1989 (3) TMI 148 - AT - Income Tax

Assessment Year, Charitable Purpose, Charitable Trust, Expenditure Incurred, General Public Utility, Income From Property, Religious Trust

Summary

Issues Involved:

1. Whether the assessee can be called a public charitable trust.
2. Whether the assessee is entitled to exemption under section 11 in respect of its income.
3. Whether the grant of exemption is forfeited on the ground that the property or income of the Trust has been used for the benefit of the trustees or any concerns in which they have a substantial interest by application of sub-sections (1)(c) and (3) of section 13.

Issue-Wise Detailed Analysis:

1. Whether the assessee can be called a public charitable trust:

The Tribunal examined the objects of the Trust as per the Trust Deed, which included relief of the poor, education, medical relief, and advancement and promotion of any other object of general public utility including promotion of science, art, and literature. These objects satisfy the requirement of section 2(15), thereby establishing that the assessee is a charitable trust.

2. Whether the assessee is entitled to exemption under section 11 in respect of its income:

The Tribunal noted that the assessee had been recognized as a charitable trust in earlier assessment orders and had been granted registration under section 12A(a) and a certificate under section 80G. The Tribunal also referenced a Delhi High Court decision supporting the view that long-term recognition as a charitable trust supports the claim. The Tribunal concluded that the question of whether a trust is charitable depends on its objects, not on how the income is spent in a particular year. Thus, the assessee is entitled to exemption under section 11.

3. Whether the grant of exemption is forfeited under sections 13(1)(c) and 13(3):

The Tribunal examined various expenditures to determine if they were incurred on charitable objects and if sections 13(1)(c) and 13(3) were applicable:

- Medical Relief: The disallowance of Rs. 632 was canceled as it was for medical relief to employees.
- Educational Object: The disallowance of Rs. 1,689 was partly canceled. The amount of Rs. 689 given to needy individuals was allowed, while the donation to Ajit Bhagat Memorial Trust was remanded to the IAC for verification of its charitable status.
- Relief to the Poor: The disallowance of Rs. 6,041 was partly confirmed. The amount of Rs. 3,850 given to personal servants of the Sarabhai family was disallowed, while Rs. 2,175 for distributing blankets to the poor was allowed.
- Botanical Garden: The expenditure of Rs. 83,470 was allowed as it was for developing a botanical garden, which was eventually opened to the public.
- Literary and Cultural Activity: The expenditure on the music library and study and research center was allowed as it was intended for public benefit, despite being availed by a limited number of people initially.
- Books Library: The expenditure on the reference library was allowed, rejecting the IAC's narrow view that it was not for public use because the books were in English and meant for an elite class.
- Payment to Harrang Samaj: The disallowance of Rs. 11,000 was upheld as the benefit of the activities of the "Samaj" was not available to the general public.
- Farm Losses: The disallowances related to Hansol and Asarva farms were canceled as the Tribunal found the IAC's estimates to be based on conjecture and not supported by firm evidence.
- Museum and Archives: The expenditure on the museum and archives was allowed as they were open to the public and involved significant preparation and planning.
- Transfer from Reserve Fund: The disallowance of Rs. 50,000 was canceled as the amount was utilized for the objects of the trust.
- Capital Gains Investment: The Tribunal allowed the exemption on capital gains as the fixed deposits in government companies were considered capital assets, following a Gujarat High Court decision.
- Miscellaneous Expenses: The disallowance of Rs. 24,868 was canceled as these were general expenses related to the Foundation's activities.
- Annual Letting Value: The addition of Rs. 5 lakhs was canceled as the Foundation was held to be a charitable trust, making this addition irrelevant.

Conclusion:

The Tribunal concluded that the assessee is a public charitable trust eligible for exemption under section 11. The disallowances made by the IAC were largely canceled, except for the payment to Harrang Samaj and part of the relief to the poor. The appeal was partly allowed.