER METHODS AS THE GOVERNING BODY MAY DECIDE N. TO ACQUIRE LAND AND BUILDINGS OR ERECT BUILDING S OR CONVENIENCES NECESSARY FOR THE PURPOSE OF CARRYING ALL OR ANY OF THE OBJECTS OF THE SOCIETY. O. TO BUILD, PURCHASE, SELL, MORTGAGE OR OTHERWISE TRANSFER TAKE ON LEASE, EXCHANGE, HIRE OR OTHERWISE ACQUIRE PROPERTY - MOVABLE OR IMMOVABLE FOR CARRYIN G OUT OBJECTS OF THE SOCIETY. P. TO RECEIVE BY WAY OF DONATIONS, GRANTS, GIFTS, SUBSCRIPTIONS, INTERESTS, DIVIDENDS, SUBSIDIES CONTRIBUTIONS FROM GOVERNMENTS, MUNICIPALITIES, PUB LIC BODIES, INSTITUTIONS OR INDIVIDUALS IN CASH OR PROP ERTIES - MOVABLE OR IMMOVABLE. Q. TO INVEST, DEPOSIT OR OTHERWISE EMPLOY AND DEAL WITH FUNDS, BELONGING TO AND ENTRUSTED TO THE SOCIE TY IN SUCH A MANNER AS MAY FROM TIME TO TIME BE DETERMINED BY THE GOVERNING BODY FOR THE PURPOSE OF CARRYING OUT OBJECTS OF THE SOCIETY EFFECTIVELY. R. TO BORROW OR TO RAISE MONEY OTHERWISE, EITHER W ITH OR WITHOUT INTEREST, WITH OR WITHOUT SECURITY FOR PURPOSE OF PROMOTING ALL OR ANY OF THE OBJECTS OF T HE SOCIETY. S. TO DO ALL SUCH OTHERS THINGS, AS ARE INCIDENTAL OR CONDUCIVE FOR THE PROMOTION OF THE OBJECTS AND WELF ARE OF THE SOCIETY. T. TO PERFORM SRI RAMA NAVAMI MAHOTSAVAM EVERY YEAR WITH TRADITIONAL SOLEMNITY AND FERVOUR FOR THE PURPOSE OF PROMOTING RAMANEEYAM AND OTHER ANCIENT CULTURAL VALUES AS CONTAINED IN ANCIENT INDIAN PURANAS. - - ITA 664 & 665/1 5 14 7. IT IS TO BE NOTED THAT SECTION 11(1) OF THE ACT GRANTS EXEMPTION TO THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA. T HERE IS NO EXHAUSTIVE DEFINITION OF THE WORDS PROPERTY HELD U NDER TRUST IN THE ACT; HOWEVER, SUB-SECTION (4) SAYS THAT FOR THE PURPOSES OF SECTION 11, THE WORDS PROPERTY HELD UNDER TRUST INCLUDES A BUSINESS UNDERTAKING SO HELD. SUBSECTION (4A) AS I T STANDS AMENDED BY THE FINANCE (NO. 2) ACT, 1991, WITH EFFE CT FROM APRIL 1, 1992, IS IN THE FOLLOWING TERMS: (4A) SUB-SECTION (1) OR SUB-SECTION (2) OR SUBSECTION (3) OR SUB-SECTION (3A) SHALL NOT APPLY IN RELATION TO ANY INCOME OF A TRUST OR AN INSTITUT ION, BEING PROFITS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR, AS THE CASE MAY BE, INSTITUTION, AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. 8. THUS, IF A PROPERTY IS HELD UNDER TRUST, AND SU CH PROPERTY IS A BUSINESS, THE CASE WOULD FALL U/S. 11(4) AND N OT U/S. 11(4A) OF THE ACT. SECTION 11(4A) OF THE ACT WOULD APPLY O NLY TO A CASE WHERE THE BUSINESS IS NOT HELD UNDER TRUST. THUS, T HERE IS - - ITA 664 & 665/1 5 15 DIFFERENCE BETWEEN PROPERTY OR BUSINESS HELD UNDER TRUST AND BUSINESS CARRIED ON BY OR ON BEHALF OF THE TRUST. 