High Court Of Madras
CIT vs. Sengunthar Thirumana Mandapam
Sections 2(15), 11
Asst. Years 1990-91, 1991-92, 1992-93, 1993-94, 1999-2000
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Case Nos. 252 to 256 of 2006 and TCMP Nos. 1277 to 1280 of 2006
28th February, 2006
Counsel Appeared
T. Ravi Kumar, for the Appellant
JUDGMENT
P.D. Dinakaran, J. :
As against the order of the Tribunal dt. 27th Sept., 2004, made in ITA Nos. 1194, 1195, 1196, 1197 and 1203/Mad/2003, the Revenue has preferred these appeals, raising the following substantial question of law :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee- society was entitled to exemption under s. 11 of the IT Act merely on the ground that the registration under s. 12AA has been granted w.e.f. 1st April, 1990, without noticing that no charitable activities have been conducted and the income from the letting out of Kalyana Mandapam assessable under the head ‘Business’ has not been applied for any charitable purposes like education or any other object of general public utility ?”
2. The assessee is a society registered under the Tamil Nadu Societies Registration Act. The relevant assessment years are 1990-91, 1991-92, 1992-93, 1993-94 and 1999-2000, respectively. Admittedly, the society was allotted land by the Collector of Salem District in his proceedings in R. Dis. No. 274700 of 1983, dt. 23rd Dec., 1984, on the specific condition that the land should be used for Kalyana Mandapam. As per the guidelines given by the Collector, the assessee should build a Kalyana Mandapam and it should function for the benefit of local people, mainly weavers and agriculturists. Any infringement of the above condition would enable the Collector to takeover the land along with the building. The grant also provides to charge a very nominal rent for the building to meet maintenance, repairs and renovation expenses. Accordingly, the assessee was running a Kalyana Mandapam and collecting minimum nominal charges from the users. That apart, the assessee also started receiving voluntary donations from the accounting year 198990. Since the assessee did not file the return for the asst. yrs. 1990-91 to 1999-2000, the AO had reasonably believed that the income of the assessee was liable to be taxed. As the same escaped assessment on account of the failure on the part of the assessee to file return of income under s. 139 of the Act, a notice was issued to the assessee under s. 148 of the Act for the asst. yrs. 199091 to 1997-98, since the assessee itself admitted the income for the asst. yr. 1998-99 and 19992000, as income from the business, which was also accepted under s. 143(1)(a) of the Act. Therefore, the AO issued notice under s. 148 of the Act. However, the assessee filed nil returns for all the years on 30th March, 2001.
According to the assessee-society, it is a registered one established for charitable purpose and its income was exempted under s. 11/12 of the Act. But, the Revenue rejected the explanation of the assessee on the sole ground that the assessee itself had admitted the income for the asst. yrs. 1998-99 and 1999-2000 as income from business without claiming any exemption. The AO further found that even though the object of the association was to construct a Kalyana Mandapam for the benefit of local people, upliftment of the poor, education and other social and charitable activities, the assessee had not undertaken any charitable activity since its inception except constructing and running a marriage hall, which is purely a commercial activity and does not have any charity involved in the activity and therefore, computed the income for the said assessment years as follows : Assessment year Income assessed 1990-91 59,960 1991-92 1,81,990 1992-93 1,46,430 1993-94 66,810 1994-95 1,01,020 1995-96 56,090 1996-97 1,53,000 1997-98 4,00,250 1998-99 1,03,360 1999-2000 10,800
Against the order of the AO, the assessee preferred an appeal before the CIT(A). The CIT held that letting out of the marriage hall by the assessee would not lose the benefit of exemption. That apart, the CIT, applying the ratio laid down in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) wherein it is held that it is sufficient to take into consideration the dominant and primary object of the trust to decide its character whether it is for charitable purpose or not, allowed the appeals preferred by the assessee and granted exemption under ss. 11 and 12AA of the Act, which was confirmed by the Tribunal, on appeal at the instance of the Revenue. Hence, the above appeals.
3. Learned standing counsel appearing for the Revenue, placing strong reliance on the decision of this Court in CIT vs. Halai Nemon Association (2000) 162 CTR (Mad) 373 : (2000) 243 ITR 439 (Mad) contends that exemption for income of the charitable trust under ss. 11 and 12AA of the Act cannot be granted automatically inasmuch as each transaction has to be looked into to decide whether the income earned was assessable as business income or otherwise. It is his further contention that the AO had given a clear finding that the assessee had not undertaken any charitable activity since its inception, except constructing a marriage hall and letting it for rent and that there was no charity involved in the same, which finding has not been either traversed or reversed by the CIT or by the Tribunal with convincing reasons.
