M/s. Anjauman-e-Khyrkhah-e-Aam, CHENNAI V. ADIT, CHENNAI

ITA 796/CHNY/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6551 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: misc
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SRIDHAR
• Keywords: Charitable institution; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A.NO. 796/MDS/2011 M/S. ANJUMAN-E-KHYRKHAH-E- AAM, C/O SHRI S. SRIDHAR, ADVOCATE, NEW NO.14, OLD NO.82, FLAT NO.5, 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI 600 020 PAN AABTT 4040 J VS. THE DIRECTOR OF INCOME-TAX (EXEMPTIONS), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE RESPONDENT BY : SHRI K.E.B.RENGARAJAN, JR. STANDING COUNSEL O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) AT CHENNAI DATED 30.3.2011 WHEREIN HE HAS REJECTED THE APPLICA TION PUT IN BY THE ASSESSEE FOR AVAILING REGISTRATION UNDER SEC.12 AA OF THE INCOME-TAX ACT, 1961. ITA 796/11 :- 2 -: 2. WHEN THE ASSESSEE HAD PUT IN THE APPLICATION FOR THE FIRST TIME BEFORE THE APPROPRIATE AUTHORITY, IT WAS REJEC TED ON THE GROUND THAT SELLING OF BOOKS, HIRING OF UTENSILS AN D BUYING OF PROPERTIES AND LETTING THEM FOR RENTAL ETC. ETC. CA NNOT BE CONSIDERED AS CHARITABLE ACTIVITIES. THE DECISION OF THE APPROPRIATE AUTHORITY WAS CHALLENGED BEFORE THE TRI BUNAL. THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE AND DIR ECTED THE AUTHORITY TO GRANT REGISTRATION UNDER SEC.12AA. TH IS ORDER OF THE TRIBUNAL WAS CHALLENGED BEFORE THE HONBLE JURISDIC TIONAL HIGH COURT. THE HONBLE HIGH COURT OF MADRAS HAS SET AS IDE THE ORDER OF THE TRIBUNAL AND REMITTED BACK THE MATTER TO THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) AT CHENNAI FOR FRESH DISPOS AL OF THE APPLICATION ON MERITS. 3. IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HON BLE HIGH COURT, THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) AT C HENNAI CONSIDERED THE ISSUE AGAIN AND FINALLY REACHED AT A CONCLUSION THAT THE ASSESSEE IS NOT ELIGIBLE FOR GETTING REGIS TRATION UNDER SEC.12AA. THE REASON POINTED OUT BY THE DIRECTOR I S THAT THE MAIN ACTIVITY OF THE ASSESSEE IS TO ACCUMULATE HUGE INVE STMENTS IN ITA 796/11 :- 3 -: PURCHASE OF ASSETS AND EARN RENTAL INCOME FROM THOS E ASSETS WITHOUT ENGAGING ITSELF IN ANY CHARITABLE ACTIVITIE S. 4. THE ASSESSEE IS AGGRIEVED AND THEREFORE, THE APP EAL BEFORE US. 5. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE C ONTENDED THAT THE ASSESSEE IS A TRUST ESTABLISHED FOR MORE T HAN 100 YEARS AND IS RUNNING AN SCHOOL WITH HOSTEL FACILITIES AND RUNNING AN SCHOOL IS NOTHING BUT A CHARITABLE ACTIVITY. THE L EARNED COUNSEL CONTENDED THAT THE ASSESSEE IS NOT CARRYING ON ANY OTHER ACTIVITY OTHER THAN RUNNING THE SCHOOL AND HOSTEL. ALMOST A LL THE PROPERTIES, EXCEPT ONE OR TWO, HAVE BEEN BEQUEATHED IN FAVOUR OF THE ASSESSEE TRUST DECADES AGO, WHICH WERE NOT IN F ACT ACQUIRED BY THE ASSESSEE TRUST. AS SUCH ONLY ONE OR TWO PRO PERTIES WERE DIRECTLY PURCHASED BY THE ASSESSEE TRUST. ALL THES E PROPERTIES HAVE BEEN ACQUIRED BY THE ASSESSEE NOT FOR THE PURP OSE OF PRIVATE ENJOYMENT BUT FOR APPLYING THE INCOME ARISI NG OUT OF THE SAID PROPERTIES FOR THE PURPOSE OF CHARITABLE ACTIV ITIES FOR WHICH THE TRUST HAS BEEN ESTABLISHED. 