M/s Sri Sadananda Dattatreya Bhakta Samajam, V. The Commissioner of Income Tax, Rajahmundry

ITA 70/VIZ/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0730 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Keywords: Charitable institution
• Section: 12AA

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO : 70/VIZAG/2010 ASSESSMENT YEAR : 2009-10 SRI SADANANDA DATTATREYA BHAKTA SAMAJAM, WG DIST VS. ITO, WARD-2, ELURU (APPELLANT) (RESPONDENT) PAN NO : AAITS 4979 G APPELLANT BY : SHRI GVN HARI, RESPONDENT BY : SHRI SUBRATA SARKAR O R D E R PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 09-12- 2009 PASSED BY LD CIT, RAJAHMUNDRY REFUSING TO GRAN T REGISTRATION U/S 12AA OF THE ACT. 2. THE LD CIT REJECTED THE APPLICATION OF THE A SSESSEE SEEKING REGISTRATION U/S 12AA ON THE FOLLOWING GROUNDS. A) THE TRUST DEED IS NOT REGISTERED AND HENCE IT REMAI NS AN UNREGISTERED BODY. B) THE OBJECTS OF THE TRUST ARE PARTLY RELIGIOUS AND P ARTLY CHARITABLE. 3. WITH REGARD TO THE FIRST OBJECTION OF LD CIT , WE NOTICE THAT THE ITAT, VISAKHAPATNAM HAS HELD AS UNDER IN THE CASE OF SRI JAGANNADHA SWAMY, SRI ANJANEYA SWAMY & SRI VENKATESWARA SWAMY TEMPLES, GU NTUR, IN ITA NO.681/VIZAG/2008, VIDE ITS ORDER DATED 15.09-2009. 6. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSE D THE RECORD. AS PER THE RULE 17A OF THE INCOME TAX RULE S, THE APPLICATION SEEKING REGISTRATION U/S 12AA OF THE AC T SHALL BE ACCOMPANIED WITH COPIES OF THE TRUST DEED IF THE TR UST IS CREATED UNDER AN INSTRUMENT. IN THE SAID RULES IT HAS ALSO BEEN 2 PROVIDED THAT WHERE THE TRUST IS CREATED OR THE INS TITUTION ESTABLISHED OTHERWISE THAN UNDER AN INSTRUMENT, THE DOCUMENT EVIDENCING CREATION OF THE TRUST OR THE ESTABLISHME NT OF THE INSTITUTION TOGETHER WITH ONE COPY THEREOF CAN BE A TTACHED TO THE APPLICATION. ON CAREFUL READING OF THIS RULE I NDICATES THAT THE TRUST OR THE INSTITUTION NEED NOT NECESSARILY B E ESTABLISHED UNDER AN INSTRUMENT. IF THE TRUST OR INSTITUTION I S ESTABLISHED OTHERWISE THAN BY AN INSTRUMENT, THEN IT IS PROPER COMPLIANCE OF LAW IF ANY DOCUMENT EVIDENCING CREATION OF THE T RUST IS ATTACHED TO THE APPLICATION, MEANING THEREBY, WHAT IS REQUIRED TO BE PROVED IS THE EXISTENCE OF THE TRUST AND GENU INENESS OF ITS ACTIVITIES. THE CASE LAWS RELIED UPON BY THE A SSESSEE ALSO SUGGEST THAT THE OBJECTS OF THE TRUST COULD BE INFE RRED FROM THE INTENTION OF THE SETTLER. THUS THE TRUE OBJECT IVE NEED NOT ALWAYS BE WRITTEN IN THE TRUST DEED AND THE SAME CA N BE INFERRED FROM THE INTENTION OF THE SETTLER. THE ASSESSEE HEREIN HAS NOTORISED THE TRUST DEED. FROM THE REASONING GIVEN IN THE ABOVE CITED ORDER, WE NOTICE THAT THERE IS NO SUCH REQUIREMENT UNDER THE INCOME TAX ACT THAT THE INSTR UMENT OR DOCUMENT EVIDENCING CREATION OF THE TRUST SHOULD BE REGISTER ED. 4. WITH REGARD TO THE SECOND OBJECTION OF LD CI T, THE ITAT, VISAKHAPATNAM HAS HELD AS UNDER IN THE CASE OF VINC ENTIAN ANDHRA SOCIETY, IN ITA NO.237/VIZAG/2008, VIDE ITS ORDER DATED 28-1 1-2008/ 7. TO APPRECIATE THE RIVAL CONTENTIONS OF THE PARTI ES, WE WOULD REFER TO THE RELEVANT PROVISIONS, I.E., SECTI ON 11(1)(A) AND 11(1)(B), OF THE INCOME TAX ACT. 11(1). SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63, THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE T OTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIP T OF THE INCOME (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRU ST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; AND, W HERE ANY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICA TION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOM E SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF FIFTEE N PERCENT OF THE INCOME FROM SUCH PROPERTY; (B) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST IN PART ONLY FOR SUCH PURPOSES, THE TRUST HAVING BEEN CREAT ED BEFORE THE COMMENCEMENT OF THIS ACT, TO THE EXTENT TO WHIC H SUCH 3 INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; AND, W HERE ANY SUCH INCOME IS FINALLY SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO SET APART IS NOT IN EXCESS OF FIFTEEN PER CENT OF THE INCOME FROM SU CH PROPERTY. 8. THERE APPEARS TO BE CERTAIN CONTROVERSY WITH REG ARD TO THE INTERPRETATION OF THE WORDS WHOLLY IN SECTION 11( 1)(A) AND IN PART IN SECTION 11(1)(B) OF THE ACT. THE INTERPRE TATION OF THE ASSESSING OFFICER ON SECTION 11(1)(A) APPEARS TO BE AS UNDER. INCOME DERIVED FROM THE PROPERTIES HELD UNDER THE TRUST (A) WHOLLY FOR CHARITABLE PURPOSES OR (B) WHO LLY FOR RELIGIOUS PURPOSES. ACCORDING TO THIS INTERPRETATION, UNDER SECTION 11( 1)(A) OF THE ACT, THE TRUSTS SHOULD BE EITHER WHOLLY CHAR ITABLE TRUST OR WHOLLY RELIGIOUS TRUST AND THERE SHOULD NOT BE ANY MIX UP WITH REGARD TO THE APPLICATION OF THEIR RESPECTIVE INCOM E, I.E., IF THE WHOLLY CHARITABLE TRUST APPLIES ITS INCOME FOR RELI GIOUS PURPOSES OR IF IT DONATES ITS INCOME TO ANOTHER TRUST, WHOSE OBJECT IS EITHER WHOLLY RELIGIOUS OR PARTLY RELIGIOUS, EXEMPT ION UNDER SECTION 11(1)(A) OF THE ACT IS NOT APPLICABLE TO IT . 9. IF THE INTERPRETATION OF THE ASSESSING OFFI CER IS EXTENDED TO SECTION 11(1)(B) OF THE ACT, THE SAME SHOULD BE INT ERPRETED AS UNDER:- INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST (A) IN PART FOR CHARITABLE PURPOSES OR (B) IN PART FOR RELIGIOUS PURPOSES. IF THIS INTERPRETATION IS ACCEPTED, IT CAN BE SAID THAT THE SITUATIONS OF TRUSTS WHOSE OBJECTS ARE PARTLY CHARI TABLE AND PARTLY NON-CHARITABLE ARE NOT ADDRESSED IN SECTION 11(1)(B). IN OUR OPINION, THIS CANNOT BE THE RIGHT INTERPRETATIO N. SECTION 11(1)(B) CAN ONLY BE INTERPRETED TO MEAN THAT IT CO VERS THOSE TRUSTS WHOSE OBJECTS ARE PARTLY CHARITABLE OR RELI GIOUS AND PARTLY NOT CHARITABLE OR NOT RELIGIOUS. WE FIND SUPPORT FOR OUR INTERPRETATION FROM THE PROVISIONS OF SECTION 164(3 ) OF THE ACT, WHICH DEALS WITH THE MANNER OF TAXATION OF THOSE TR USTS WHOSE OBJECTS ARE PARTLY CHARITABLE OR RELIGIOUS (AND PAR TLY NON CHARITABLE OR NON RELIGIOUS). THE PROVISIONS OF SE CTION 164(3) ARE REPRODUCED BELOW FOR THE SAKE OF CONVENIENCE: 164 (3) . IN A CASE WHERE THE RELEVANT INCOME IS DERIVED FROM PROPERTY HELD UNDER TRUST IN PART ONLY FOR CHARITABLE OR RELIGIOUS PURPOSES OR IS OF THE NATURE REFERRED TO IN SUB- CLAUSE (IIA) OF CLAUSE (24) OF SECTION 2 OR IS OF T HE NATURE REFERRED TO IN SUB-SECTION (4A) OF SECTION 11, AND EITHER THE 4 RELEVANT INCOME APPLICABLE TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES (OR ANY PART THEREOF) IS NOT SPECIFICALLY RECEIVABLE ON BEHALF OR FOR THE BE NEFIT OF ANY ONE PERSON OR THE INDIVIDUAL SHARES OF THE BENEFICI ARIES IN THE INCOME SO APPLICABLE