ST. GEORGES ORTHODOX SYRIAN CHURCH v. INCOME TAX OFFICER
[Citation -1984-LL-0720-1]

Citation 1984-LL-0720-1
Appellant Name ST. GEORGES ORTHODOX SYRIAN CHURCH
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 20/07/1984
Assessment Year 1973-74 , 1974-75
Judgment View Judgment
Keyword Tags revenue expenditure • places of worship • school building • capital asset • deed of trust • prize amount • dharamshala • fixed asset
Bot Summary: Under section 11, income derived from property held under trust wholly for charitable or religious purposes is not to be included in the income to the extent to which such income is applied to such purposes in India. The AAC upheld the finding of the ITO. He held that when the religious institution applies its income for acquiring fixed assets, it can be allowed as an application of the income for religious purposes only when there is a direct nexus between the fixed asset and the religious purpose. The question for consideration is whether in such cases, the application of the income for the purpose of the construction of commercial complex can be treated as application of the income for religious purposes. We are still left with the question whether the utilisation of the income for the purpose of constructing a commercial complex for the purpose of producing income to be utilised for various religious purposes will amount to application of the income for religious purposes. If a trust applies its income for constructing a hospital or school building, or purchasing apparatus or furniture therefor, it would be application of the income to charitable purposes. If the proposition is accepted, a religious institution can apply its entire income on commercial activity and claim the same to be application of the income for religious purposes merely because the income ultimately obtained from the commercial activity is to be applied for religious purposes. A religious institution can spend the entire income on the acquisition of a capital asset, which has nothing to do with the religion on the plea that the income derived from the capital asset is going to be used for religious purposes.


These appeals by assessee relate to assessment years 1973-74 and 1974-75, for which previous years ended on 31-12-1972 and 31-12- 1973, respectively. 2. assessee, St. George's Orthodox Syrian Church, Trivandrum, is religious institution registered with Commissioner under section 12A of Income-tax Act, 1961 ('the Act'). In return for assessment year 1973-74, assessee showed income of Rs. 1,02,587 as income from various sources and Rs. 1,36,904 as amount applied for charitable purposes, thus, declaring deficit of Rs. 34,317. For assessment year 1974-75, assessee showed surplus of Rs. 48,445 in income and 726 expenditure account. During assessment year 1973-74, assessee had spent Rs. 26,226 on construction of commercial complex. It had also paid Rs. 25,456 as subscriptions to chitties. prize amount of chitties had been used earlier for purpose of construction of commercial complex. Similarly, in year 1974-75 assessee had spent Rs. 32,503 on commercial complex. ITO held that these amounts spent for acquiring capital assets for church cannot be treated as income applied for charitable purposes within meaning of section 11 of Act and that assessee is not, therefore, entitled to claim exemption with regard to these amounts. Under section 11, income derived from property held under trust wholly for charitable or religious purposes is not to be included in income to extent to which such income is applied to such purposes in India. 3. AAC upheld finding of ITO. He held that when religious institution applies its income for acquiring fixed assets, it can be allowed as application of income for religious purposes only when there is direct nexus between fixed asset and religious purpose. He also held that if income is invested for acquiring capital asset for earning income, it will not amount to application of income for religious purposes. Aggrieved with same, assessee has come up in appeal. 4. circumstances under which assessee embarked upon construction of commercial complex can be gathered from notice issued by church. It is stated therein that in many places there are no proper places of worship for members of church. It is pointed out that at least eight or ten chapels have to be constructed in Southern Travancore to cater to needs of members of church, who are working in various estates. Similarly, it is pointed out that hostel and other accommodation have to be provided for members of church who come to Trivandrum on employment or for educational purposes. Similarly, it is also necessary to provide destitute homes, hostels and employment opportunities to offer relief to weaker sections among members of church. It is then pointed out that main impediment in carrying out objects is lack of funds. pamphlet says that if modern buildings are constructed in compound belonging to church in centre of Trivandrum corporation and if these buildings are let out, income can be utilised for purposes mentioned earlier. It is then stated that plans have been finalised for construction of three storeyed building in church compound with facilities for shop rooms, office, hostels, etc. 4A. construction of portion of commercial complex had been completed. Apart from spending amounts directly for construction of complex, income of church was utilised for returning loans taken for construction and also for paying subscriptions to chitties, prize amounts of which had been utilised for construction. disallowance in present appeals relates to amounts spent directly on construction of commercial complex and also for purpose of payment of subscriptions to chitties. 