6. THE LEARNED COUNSEL FURTHER ARGUED THAT THE ORDE R PASSED BY THE COMMISSIONER INCOME-TAX WAS AN EX PARTE ORDER A ND THE ASSESSEE HAD NO OCCASION TO EXPLAIN BEFORE THE SAID AUTHORITY THE ITA 796/11 :- 4 -: FACTUAL ASPECTS OF THE CASE, SO THAT THE VERSIONS O F THE ASSESSEE COULD BE FAVOURABLY CONSIDERED BY THE SAID AUTHORIT Y. 7. SHRI K.E.B.RENGARAJAN, THE LEARNED JUNIOR STANDI NG COUNSEL APPEARING FOR THE REVENUE, ON THE OTHER HAN D, CONTENDED THAT IT IS FOR THE SECOND ROUND THAT THE MATTER HAS COME BEFORE THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) AND HE HAD GIVEN AMPLE OPPORTUNITIES TO THE ASSESSEE TO PRESENT ITS CASE BEFORE HIM WITH FIGURES, FACTS AND DETAILS. IN SPITE OF T HAT, THE ASSESSEE HAS NOT APPEARED BEFORE THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) AND HE HAS NO OTHER GO BUT TO CONCLUDE THE PROCEEDI NGS AN EX PARTE BASIS. DE HORS THE ABOVE, THE LEARNED COUNSE L FURTHER EXPLAINED THAT THE DETAILS DISCUSSED BY THE DIRECTO R OF INCOME-TAX (EXEMPTIONS) IN HIS ORDER MADE IT CLEAR THAT THE MA IN ACTIVITY OF THE TRUST IS TO INVEST THE MONEY IN HOUSE PROPERTIE S AND TO EARN RENTAL INCOME FROM SUCH PROPERTY ON LETTING THEM OU T. THIS IS THE MAIN ACTIVITY CARRIED ON BY THE ASSESSEE TRUST. WH EN THIS IS THE MAIN ACTIVITY CARRIED ON BY THE ASSESSEE TRUST, IT IS NOT POSSIBLE TO HOLD THAT THE ASSESSEE IS CARRYING ON ANY CHARITABL E ACTIVITY. HE, THEREFORE, SUBMITTED THAT THE DIRECTOR (EXEMPTIONS) HAS RIGHTLY REJECTED THE APPLICATION FILED BY THE ASSESSEE TRUS T. ITA 796/11 :- 5 -: 8. WE HEARD BOTH SIDES IN DETAIL. IT IS TRUE THAT THE ASSESSEE TRUST HAS BEEN ESTABLISHED SINCE MORE THAN 100 YEAR S AND THE ASSESSEE IS RUNNING THE SCHOOL WITH HOSTEL FACILITI ES ATTACHED TO IT. THE ASSESSEE TRUST IS HAVING INCOME FROM RENT, SALE OF BOOKS, CALENDARS AND OTHER HIRE CHARGES. THE ASSESSEE IS ALSO GETTING NOMINAL AMOUNTS BY WAY OF DONATIONS AND ALSO CERTAI N SUMS AS CORPUS DONATIONS. SUCH AMOUNTS COLLECTED BY THE AS SESSEE TRUST HAVE BEEN USED FOR THE PURPOSE OF RUNNING THE SCHOO L AND THE HOSTEL AND ALSO IN CONSTRUCTING BUILDINGS. A MAJOR PORTION OF THE OUTGOINGS OF THE ASSESSEE TRUST HAVE BEEN TOWARDS C ONSTRUCTION OF BUILDINGS. BUT AT THE SAME TIME, THERE IS NOTHI NG ON RECORD TO SHOW THAT THE ASSESSEE HAS CARRIED OUT ANY OTHER AC TIVITY THAN RUNNING THE SCHOOL AND HOSTEL. THERE IS ALSO NO CA SE THAT THE TRUST INCOME HAS BEEN UTILIZED FOR THE PRIVATE BENEFIT OF ANYBODY. IF THE OBJECT OF THE ASSESSEE TRUST IS TO RUN EDUCATIONAL INSTITUTION AND THE ASSESSEE HAS BEEN CARRYING ON THAT ACTIVITY ALO NE, THE CONSTRUCTION OF BUILDINGS AND PURCHASE OF PROPERTY, CANNOT BE TREATED AS A POINT AGAINST THE ASSESSEE. THE ASSES SEE MAY BE PURCHASING PROPERTIES AND CONSTRUCTING BUILDINGS FO R THE PURPOSE OF LETTING OUT TO EARN INCOME NECESSARY FOR CARRYIN G ON THE CHARITABLE ACTIVITY IN THE NATURE OF RUNNING THE SC HOOLS AND HOSTELS. ITA 796/11 :- 6 -: IN THAT WAY, IF THE ENTIRE ACTIVITIES CARRIED ON BY THE ASSESSEE ARE CHARITABLE IN NATURE, THE EXPENSES INCURRED FOR CON STRUCTION OF BUILDINGS AND PURCHASE OF ASSETS ALSO QUALIFY TO BE CONSIDERED AS APPLICATION OF FUNDS FOR CHARITABLE PURPOSES. 