ARE INDETERMINATE OR UNKNOWN, THE TAX CHARGEABLE ON THE RELEVANT INCOME SHALL BE THE AGGR EGATE OF (A) THE TAX WHICH WOULD BE CHARGEABLE ON THAT PART OF T HE RELEVANT INCOME WHICH IS APPLICABLE TO CHARITABLE OR RELIGIOUS PURPOSES (AS REDUCED BY THE INCOME, IF ANY, WHICH IS EXEMPT UNDER SECTION 11) AS IF SUCH PART ( OR SUCH PART AS SO REDUCED) WERE THE TOTAL INCOME OF AN ASS OCIATION OF PERSONS; AND (B) THE TAX ON THAT PART OF THE RELEVANT INCOME WHICH I S APPLICABLE TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES , AND WHICH IS EITHER NOT SPECIFICALLY RECEIVABLE ON BEHALF OR FOR THE BENEFIT OF ANY ONE PERSON OR IN RESPECT OF WHICH THE SHARES OF THE BENEFICIARIES ARE INDETERMINATE OR UNKNOWN, AT THE MAXIMUM MARGINAL R ATE: IT IS PERTINENT TO NOTE THAT SECTION 11(1)(B) IS AP PLICABLE TO THOSE TRUSTS WHICH HAVE BEEN CREATED BEFORE THE COMMENCEMENT OF THE ACT. 10. HENCE SECTION 11(1)(A) WOULD ALSO APPLY TO T HOSE TRUSTS WHICH ARE PARTLY CHARITABLE AND PARTLY RELIGIOUS. HENCE T HE TERM WHOLLY CHARITABLE OR RELIGIOUS PURPOSES IN SECTION 11(1)( A) WOULD MEAN THAT ALL PURPOSES MUST BE CHARITABLE OR RELIGIOUS. WE FIND SUPPORT FOR THIS FROM THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF YOGIRAJ CHARITY TRUST, SUPRA, WHERE IN IT WAS HELD THAT IF ONE OF THE OBJECTS OF THE TRUST DE ED IS NOT OF A RELIGIOUS OR CHARITABLE NATURE AND THE TRUST DEED C ONFERS FULL DISCRETION ON THE TRUSTEES TO SPEND THE TRUST FUNDS FOR AN OBJECT OTHER THAN OF A RELIGIOUS OR CHARITABLE NATU RE, THE EXEMPTION U/S 4(3)(I) OF THE INCOME TAX ACT, 1922 I S NOT AVAILABLE TO THE ASSESSEE. THUS THE OBJECTION OF THE LD CIT HAS BEEN ADDRESSED VERY CLEARLY IN THE ORDER CITED ABOVE. 5. THUS THE TWO OBJECTIONS RAISED BY LD CIT ARE NOT IN ACCORDANCE WITH THE LAW. WE HAVE GONE THROUGH THE FOLLOWING CASE L AW RELIED UPON BY THE LD CIT. A) GANGABAI CHARITIES VS. CWT (2001) (250 ITR 6 66 (SC) B) GULAM MOHIUDDIN VS. CIT (2001) 248 ITR 587 (J & K) C) STATE OF KERALA VS. M.P.SHANTI VERMA JAIN (1998) 231 ITR 787 (SC) 5 IN THE FIRST CASE, THE OBJECTS WERE NOT CONFIRMED T O CHARITABLE OR RELIGIOUS PURPOSES AND THE FUNDS OF THE TRUST COULD BE UTILIZED FOR SOCIAL, CULTURAL AND ALLIED PURPOSES AT THE SOLE DISCRETION OF THE TRUSTEES. IN THESE CIRCUMSTANCES, THE HONBLE SUPREME COURT HELD THAT THE EXEMPTION UNDER WEALTH TAX ACT WAS NOT AVAILABLE TO THE ASSESSEE. IN THE SECOND CASE, THERE WAS VIOLATION OF CLAUSES (A) AND (B) OF SECTION 13( 1). THE THIRD CASE HAS BEEN DECIDED UNDER KERALA AGRICULTURAL INCOME TAX A CT. HENCE, IN OUR OPINION, THESE CASE LAW ARE NOT APPLICABLE TO THE F ACTS OF THE INSTANT CASE. 6. ACCORDINGLY WE REVERSE THE ORDER OF LD CIT AND RESTORE THE ISSUE BACK TO THE FILE OF LD CIT WITH A DIRECTION TO CONSIDER THE APPLICATION FILED BY THE ASSESSEE SEEKING REGISTRATION U/S 12AA OF THE ACT A FRESH IN ACCORDANCE WITH LAW. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 2.6.2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM DATE : 2 ND JUNE, 2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 SADANANDA DATTATREYA BHAKTA SAMAJAM, VATLURU, PE DAPADU MANDAL, WEST GODAVARI DISTRICT. 02 THE ITO WARD-2, KKS TOWERS, ELURU, WEST GODAVARI DISTRICT. 03 THE CIT, RAJAHMUNDRY 04 THE DR, ITAT, VISAKHAPAATNAM 05 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH