The Commissioner of Income-tax, Bangalore / The Director of Income-tax (Exemptions), Bangalore v. India Heritage Trust
[Citation -2014-LL-0804-33]

Citation 2014-LL-0804-33
Appellant Name The Commissioner of Income-tax, Bangalore / The Director of Income-tax (Exemptions), Bangalore
Respondent Name India Heritage Trust
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 04/08/2014
Judgment View Judgment
Keyword Tags genuineness of the activities • cancellation of registration • charitable activities • residential project • charitable purpose • business activity • source of income • charitable trust • public interest • deed of trust • satisfaction
Bot Summary: There is neither any finding by the Director of Income Tax nor any material was brought on record to show that the income from the business of housing project would not be utilised by the trust for attainment of objectives of the trust. There is no material on record to show that the income from business as provided in Clause 10 of the original deed dated 17.05.2004 cannot be utilised by the trust for the purpose of achieving objectives of trust. If on the date of the application the trust has received income from its property, then find out how the said income has been expended, and whether it can be said -9- that the income is utilized towards charitable and religious purposes, i.e., towards the object of the trust. For the purpose of registration under section 12AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purpose and not the nature of the activity by which the income was derived to the trust. Sub-section of Section 12AA of the Act provides that where a trust or an institution has been granted registration under Clause of Sub- section and subsequently the CIT is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution. There is no material on record to show that the income from business as provided in Clause 10 of - 12 - the original deed dated 17.05.2004 would not be utilised by the trust for the purpose of achieving objectives of the trust. Once the trust deed produced in the case shows the objectives of the Trust is charitable and the material on record, shows that the Trust is carrying on charitable activities, merely because they proposed to carry on the business in future to augment the income to support charitable purposes, the registration cannot be declined.


-1- IN HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS 4TH DAY OF AUGUST, 2014 P RESENT HON BLE MR. JUSTICE N. KUMAR AND HON BLE MRS. JUSTICE RATHNAKALA INCOME TAX APPEAL NO.754 OF 2007 BETWEEN: 1. COMMISSIONER OF INCOME-TAX, C.R. BUILDING QUEENS ROAD, BANGALORE. 2. DIRECTOR OF INCOME-TAX (EXEMPTIONS) BANGALORE. APPELLANTS (BY SRI K.V. ARAVIND, ADV.) AND: M/S. INDIA HERITAGE TRUST, GOKULAM COMPLEX, DODDAKALLASANDRA, 8TH MILE, KANAKAPURA ROAD, BANGALORE 560 062. RESPONDENT (BY SRI K.P.KUMAR, SR.COUNSEL FOR SMT.VANI H., ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 11-05-2007 PASSED IN ITA NO.99/BANG/2006 PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: -2- I. FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW APPEAL AND SET ASIDE ORDER PASSED BY INCOME-TAX APPELLATE TRIBUNAL, PASSED IN ITA NO.99/BANG/2006, DATED 11-05-2007 AND CONFIRMING ORDER OF DIRECTOR OF INCOME TAX (EXEMPTIONS) BANGALORE. THIS APPEAL IS COMING ON FOR FINAL HEARING THIS DAY, N. KUMAR J., DELIVERED FOLLOWING: - JUDGMENT This appeal is preferred by revenue challenging order passed by Tribunal, which has held that Clause 10 of Trust Deed cannot be treated as ground for refusal of registration. Accordingly, cancelled order passed under Section 12AA by Director of Income Tax (Exemption) and directed him to allow registration under Section 12AA of Income Tax Act of 1961 (hereinafter referred to as Act ). 2. assessee applied for registration under Section 12A of Act on 20.05.2005. deficiency letter was issued on 14.10.2005 calling for certain particulars and also clarification regarding proposed business activity of Trust. assessee submitted his submission on 19.10.2005. assessee stated that they are in process of obtaining permission from various government -3- organisations to have Heritage Park constructed. To raise funds for said project, they have also initiated residential apartment project for which permission from concerned authorities has been obtained. They are in process of construction and marketing same. On consideration of such documents / materials, show cause letter on 18.11.2005 was issued to assessee calling for explanation regarding Clause 10 of Trust Deed and Clause 4(o) of proposed amendment. Director of Income Tax (Exemptions) after consideration of said submissions held that there is no doubt that objects are charitable in nature and are covered under Section 2(15) of Act. Clause 10 of Trust Deed which is neither part of objects nor incidental to objects, vests power in trustees authorizing them to carry on activities for profit. It is clear that its activities proposed to be carried out by trust entirely falls out of purview of its objects. Subsequently, through amendment to trust deed by delegating extraordinary power to trustees and also making more explicit intention to venture into such activities they have violated objects clause. business of construction and marketing flats is in no way connected with objects. It is neither incidental nor has any remote -4- connection with activities of trust. Therefore, he was of view that making provision by empowering trustees for entering into any activities for profit has not only made its genuiness doubtful but has also attempt to camouflage its business activities disguising itself as trust. activity of business venture in nature of residential project cannot be held as genuine, since it is not incidental to any of its objectives. Therefore, assessee s application for registration under Section 12AA of Act was rejected. Aggrieved by said order, assessee preferred appeal to Tribunal. 