9. THIS DISTINCTION WAS RECOGNIZED BY THE SUPREME COURT IN THE CASE OF ADDL. CIT VS. SURAT ART SILK CLOTH MANU FACTURERS ASSOCIATION (1980) 121 ITR 1 WHEREIN IT WAS OBSERVE D THAT IF A BUSINESS UNDERTAKING IS HELD UNDER TRUST FOR A CHAR ITABLE PURPOSE, THE INCOME THEREFROM WOULD BE ENTITLED TO THE EXEMP TION U/S. 11(1) OF THE ACT. IN THE PRESENT CASE, THE FINDING OF THE CIT(A) IS THAT RUNNING OF COMMUNITY HALL KALYANAMANDAPAM AND FUNERAL CEREMONY HALL WERE NOT HELD UNDER TRUST, BUT IT WAS BUSINESS COMMENCED/CARRIED ON BY THE SOCIETY, SUBSEQUENT TO THE FORMATION OF TRUST. THOUGH THE BUSINESS WAS COMMENC ED BY THE SOCIETY AND IT WAS CARRIED ON BY THE SOCIETY AFTER ITS FORMATION, IT CANNOT BE SAID TO CONSTITUTE PROPERTY HELD UNDER TR UST. U/S. 11(4), IT IS ONLY THE BUSINESS WHICH IS HELD UNDER THE TRU ST THAT WOULD ENJOY EXEMPTION IN RESPECT OF ITS INCOME U/S. 11(1) OF THE I.T. ACT AND THERE IS A DISTINCTION BETWEEN THE OBJECTS OF A TRUST AND THE POWERS GIVEN TO THE TRUSTEES TO EFFECTUATE THE PURP OSE OF THE TRUST. THOUGH THE OBJECTS OF THE TRUST WERE CHARITA BLE, THEY WERE - - ITA 664 & 665/1 5 16 MERE POWERS CONFERRED UPON THE TRUSTEES TO CARRY ON THE BUSINESS AND THE PROFITS FROM SUCH BUSINESS WOULD B ENEFIT THE CHARITABLE OBJECTS. THE EXEMPTION U/S. 11 CANNOT BE GRANTED ON THE REASON THAT THE BUSINESS ITSELF WAS NOT IN EXIS TENCE AT THE TIME OF FORMATION OF THE TRUST AND THE PROPERTY HEL D UNDER TRUST AT THE TIME OF FORMATION OF THE TRUST WAS NOT SPELT OU T IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE. THE RUNN ING OF COMMUNITY HALL, KALYANAMANDAPAM AND FUNERAL CEREMON Y HALL WERE NOT AT ALL IN EXISTENCE AT THE TIME OF FORMATI ON OF THE TRUST SO AS TO SAY THAT THE BUSINESS IS PROPERTY HELD UNDER TRUST. THUS, THE ACTIVITIES RELATING TO RUNNING OF COMMUNITY HALL, KALYANAMANDAPAM AND FUNERAL CEREMONY HALL WERE NOT EVEN IN THE CONTEMPLATION OF THE MEMORANDUM OF ASSOCIATION ON THE BASIS OF WHICH THE SOCIETY IS FORMED AND, THEREFORE , COULD NOT HAVE BEEN SETTLED UPON TRUST. THE BUSINESS CARRIED ON BEHALF OF A TRUST RATHER INDICATES A BUSINESS WHICH IS NOT HELD IN TRUST, THAN A BUSINESS OF THE TRUST RUN BY THE ASSESSEE. IN THIS CASE, THE ACTIVITIES VIZ., RUNNING OF COMMUNITY HALL, KALYANA MANDAPAM AND FUNERAL CEREMONY HALL WERE CARRIED ON BY THE ASSESS EE FOR AND ON BEHALF OF THE TRUST AND IT WAS NOT BUSINESS HELD UNDER TRUST. - - ITA 664 & 665/1 5 17 SECTION 11(1) OF THE ACT CONFERS