4. We are unable to accept the above contentions of learned standing counsel. On the facts, both the CIT as well as the Tribunal have rendered a clear finding based on the admitted facts of the case that the land was given by the Collector of Salem District to the assessee to construct a Kalyana Mandapam on the specific condition that it should function for the benefit of local people, mainly weavers and agriculturists. The grant also provides for collecting nominal rent for the building to meet maintenance, repairs and renovation expenses. It is not in dispute that the assessee used to let out the Kalyana Mandapam for social and charitable activities collecting nominal rent. Based on these undisputed facts, the CIT and the Tribunal rendered a concurrent finding that the very activity of constructing the Kalyana Mandapam and letting it out to the local people, mainly weavers and agriculturists, satisfied the charitable object, even though the assessee had not diverted the accumulated fund for any other charitable purpose, viz., for the upliftment of the poor, education and other social and charitable activities.
5. In our considered opinion, the failure or non-diversion of the accumulated funds for any other charitable purpose, as referred to above, by itself, would not divest the right conferred on the assessee to claim exemption under ss. 11 and 12AA of the Act, for the simple reason that the activity of constructing Kalyana Mandapam and letting out the same after collecting nominal rent to meet maintenance, repairs and renovation expenses, sufficiently satisfies the object, viz., the benefit of local people, mainly weavers and agriculturists, which is a condition under the grant given by the Collector and failure to comply with the said condition would enable the Collector to takeover the building along with the land.
6. That apart, the assessee had applied for registration as required under s. 12AA on 31st Dec., 1999, and the registration was given with retrospective effect from 1st April, 1990, by the competent authority by order dt. 2nd Aug., 2002, placing reliance on the CBDT Circular No. 762, dt. 18th Feb., 1998, which came into effect from 1st April, 1997, inserted by the Finance (No. 2) Act, 1996, enabling the Chief CIT or CIT to satisfy himself about the genuineness of the trust or institution and to grant registration, by exercising such power conferred under s. 12AA of the Act. The above facts cannot be lightly disregarded under the facts and circumstances of the case, inasmuch as the same have got persuasive effect to the case of the assessee.
7. Therefore, in view of the above concurrent finding of the CIT that the construction of the Kalyana Mandapam and letting out itself is a charitable activity, the decision rendered by this Court in CIT vs. Halai NemonAssociation (supra) has no application to the facts of the case.
8. On the other hand, this Court in CIT vs. Samyuktha Gowda Saraswatha Sabha (2000) 245 ITR 242 (Mad), held that letting out of the Kalyana Mandapam, even though was not one of the objects of the assessee, but an activity carried on to fulfil the objects of the trust and the income earned by the trust by such activity cannot be construed as its business income, but its property income and, therefore, the same is entitled to be exempted under s. 11 of the Act. But the case on hand is stronger than the case in CIT vs. Samyuktha Gowda Saraswatha Sabha (supra).
9. In view of the admitted fact that the main object of the trust itself is to construct a Kalyana Mandapam for the benefit of the local people, mainly weavers and agriculturists, the land was also granted by the District Collector, Salem, to achieve the said object, viz., for the benefit of local people, upliftment of the poor, education and other social and charitable activities, which is one of the dominant and primary objects of the trust. As per the ratio laid down in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (supra), the assessee satisfies the dominant and primary object of the trust by putting up construction and letting the same by collecting nominal rent, which would not defeat the right of exemption under s. 11 of the Act, merely on account of the fact that the accumulated funds had not been spent for other charitable activities, viz., for upliftment of the poor, education and other social activities, which had wrongly (been) weighed by the AO that the trust had not undertaken any charitable activity since its inception.
10. We also add that the mere fact that the assessee submitted returns for the asst. yrs. 1998-99 and 1999-2000 admitting the income as business income will not take away the rights of the assessee to claim the benefit of exemption, as there cannot be any estoppel against s. 11 of the Act, for the simple reason that the Revenue has not raised any question of law in that regard.
11. For all these reasons, we do not find any substantial question of law arising for consideration and accordingly, the appeals are dismissed. Consequently, TCMP Nos. 1277 to 1280 of 2006 are also dismissed.
[Citation : 283 ITR 355]
