High Court Of Andhra Pradesh
Kamma Sangham vs. DIT (Exemptions), Hyderabad
Assessment Year : 2001-02
Section : 11, 12A, 12AA
Kalyan Jyoti Sengupta, Cj. And Sanjay Kumar, J.
ITTA No. 613 Of 2013
January  22, 2014
JUDGMENT
Kalyan Jyoti Sengupta, CJ. – This appeal is sought to be preferred and admitted against the judgment and order dated 23.11.2011 of the learned Tribunal in relation to the assessment year 2001-02 on the following suggested questions of law.
“1. On the facts and in the circumstances of the case whether the Tribunal was correct in law in perversely bolding that the investment made in immovable property was not for charitable purpose despite the provisions of Section 11(5) of the Income Tax Act, 1961 treating such investment as application for charitable purpose?
2. Whether the learned ITAT was correct in law in wrongly applying Section 13(1)(bb) in the case of the appellant for assessment year 2001-02 despite the fact that Section 13(1)(bb) was omitted with effect from 01st April 1984 by the Finance Act, 1983 and the objects of the appellant trust have already been approved to be charitable in nature?”
2. In this matter, the learned Tribunal has refused to interfere with the judgment and order of the Commissioner of Income Tax (Appeals) by which the Commissioner dismissed the appeal filed by the appellant by confirming the order of the Assessing Officer not allowing exemption under Section 11 of the Income Tax Act, 1961 (for short, “the Act”) to the assessee in respect of the income said to have been derived in course of carrying on its business.
3. The brief facts of this case are as follows:
On earlier occasion, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) by order dated 28.11.2007 and restored the matter back to the file of the Assessing Officer on the ground that the Assessing Officer has not given any findings as to whether the money so accumulated or set apart had been deposited in the form or modes specified in Section 11(5) of the Act. On remand, it was submitted by the assessee that it had passed the resolution on 13.06.1992 to the effect that at the end of each year, 75% of the income of the Sangham will be accumulated for the purpose of construction of building at its Ameerpet landed property. It was further submitted that out of the net income of Rs.59,28,817/- of the year, Rs.44,46,614/-, being 75% thereof, has been transferred to Building Fund Reserve Account. It was further stated that most of the donations have been collected for the specific purpose of construction of building and the donors have instructed the management to use the funds only for the said purpose. It was also stated that though the funds were accounted for under the head “Donation”, legally those came under “Corpus fund” to be used only for building construction. As such the assessee claimed before the lower authorities that donation of Rs.40,09,000/- should be treated as Corpus fund, not forming part of the income of the trust. It was further submitted that though the excess of income over expenditure worked out to Rs.59,28,807/- before transfer to building fund reserve, income for the purpose of Section 11, capital gain is also to be considered as application of income. It was explained by the assessee that Form-10 was not filled along with the return of income for the assessment year 2001-02 intentionally, as there was no surplus requiring statutory compliance as provided under Section 11(2) of the Act. However, the assessee filed Form-10 along with letter dated 12.08.2009. However, the Assessing Officer has not accepted the explanation and refused to grant the relief as prayed for. The Assessing Officer, on fact, noted that as per the statement of computation of total income, the total income was of Rs.82,02,415/-, whereas the application was of Rs.66,32,281/-. Out of the said application, Rs.3,60,388/- had been applied in building the committee hall, while Rs.41,61,881/- were applied in building the commercial complex. So it was found by the Assessing Officer that the application of the aforesaid fund in construction of the building is not at all covered by any of its objects. The Commissioner of Income Tax (Appeals) also upheld the findings of the Assessing Officer. On fact, the Commissioner of Income Tax (Appeals) found that the aforesaid application of fund for construction of the building by the assessee is not the charitable activity. This was also found by the learned Tribunal itself.
4. In the context of the aforesaid, the learned counsel for the appellant would argue that all the authorities should have taken a broader view in the matter as this fund has been utilized for construction of the building and the income therefrom would be utilized for fulfilling the objects. As such, all the authorities should have allowed the exemption. He further argues that once registration under Section 12 of the Act is granted, the authorities below do not have any option but to allow the benefit under Section 11 of the Act. In support of his argument, he has relied upon the following decisions in CIT v. J.H. Gotla [1985] 156 ITR 323/23 Taxman 14J (SC), CIT v. St. George Forane Church [1988] 170 ITR 62/36 Taxman 42 (Ker.), CIT v. Hyderabad Race Club Charitable Trust [2003] 262 ITR 194/129 Taxman 788 (AP) and CIT v. Janmabhumi Press Trust [2000] 242 ITR 457 (Kar.).