EXEMPTION FROM TAX ONLY WHERE THE PROPERTY IS ITSELF HELD UNDER TRUST OR OTHER LE GAL OBLIGATION; IT DOES NOT APPLY TO CASES WHERE A TRUST OR LEGAL OBLI GATION IS NOT CREATED ON ANY PROPERTY BUT ONLY THE INCOME DERIVED FOR A CHARITABLE OR RELIGIOUS PURPOSE. SURPLUS FUNDS OF A TRUST, WHICH WAS CLAIMED TO BE EXEMPT ON THE FOOTING THAT IT WAS PROPERTY HELD UNDER TRUST WITHIN THE MEANING OF SEC. 11(1) OF THE ACT, WAS NOT PROPERTY HELD UNDER TRUST SINCE THE PROPERTY FROM W HICH THE SURPLUS WAS GENERATED WAS ITSELF NOT HELD UNDER TRU ST. IN OTHER WORDS, MERELY CARRYING ON BUSINESS FOR AND ON BEHAL F OF THE TRUST AND APPLYING THE PROFITS OF THE SAME FOR THE OBJECT OF THE TRUST DOES NOT ENTITLE FOR EXEMPTION U/S. 11(4) OF THE AC T UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJ ECTS OF THE TRUST. 10. WE NOW PROCEED TO CONSIDER THE QUESTION WHETHE R THE SAID ACTIVITIES CARRIED ON BY THE ASSESSEE WERE INC IDENTAL TO THE ATTAINMENT OF THE OBJECTS OF THE TRUST. WE FAIL TO SEE ANY CONNECTION BETWEEN THE ACTIVITIES RELATING TO RUNNI NG OF COMMUNITY HALL, KALYANAMANDAPAM AND FUNERAL CEREMON Y HALL WERE CARRIED ON AND THE ATTAINMENT OF THE OBJECTS O F THE TRUST. THE MERE FACT THAT WHOLE OR SOME PART OF THE INCOME FROM - - ITA 664 & 665/1 5 18 RUNNING OF COMMUNITY HALL, KALYANAMANDAPAM AND FUNE RAL CEREMONY HALL ARE USED FOR CHARITABLE PURPOSES WOU LD NOT RENDER THE BUSINESS ITSELF BEING CONSIDERED AS INCI DENTAL TO THE ATTAINMENT OF THE OBJECTS. WE ARE IN AGREEMENT WITH THE DEPARTMENT THAT THE APPLICATION OF INCOME GENERATED BY THE BUSINESS IS NOT RELEVANT CONSIDERATION AND WHAT IS RELEVANT IS WHETHER THE ACTIVITY IS SO INEXTRICABLY CONNECTED O R LINKED WITH THE OBJECTS OF THE TRUST THAT IT COULD BE CONSIDERE D AS INCIDENTAL TO THOSE OBJECTIVES. 11. IT WAS CONTENDED BY THE LD. AR THAT THE SURPLU S FUNDS GENERATED FROM THE RUNNING OF COMMUNITY HALL, KALYANAMANDAPAM AND FUNERAL CEREMONY HALL WERE SPEN T TOWARDS CHARITABLE ACTIVITIES AND THEREFORE, THE AS SESSEE IS ENTITLED FOR EXEMPTION U/S. 11(4) OF THE I.T. ACT. WE ARE UNABLE TO ACCEPT THIS CONTENTION. INITIALLY, THE ASSESSEE CAR RIED ON THE BUSINESS ITSELF WHICH IS NOT AT ALL PROPERTY HELD U NDER TRUST. THIS ACTIVITY IS A BUSINESS ACTIVITY AND THE PROVISIONS OF SECTION 11(4A) OF THE ACT IS APPLICABLE. 