5. In support of contention that amounts spent on commercial complex and subscriptions paid to chitties will amount to application of income for religious purposes within meaning of section 11, learned representative for assessee first relied upon Circular No. 100 [F. No. 195/1/72-IT (A-I)], dated 24-1-1973----TAXMANn's Direct Taxes Circulars, Vol. 1, 1980 edn., issued by CBDT. It is stated in circular that two questions were considered by CBDT, namely, (i) whether repayment of debt incurred by trust for purposes of trust will amount to application of income for purposes of trust, and (ii) whether loans or advances for higher studies could be treated as application of income for charitable purposes. In present case, we are not concerned with second question. With regard to first question, it is stated in circular that CBDT has decided that repayment of loan originally taken to fulfil one of objects of trust will amount to application of income for charitable and religious purposes. On strength of this circular, it can be held that no differentiation is necessary between spending of income directly on construction of complex and income spent on repayment of loans taken for purpose of construction or for payment of subscriptions in case of chitties, where prize amount has been utilised for construction of complex. But, this circular is of no help in deciding basic question that arises for consideration in present case, namely, whether spending of income on construction of commercial complex can be said to be utilisation of income for religious purposes. No deed of trust or any other document has been produced by assessee. assessee has been registered as religious institution and question for consideration will, therefore, be whether income has been applied for religious purposes. There can be no dispute about fact that construction of chapels and providing of facilities for worship will be acts in furtherance of religious purposes. For purpose of present case, we may assume without deciding that other activities indicated in pamphlet, namely, providing of hostel accommodation, etc., for members of church will also constitute religious activities. But, in present case, income has not been applied directly for religious purposes mentioned above. On other hand, income has been applied for construction of commercial complex, income from which is to be applied for religious purposes. question for consideration is whether in such cases, application of income for purpose of construction of commercial complex can be treated as application of income for religious purposes. 6. learned representative for assessee relied upon decision of Supreme Court in case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1. In that case, Supreme Court was considering interpretation of words 'not involving carrying on any activity of profit' occurring in section 2(15) of Act. It was held that if dominant or primary purpose of assessee did not involve carrying on of any activity for profit, then, assessee will be entitled to claim exemption with regard to its income and that subsidiary objects, even if they involved some commercial activity, would not militate against charitable character and purpose of assessee. This decision is of no help in deciding issue involved in present case. 7. learned representative for assessee then relied upon decision in Satya Vijay Patel Hindu Dharamshala Trust v. CIT [1972] 86 ITR 683 (Guj.). In that case, trust was created and certain immovable properties were transferred to it to be administered as Hindu dharamshala. question for consideration was whether income utilised for construction of new dharamshala will amount to application of income for purposes of trust. It was held by Gujarat High Court that only requirement of section 11 is that income of trust must be applied to charitable purposes for which properties are held under trust by trustees and that it does not say that application of income should be such that it necessarily results in revenue expenditure, that charitable purpose may, in given case, require for its fulfilment, purchase of capital asset and where income is applied for purchase of such capital asset, it would still be application of income to charitable purpose. This decision is no authority for proposition that investment of income in capital asset for purpose of producing income for application to religious purpose will be application of income for religious purposes. This decision is only authority for position that application of income for acquiring capital asset will still be application of income for religious or charitable purposes, provided acquisition of capital asset is for said purposes. This decision will only help assessee in claiming that utilisation of income to acquire capital asset for religious purposes will amount to application of income for religious purposes. In light of this decision, disallowance of claim by ITO merely on ground that income has been spent for acquiring capital asset will not stand. 8. We are still left with question whether utilisation of income for purpose of constructing commercial complex for purpose of producing income to be utilised for various religious purposes will amount to application of income for religious purposes. Our attention was not drawn to any rulings income for religious purposes. Our attention was not drawn to any rulings dealing with this aspect. We find that this aspect has been considered at page 401 of Taxation of Charity by M. P. Agrawal, 1981 edition. learned author states thus: " Expenditure on charities need not be in nature of revenue expenditure. If trust applies its income for constructing hospital or school building, or purchasing apparatus or furniture therefor, it would be application of income to charitable purposes. This, however, does not mean that if trust spends or invests its income for acquiring capital asset for earning income, it would still tantamount to application of income to charitable purposes. If assets acquired have direct nexus with charitable or religious purposes, it is only then that it will amount to application of income within meaning of section 11. Investment in income-earning asset would not be application of income as envisaged by section. " [Emphasis supplied) We are in agreement with views expressed by learned author. 9. It was contended by learned representative for assessee that we should have wider outlook and should take more liberal view of matter by holding that investment of income in venture which would bring higher or increased income which could ultimately be applied for religious purposes, should be held to be application of income for religious purposes. It appears to be unsafe to accept such proposition. If proposition is accepted, religious institution can apply its entire income on commercial activity and claim same to be application of income for religious purposes merely because income ultimately obtained from commercial activity is to be applied for religious purposes. Similarly, religious institution can spend entire income on acquisition of capital asset, which has nothing to do with religion on plea that income derived from capital asset is going to be used for religious purposes. essential requirement of section 11 is that income for which exemption is sought must be one which has been applied for religious purposes during relevant previous year. 10. We, therefore, hold that in present case income has not been applied for religious purposes. In result, appeals are dismissed. *** ST. GEORGES ORTHODOX SYRIAN CHURCH v. INCOME TAX OFFICER
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