5. After going through the impugned judgment and order of the learned Tribunal and considering the argument of the learned counsel for the appellant, we think that the only issue in this matter is whether on the facts and circumstances of the case the authorities below is justified in refusing to grant the benefit under Section 11 of the Act. All the authorities below, on fact, found that the funds received by way of donation have been utilized for construction of commercial building and none of the clauses of the trust provides for construction of building for charitable activities. However, it has been argued that this building itself is being utilized as a source of income to augment the fund of the trust so much so to fulfil the charitable activities in a broader sense. It is also argued that once exemption is granted, obviously the benefit under Section 11 of the Act has to be applied.
6. Before we proceed further, we think it fit to reproduce the relevant portion of Section 11 of the Act.
“11. Income from property held for charitable or religious proposes. (1) Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—
(a) 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; and where any such income is accumulated or set apart for application to such purposes in India to the extent to which the income so accumulated or set apart is not in excess of fifteen 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 created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and where 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 such property;
(c) income derived from property held under trust—
(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and
(ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India.
Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;
(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.
(e) Explanation—For the purposes of clauses (a) and (b)—
(1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in Section 12 shall be deemed to be part of the income;
(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount —
(i) for the reason that the whole or any part of the income has not been received during that year, or
(ii) for any other reason, then—
(a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and
(b) in the case referred to in sub-clause (ii) so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of Section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii) during the previous year immediately following the previous year in which the income was derived.”
7. We find that in order to get the benefit under Sections 11 and 12 of the Act, the conditions as mentioned in Section 12(A) of the Act have to be fulfilled, meaning thereby, the trust has to get a registration as required. Section 12AA provides for procedure for registration. We are of the view that granting registration does not ipsi dixit entitle the assessee to get the benefit under Section 11 or 12. According to us, registration initially recognizes the charitable activities of the trust. However, in order to get the benefit under Sections 11 and 12, factually it has to be established that 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. If this factual aspect is not established, the registration does not help otherwise. All the authorities below have found that the application of the fund is not made for charitable activity but for construction of the building, which again does not directly reflect the charitable activities. Even on the record, it does not appear that the assessee had intended to apply the future income, which might be derived from the building so constructed. In this context, what the learned Tribunal has noted on fact is required to be reiterated:
“In assessee’s case major portion of the income of the assessee has been spent towards construction of a commercial complex. As seen from the object clause of the bye-laws construction of commercial complex is not the object of the assessee. Its main object is to establish educational institutions, providing boarding and lodging to the students and working youth, rendering financial help to the deserving students, providing scholarships, to establish hospitals and libraries. Even the commercial complex was not used for any of the objects for which the trust was created but had been used to let out to commercial organizations to earn rent. The income generated through that also not fully used for the purpose of attainment of objects of the assessee. Subsequently, income generated by the assessee was regularly being ploughed back into income generating assets without applying the same for charitable purposes.”
8. As far as the Corpus fund is concerned, the Tribunal has found as follows:
“The entire donation received in the assessment year under consideration was in the nature of corpus donation. It has been brought on record by the lower authorities that all the 164 letters from the donors in this regard were stereotype letters in Telugu apparently written by a single person. The said letters only stated that the donations had been given as a token of assistance to the programme of the assessee in general. There is no clear mentioning of any desire for making the said donation towards corpus fund. There is no specific direction in writing regarding that the donation has been made for the specific purpose of construction of commercial complex. In view of this, the donations so received are to be considered as normal donation and cannot be considered as donations towards corpus fund.”
9. The decision of the Supreme Court for taking liberal view in a tax matter in case of J.H. Gotla (supra), according to us, is not disputed, but on the aforesaid clear fact finding that it was not for the charitable activities, it is difficult to follow the same in this case.
10. The decision of the Kerala High Court in case of St. George Forane Church (supra) is not applicable on the facts and circumstances of this case, as in that case it was found that the assessee has made addition to a building belonging to the church and the addition to the building was made with the intention of letting them out for rent and factually such intention was reflected in that case. Here, the authorities below did not find such intention. Hence, this decision is not helpful in this case.
11. The decision of this Court in case of Hyderabad Race Club Charitable Trust (supra) rendered that the fund was applied for the charitable activities. Here, all the authorities below, on fact, found that it was not applied for charitable activities. Hence, this judgment is also not helpful in this case.
12. The decision of the Karnataka High Court in case of Janmabhumi Press Trust (supra) is not helpful in this case as factually it was found that any investment made in the construction of a building which in turn would augment its income, such income would be applied for the charitable activities. In this case, from the records such an intention was not reflected and this was found by all the authorities below.
13. Therefore, we think that on the clear fact finding the learned Tribunal has passed just and correct order and we do not find any reason to interfere with the same, as we do not notice any question of law, which is required to be decided.
14. Hence, we dismiss the appeal.
[Citation :Â 362 ITR 30]