12. IT WAS CONTENDED THAT IF THE PROFITS OF THE BU SINESS CARRIED ON BY THE TRUST ARE UTILIZED BY THE TRUST FOR THE P URPOSES OF - - ITA 664 & 665/1 5 19 ACHIEVING THE OBJECTIVES OF THE TRUST, THEN THE BUS INESS SHOULD BE CONSIDERED TO BE INCIDENTAL TO THE ATTAINMENT OF TH E OBJECTS OF THE TRUST AS OBSERVED BY THE SUPREME COURT IN THE CASE OF ACIT VS. THANTHI TRUST (2001) 247 ITR 785 WHICH IS AS UNDER: AS IT STANDS, ALL THAT IT REQUIRES FOR THE BUSINES S INCOME OF A TRUST OR INSTITUTION TO BE EXEMPT IS TH AT THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAINMENT OF OBJECTIVES OF THE TRUST OR INSTITUTION. A BUSINESS WHOSE INCOME IS UTILIZED BY THE TRUST OR THE INSTITUTION FOR THE PURPOSES OF ACHIEVING THE OBJECTIVES OF THE TRUST ..IN ANY EVENT, IF THERE BE ANY AMBIGUITY IN THE LANGUAGE EMPLOYED, THE PROVISION MUST BE CONSTRUED IN A MANNER THAT BENEFITS THE ASSESSEE. 13. PRIMA FACIE THE ABOVE OBSERVATION WOULD APPEAR TO SUPPORT THE ASSESSEES CASE IN THE SENSE THAT EVEN IF RUNNING OF COMMUNITY HALL, KALYANAMANDAPAM AND FUNERAL CEREMON Y HALL ARE HELD NOT TO CONSTITUTE A BUSINESS HELD UNDER TR UST, BUT ONLY AS A BUSINESS CARRIED ON BY OR ON BEHALF OF THE TRUST, SO LONG AS THE PROFITS GENERATED BY IT ARE APPLIED FOR THE CHARITA BLE OBJECTS OF THE TRUST, THE CONDITION IMPOSED U/S. 11(4A) OF THE ACT SHOULD BE HELD TO BE SATISFIED, ENTITLING THE TRUST TO THE TAX EXE MPTION. 14. IN OUR OPINION, THESE OBSERVATIONS HAVE TO BE UNDERSTOOD IN THE LIGHT OF THE FACTS BEFORE THE SUPREME COURT IN THE CASE OF THANTHI TRUST (SUPRA), WHEREIN THE TRUST CARRIED ON THE BUSINESS - - ITA 664 & 665/1 5 20 OF A NEWSPAPER AND THAT BUSINESS ITSELF WAS HELD UN DER TRUST. THE CHARITABLE OBJECT OF THE TRUST WAS THE IMPARTIN G OF EDUCATION WHICH FALLS U/S. 2(15) OF THE ACT. THE NEWSPAPER BU SINESS WAS INCIDENTAL TO THE ATTAINMENT OF THE OBJECT OF THE T RUST, NAMELY THAT OF IMPARTING EDUCATION AND THE PROFITS OF THE NEWSP APER BUSINESS ARE UTILIZED BY THE TRUST FOR ACHIEVING THE OBJECT OF IMPARTING EDUCATION. IN THIS CASE, THERE IS NO SUCH NEXUS BET WEEN THE ACTIVITIES CARRIED ON AND THE OBJECTS OF THE ASSESS EE THAT CAN CONSTITUTE AN ACTIVITY INCIDENTAL TO THE ATTAINMENT OF THE OBJECTS, NAMELY, TO PROMOTE CAUSE OF CHARITY, MISSION ACTIVI TIES, WELFARE, EMPLOYMENT, DIFFUSION OF USEFUL KNOWLEDGE, UPLIFTME NT AND EDUCATION AND TO CREATE AN AWARENESS OF SELF-RELIAN CE AMONG THE MEMBERS OF THE PUBLIC ETC. WE ARE THEREFORE, OF THE OPINION THAT THE OBSERVATIONS OF THE SUPREME COURT MUST BE UNDER STOOD AND APPRECIATED IN THE BACKGROUND OF THE FACT IN THAT C ASE AND SHOULD NOT BE EXTENDED INDISCRIMINATELY TO ALL CASES. BEIN G SO, WE ARE INCLINED TO HOLD THAT THE ASSESSEE IS NOT ENTITLED FOR ANY EXEMPTION U/S. 11 OF