9. THE DISCUSSIONS MADE BY THE DIRECTOR OF INCOME-T AX (EXEMPTIONS) DO NOT BRING OUT ANY ADVERSE FINDINGS AGAINST THE ASSESSEE SO AS TO DENY REGISTRATION UNDER SEC.12AA. IT IS TO BE SEEN THAT, AS ALREADY STATED ABOVE, IF A CHARITABLE TRUST, CARRYING ON CHARITABLE ACTIVITIES ALONE, APPLIED FUNDS FOR A CQUIRING BUILDINGS AND SIMILAR ASSETS, SUCH AMOUNTS ALSO SHOULD BE CON SIDERED AS AMOUNTS APPLIED FOR CHARITABLE PURPOSES. IN THE PR ESENT CASE, THE ASSESSEE IS RUNNING EDUCATIONAL INSTITUTIONS AND HO STELS FOR ALMOST A CENTURY AND DOING YEOMAN SERVICE TO THE SO CIETY. EXCEPT ONE OR TWO, ALL THE ASSETS AND PROPERTIES OW NED BY THE ASSESSEE TRUST WERE DONATED IN FAVOUR OF THE ASSESS EE TRUST MAINLY THROUGH WAKF AND OTHER ANJUMAN DISPOSITIONS. THOSE OLD PROPERTIES FETCHING LESSER AMOUNTS OF RENT MAY NOT BE SUFFICIENT FOR THE ASSESSEE TRUST TO MEET THE EVER INCREASING EXPENDITURE OF CARRYING OUT ITS CHARITABLE ACTIVITIES. THEREFORE, IT IS QUITE NATURAL THAT THE ASSESSEE MAY EXPLORE NEW SOURCES OF INCOME TO SUPPORT ITA 796/11 :- 7 -: CHARITABLE ACTIVITIES. IT IS IN THAT CONTEXT THAT THE ASSESSEE TRUST IS CONSTRUCTING MORE BUILDINGS AND ACQUIRING ASSETS. BUT THE MOST IMPORTANT POINT TO BE NOTED IN THE CONTEXT IS THAT ALL THE PROPERTIES OWNED BY THE ASSESSEE TRUST ARE HELD IN TRUST FOR T HE PURPOSE OF CARRYING ON CHARITABLE ACTIVITIES OUT OF THE INCOME ARISING OUT OF SUCH PROPERTIES. THEREFORE, THERE IS NOTHING UNLAW FUL IN ASSESSEE ACQUIRING ASSETS AND BUILDINGS. 10. IN THE FIRST ROUND OF THE PROCEEDINGS, THE DIRE CTOR OF INCOME- TAX (EXEMPTIONS) HAD POINTED OUT CERTAIN SIMPLE REA SONS TO REJECT THE APPLICATION OF THE ASSESSEE POINTING TOWARDS TH E OBJECT CLAUSES OF THE ASSESSEE TRUST. IN THE SECOND ROUND , THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) IS STRESSING ON ANOTHER REASON THAT THE ASSESSEE IS SPENDING MONEY FOR ACQUIRING ASSETS . THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) HIMSELF IS NOT HAVING ANY CONSISTENT VIEW ON THE GROUND ON WHICH THE APPLICAT ION OF THE ASSESSEE HAS TO BE REJECTED. 11. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE FIND THAT THIS IS A FIT CASE TO GRANT REGISTRATION UNDER SEC.12AA. THE DIRECTOR OF INCOME-TAX IS DIRECTED TO GRANT REG ISTRATION UNDER SEC.12AA AND ALLOW THE APPLICATION FILED BY THE ASS ESSEE TRUST. ITA 796/11 :- 8 -: 12. IN RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 18 TH DAY OF JULY, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 18 TH JULY, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR