M/S MANASADHARA TRUST V. THE CHIEF COMMISSIONER

WP/27961/2015

AI Insights

The case involves M/s Manasadhara Trust, which filed a writ petition against the Chief Commissioner of Income-Tax, Bengaluru - 2, challenging the rejection of their application for renewal of an exemption certificate under Section 10(23C)(via) of the Income Tax Act, 1961. The Trust argued that the profits accumulated were used for purchasing a site and constructing a building for a school for mentally retarded children, and not for profit distribution as initially stated in the Trust Deed. The Chief Commissioner had initially rejected the application citing that the Trust was existing for profit purposes. However, the Trust amended the deed to remove the profit distribution clause before the application was considered. The court found that the Trust should be given another opportunity to present their case with written submissions and relevant evidence.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 694144 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-11-2017
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALGI
• Assessee Lawyers: JINITA CHATTERJEE
• Keywords: Income tax exemption; Philanthropic Purposes; Profit Distribution; Trust deed amendment
• Section: 11; 12AA; 13; 12; 80G; 2(15); 11(1)(d); 10(23c)(via)

Judgement Text

" 1/8 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 13th DAY OF NOVEMBER 2017 BEFORE THE HON'BLE Dr.JUSTICE VINEET KOTHARI WRIT PETITION No.27961/2015(T-IT) BETWEEN: M/S MANASADHARA TRUST NO.77/45, 100 FT. ROAD SAGAR ROAD, I PARALLEL ROAD A-BLOCK, GOPALA GOWDA EXTENSION SHIMOGA – 577204, REPRESENTED BY ITS CHAIRMAN-CUM-MANAGING TRUSTEE DR.K.A.ASHOK PAI AGED ABOUT 69 YEARS (SR. CITIZEN NOR CLAIMED) SON OF LATE SRI KATEEL APPU PAI. …PETITIONER (BY MS.JINITA CHATTERJEE, ADV. FOR SRI S PARTHASARATHI) AND: THE CHIEF COMMISSIONER OF INCOME-TAX BANGALURU – 2 C.R.BUILDING QUEEN’S ROAD BENGALURU – 560 001. …RESPONDENT (BY SRI.JEEVAN J NEERALGI, ADV.) THIS W.P. IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER OF THE RESPONDENT DTD.30.03.2015 PASSED UNDER SECTION 10(23G) (VIA) OF THE ACT (ANNEXURE – C). Date of Order 13-11-2017 W.P.No.27961/2015 M/s Manasadhara Trust Vs The Chief Commissioner of Income-Tax 2/8 THIS W.P. COMING ON FOR PRELIMINARY HEARING THIS DAY, THE COURT MADE THE FOLLOWING:- ORDER Ms.Jinita Chatterjee, Adv. for Sri S Parthasarathi for Petitioner Mr.Jeevan J Neeralgi, Adv. for Respondent The petitioner – M/s Manasadhara Trust has filed this petition before this Court aggrieved by the order passed by the respondent – The Chief Commissioner of Income-tax, Bangaluru – 2 rejecting the Trust’s application for renewal of exemption certificate under Section 10(23C)(via) of the Income Tax Act, 1961 for Assessment Year 2014-15. 2. The reasons assigned by the respondent – Chief Commissioner in the impugned order for the said year is quoted below for ready reference: “6. Further, it is observed, as per the terms of the Trust Deed dated 16.8.2006 on page no.10 vide para no.26 “the funds and the income of the Trust shall be solely utilized for payments to Trust Members by way of profit, interest, dividend etc”. Thus, it can be construed that, the applicant is a trust ‘existing for purposes Date of Order 13-11-2017 W.P.No.27961/2015 M/s Manasadhara Trust Vs The Chief Commissioner of Income-Tax 3/8 of profit’ as contemplated by clause(via) of section 10(23C) of I.T.Act and an element of profiteering exists. 6.1 However, it is pertinent to note that, as on the date of application, the terms of Trust Deed contains the clause “funds and the income of the Trust shall be solely utilized for payments to Trust Members by way of profit, interest, dividend etc”. whereas, in the amended trust deed dated 23.2.2015 which was submitted during the course of hearing the above said clause was deleted. 6.2 In this connection, further it can be noted that, as per Trust Deed dated 16.8.2006 vide page no.8 and para 12, regarding Amendments, Alterations or Deletions to the Trust Deed, it reads as under; “12. Amendments, Alternations or Deletions to the Trust Deed: That the Trustees shall have power to amend, alter or rescind the rules and interpret their meaning wherever the rules and by-laws framed do not cover any provisions, provided that such change or interpretation does not conflict with the aims and objects of the Trust and same shall not be repugnant to the provisions of Section 2(15), 11, 12 13 and 80G of Income Tax. No Amendment shall be made, without prior approval of Commissioner of Income Tax. Date of Order 13-11-2017 W.P.No.27961/2015 M/s Manasadhara Trust Vs The Chief Commissioner of Income-Tax 4/8 6.3 The applicant initially registered u/s 12AA before the Commissioner of Income Tax and the deed of amendment is registered before Sub-Registrar, Shimoga on 23.2.2015 without prior approval of the Commissioner of Income Tax. This act of the applicant shows the mere intention to get the approval u/s 10(23C)(via) and clearly indicates after thought of the applicant. Hence, the same is not acceptable. 7. The applicant is showing surplus, which includes donations received, under corpus fund in the balance sheet which is contrary to sec.11(1)(d) – “income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution”. 8. After verifying the facts of the case in detail and in view of the above discussions, it can be construed that the applicant trust is not satisfying the condition envisaged in section 10(23C)(via) i.e., “existing solely for philanthropic purposes and not for purposes of profit”. Hence, no exemption under sec. 10(23C)(via) of the Income-tax Act 1961 can be granted for the assessment year 2014-15. Accordingly, the assessee’s application for grant of exemption for the above said period is hereby rejected Sd/- (NUTAN WODEYAR) Chief Commissioner of Income-tax, Date of Order 13-11-2017 W.P.No.27961/2015 M/s Manasadhara Trust Vs The Chief Commissioner of Income-Tax 5/8 Bangalore-2,Bangalore”. 3. On the last occasion, after hearing both sides, this Court had passed the following interim order on 14.08.2017. The said order is also quoted below for ready reference: 1. The learned counsel for the petitioner has argued before the Court that the accumulation of the profit by the petitioner- Trust, which runs educational institution for mentally retarded children, was utilised for the purpose of purchasing a site and construction of the building for the school and therefore, the learned Chief Commissioner could not have denied the exemption under Section 10(23C) Clause(vi-a) of the Income Tax Act, 1961. 2. She has further submitted that the offending clause in the Trust Deed that the profits would be distributed to the members was deleted by amendment of the Trust Deed on 23.2.2015 and such amendment was discussed by the learned Chief Commissioner herself in the impugned order Annexure-“C” dated 30.3.2015. 3. However, from a perusal of the said order it is not clear whether these submissions were made in writing before the said Chief Commissioner or not. Mere production of such communication before the Assistant Commissioner without the same being brought to the notice of the concerned Chief Date of Order 13-11-2017 W.P.No.27961/2015 M/s Manasadhara Trust Vs The Chief Commissioner of Income-Tax 6/8 Commissioner of the Income-Tax who has passed the impugned order, such submissions cannot be accepted at its face value. 4. Therefore, the learned counsel for the petitioner is directed to produce on record the copy of the written submissions filed before the Chief Commissioner along with the relevant evidence which is now sought to be relied upon by the learned counsel for the petitioner. 5. At the same time, the learned counsel for the Revenue is also directed to produce before this Court the original record considered by the learned Chief Commissioner of Income Tax at the time of passing of the impugned order at Annexure-“C” on 30.3.2015 and also file a brief additional statement of objections as to whether the record of the lower authorities and evidence produced by the petitioner-Trust was available with the learned Chief Commissioner at the time of passing of the impugned order or not. Put up after four weeks. 4. In pursuance of the same, learned counsel for the respondent – Department has submitted before the Court that the original record of the Chief Commissioner has been summoned and no written submissions filed from the side of the petitioner in this regard, were found in the record of the Chief Commissioner, while passing Date of Order 13-11-2017 W.P.No.27961/2015 M/s Manasadhara Trust Vs The Chief Commissioner of Income-Tax 7/8 the impugned order and only oral submissions were addressed on 23.03.2015 and thereafter, the impugned order was passed on 30.03.2015. 5. This fact is not disputed by the learned counsel for the petitioner that written submissions were not filed before the respondent – Chief Commissioner, however, oral submissions were made on that date. 6. Having heard the learned counsels for the parties and in the facts and circumstances of the case, this Court is of the opinion that the petitioner – Trust should be allowed one more opportunity to file their written submissions before the respondent – Chief Commissioner along with the relevant facts and evidence and the respondent – Chief Commissioner should reconsider the entire issue regarding exemption to the petitioner – Trust for Assessment year 2014-15 in the light of said facts and evidence placed before her. Date of Order 13-11-2017 W.P.No.27961/2015 M/s Manasadhara Trust Vs The Chief Commissioner of Income-Tax 8/8 7. Accordingly, the petition is allowed and setting aside the impugned order – Annexure “C” dated 30.03.2015, the matter is restored back to the Chief Commissioner of Income Tax, Bangalore – 2 to pass fresh orders in accordance with law after giving reasonable opportunity of hearing to the petitioner – Trust and after examining the relevant evidence produced by it. The petitioner – Trust may file fresh representations also and appear through authorized representative in the first instance on 14.12.2017 and a period of three months is allowed to the respondent to pass fresh orders in accordance with law. Sd/- JUDGE brn "