THE I.T. ACT. 15. FURTHER, THE ASSESSEE IS NOT ENTITLED FOR DEPRE CIATION ON THE OPENING BALANCE OF WRITTEN DOWN VALUE OF THE AS SETS IN THE - - ITA 664 & 665/1 5 21 ASST. YEAR UNDER CONSIDERATION, WHICH WERE PURCHASE D IN EARLIER YEARS AND THE COST OF THOSE ASSETS HAVE ALREADY CON SIDERED AS APPLICATION OF INCOME IN EARLIER ASST. YEAR WHILE G RANTING EXEMPTION U/S.11 OF THE ACT. IN OUR OPINION, THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. KONGUNADU ARTS & SCIENCE COLLEGE COUBNCIL IN ITA NO.2097/MDS/2014 DATED 26.6.2015, WHEREIN IT WAS H ELD AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SECTION 32 OF T HE ACT WHICH PROVIDES FOR DEPRECIATION. DEPRECIATION HAS T O BE ALLOWED ON THE COST OF THE ASSET. IN THIS CASE, THE COST OF THE ASSET WAS ALLOWED U/S 11 OF THE ACT AS APPLICATION INCOME SINCE THE ASSESSEE IS A CHARITABLE INSTITUTION ENTI TLED FOR EXEMPTION U/S 11. THEREFORE, THE COST OF THE ASSET BECOMES NIL. WHEN THE COST OF THE ASSET BECOMES NIL, THERE IS NO QUESTION OF ALLOWING ANY DEPRECIATION. IF THE DEPRE CIATION IS ALLOWED THEN IT WOULD AMOUNT TO DOUBLE DEDUCTION. T HE INCOME OF THE CHARITABLE INSTITUTION HAS TO BE COMP UTED ON COMMERCIAL PRINCIPLE IN CASE THE ASSESSEE IS NOT CL AIMING EXEMPTION U/S 11 OF THE ACT. THE ASSESSEE CAN ALSO CLAIM DEPRECIATION IN CASE THE EXEMPTION U/S 11 WAS DENIE D BY THE ASSESSING OFFICER. WHATEVER MAY BE THE REASONS, SIN CE THE COST OF THE ASSET IS NIL AS THE COST WAS ALREADY AL LOWED AS APPLICATION OF INCOME, THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT THE ASSESSEE IS NOT ENTITLED FOR DEPRE CIATION. SECTION 32 OF THE ACT FALLS IN CHAPTER IV UNDER COM PUTATION OF BUSINESS INCOME, HOWEVER, SECTION 11 FALLS IN CH APTER III WHICH PROVIDES FOR INCOMES WHICH DO NOT FORM PART O F THE TOTAL INCOME. THEREFORE, THIS TRIBUNAL IS OF THE CO NSIDERED PINION THAT PROVISIONS OF SECTION 11 OF THE ACT WIL L OVERRIDE - - ITA 664 & 665/1 5 22 SECTION 32. IN OTHER WORDS, IF THE ASSESSEE CLAIMS EXEMPTION U/S 11 UNDER CHAPTER III OF THE ACT, IT CANNOT CLAI M DEPRECIATION U/S 32 OF THE ACT. THEREFORE, WE ARE U NABLE TO UPHOLD THE ORDER OF THE CIT(A). ACCORDINGLY, THE OR DER OF THE CIT(A) IS SET ASIDE AND THAT OF THE ASSESSING OFFIC ER IS RESTORED. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALSO DISMISSED. 16. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 6 TH OF APRIL, 2016 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 6 TH APRIL, 2016. MPO* 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.