3. Tribunal on consideration of several judgments on which reliance was placed by both parties and also by looking into objectives clause of trust deed, after extracting same and relying on judgment of this Court in case of Sanjeevamma Hanumanthe Gowda Charitable Trust Vs. Director of Income-Tax (Exemptions) reported in [2006] 285 ITR 327 (Karn) has held that nature of business is not criteria to judge whether provisions of Section 12A of Act are complied with or not. main test as held by Hon ble Apex Court is, that, income of business is utilised by trust or institutions for purpose of achieving -5- object of trust. There is neither any finding by Director of Income Tax (Exemptions) nor any material was brought on record to show that income from business of housing project would not be utilised by trust for attainment of objectives of trust. On contrary, Director of Income Tax (Exemptions) has already accepted fact that objectives of trust are genuine and charitable in nature. trust is engaged in various charitable activities like feeding poor children in schools etc. There is no material on record to show that income from business as provided in Clause 10 of original deed dated 17.05.2004 cannot be utilised by trust for purpose of achieving objectives of trust. Therefore, it held that Clause 10 of trust deed cannot be treated as ground for refusal of registration. Therefore, order of Director of Income Tax (Exemptions) was cancelled and he was directed to allow registration under Section 12AA of Act. Aggrieved by said order, revenue is in appeal. 4. This appeal came to be admitted on 19.08.2008, to consider following substantial question of law. Whether assessee who is carrying on business activity or indulging in developing -6- properties is entitled for registration under Section 12AA of I.T.Act? 5. Learned Counsel for revenue assailing impugned order contended, that, assessee is in business of acquiring land, constructing group housing, marketing same and realising profits. said business cannot be treated as incidental to objectives of trust, namely charitable purpose. Therefore, he submits that section 11 (4A) of Act, which was brought on statute book on 01.04.1992 is applicable only for business carried on which is ancillary to charitable purpose for which trust is constituted. In facts of this case, it is not incidental business. It is main business. Therefore, tribunal was not justified in passing impugned order. 6. Per contra, learned Senior Counsel for assessee submitted that objectives of trust is for charitable purpose. No where in objectives of trust, it is mentioned that trust was carrying on business of acquiring properties, constructing residential flats and selling them. But in Clause 10 of trust deed, trustees are permitted to carry on business activity insofar -7- as it is necessary, incidental and supporting to attainment of objectives of trust. In that event, separate books of accounts have to be maintained. It is in pursuance of this Clause, in order to raise funds for carrying on charitable activity, assessee has taken up its construction activity and they have maintained separate books and therefore, he submits that tribunal has rightly granted benefit of Section 12 AA of Act. material on record discloses that proposed amendment of trust is also duly registered and it is awaiting approval from Director of Income Tax. 7. This Court had occasion to consider scope of Sections 11, 12, 12A and 12AA of Act in case of Sanjeevamma Hanumanthe Gowda Charitable Trust Vs. Director of Income-Tax (Exemptions) reported in [2006] 285 ITR 327 (Karn), which has held is as under: 6. Section 11 of Act deals with exemptions available to income from property held for charitable or religious purposes. Exemption from tax will be allowed only in respect of income actually applied to purposes of trust. Income derived for trust property must be determined on commercial principles. In order to be eligible for aforesaid -8- exemption assessee has to get trust registered under section 12A of Act. assessee has to make application in prescribed form and comply with other legal requirements mentioned in aforesaid section. On receipt of such application for registration Commissioner is under obligation to follow procedure prescribed under Section 12AA before he grants or refuses registration. What he is expected to do on receipt of such application is, he shall call for such documents or information from trust in order to satisfy himself about genuineness of activities of trust or institution. In addition to securing information in aforesaid manner, it is open to Commissioner to make such enquiries as he deems necessary in this behalf. Having regard to scheme of sections 11, 12 and 13 ultimately what CIT has to look into is not source of income to trust but whether such income is applied for charitable or religious purposes. satisfaction of CIT should be regarding application of income of trust for aforesaid purposes which only entitles assessee to claim exemption. For arriving at such satisfaction primarily he has to look at object of trust, when same is reduced into writing in form of trust deed. If on date of application trust has received income from its property, then find out how said income has been expended, and whether it can be said -9- that income is utilized towards charitable and religious purposes, i.e., towards object of trust. Therefore, for purpose of registration under section 12AA of Act, what authorities have to satisfy is genuineness of activities of trust or institution and how income derived from trust property is applied to charitable or religious purpose and not nature of activity by which income was derived to trust. 7. Sub-section (3) of Section 12AA of Act provides that where trust or institution has been granted registration under Clause (b) of Sub- section (1) and subsequently CIT is satisfied that activities of such trust or institution are not genuine or are not being carried out in accordance with objects of trust or institution, as case may be, he shall pass order in writing cancelling registration of such trust or institution. Therefore, sufficient safeguard is provided under Act for cancellation of registration obtained by assessee, in event of its misusing those provisions. 8. Reliance is placed by revenue on judgment of Apex Court in case of Assistant Commissioner of Income Tax Vs. Thanthi Trust reported in (2001) ITR (S.C.) 785, interpreting Sub-section 4 of Section 11 which has held as under: - 10 - One S.K.Adityan founded daily newspaper called Dina Thanthi in 1942. On March 1, 1954, he created trust called Thanthi Trust . property that he settled upon trust was business of said newspaper as going concern. objects of trust were to establish said newspaper as organ of educated public opinion for Tamil reading public and to disseminate news and to ventilate opinion upon all matters of public interest through it. On July 9, 1957, Adityan executed supplementary deed of trust that declared that trust was irrevocable. On July 28, 1961, Adityan executed another supplementary deed of trust. Thereby, he directed that surplus income of trust, after defraying all expenses, should be devoted to following purposes. In that context, Supreme Court interpreting Section 11(4) of Act has laid down said law. 9. In instant case, trust is constituted for following purposes: a. Education b. Medical business c. Relief to poor d. Other objectives of general public utility. - 11 - 10. Clause 10 of trust deed on which revenue relies upon is as under: 10. To carry on business activity in so far as it is necessary and incidental and supportive to attainments of objects of trust and in that event separate books will be maintained. 11. After going through trust deed, Commissioner in para No.10 of its order has categorically stated that there is no doubt that objectives are charitable in nature and are covered under Section 2(15) of Act. tribunal also on going through trust deed has categorically held that trust is engaged in various charitable activities like feeding poor children in schools etc. and about 5,00,000 children are provided midday meals and food by trust. They are also running Ayurveda Wellness Center and similar institutions affording treatment, cure, rest, recuperation and other medical relief to public and therefore, there is no doubt that trust is charitable in nature and covered by Section 2(15) of Act and activities of trust are genuine. trust is already engaged in various charitable activities for attainment of various objectives. There is no material on record to show that income from business as provided in Clause 10 of - 12 - original deed dated 17.05.2004 would not be utilised by trust for purpose of achieving objectives of trust. There is concurrent finding of fact by two authorities, to effect that trust is engaged in various charitable activities in terms of objectives of trust. It is clear from material on record that in terms of Clause 10 of trust deed, when particulars were sought for, assessee has specifically stated that they would take up Group Housing Scheme to earn profits which would be source of income for carrying on charitable activities. In absence of any material on record, finding recorded by Commissioner, that because of such activities, trust is not genuine and it is camouflage to suppress its business activities and said business is not incidental to any of its objectives is contrary to material on record and cannot be accepted. As held by this Court in Sanjeevamma Hanumanthe Gowda Charitable Trust s Case, what Commissioner has to look into is not source of income of Trust but whether such income is applied for charitable or religious purpose. satisfaction of Commissioner should be regarding application of income of trust for aforesaid purposes which only entitles assessee to claim exemption. For arriving at such - 13 - satisfaction primarily he has to look at object of trust, when same is reduced into writing in form of trust deed. If on date of application, Trust has received income from its property, then enquiry should be to find out how said income has been expended. If no income has been received on day of application is filed, question of going into question whether income generated in future would be applied for charitable purpose would not arise. As and when such income arises, if income is not utilised for charitable purpose, then he has power to cancel registration after hearing assessee. He cannot assume things without any basis as was done in this case by Commissioner. Once trust deed produced in case shows objectives of Trust is charitable and material on record, shows that Trust is carrying on charitable activities, merely because they proposed to carry on business in future to augment income to support charitable purposes, registration cannot be declined. Therefore, tribunal was justified in passing impugned order and directing Commissioner to grant certificate. Hence, substantial question of law is answered in favour of assessee and against revenue. - 14 - We do not see any merit in appeal. Accordingly, appeal is dismissed. Sd/- JUDGE Sd/- JUDGE nvj Commissioner of Income-tax, Bangalore / Director of Income-tax (Exemptions), Bangalore v. India Heritage Trust
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