1989 (11) TMI 81 - AT - Income Tax

Issues Involved:
1. Eligibility for exemption under Section 11 of the IT Act.
2. Compliance with Section 12A(b) requirements.
3. Filing of Balance Sheet and Profit and Loss Account.
4. Admittance of evidence under Rule 46A.
5. Notification of changes to the Commissioner of Income-tax.
6. Utilization of trust funds for charitable purposes.

Detailed Analysis:

1. Eligibility for Exemption under Section 11 of the IT Act:
The temple, initially founded by a Nair family, has evolved into a public religious and charitable trust. The Commissioner of Income-tax granted registration under Section 12A(a), and the trust has been filing audited receipts and payments accounts. Despite this, the ITO declined exemption for the assessment year 1981-82, citing non-compliance with Section 12A(b). The CIT(A) concluded that the trust's accounts were audited by a qualified Chartered Accountant, and the absence of a balance sheet was not a valid ground for denying exemption.

2. Compliance with Section 12A(b) Requirements:
The CIT(A) found that the trust had substantially complied with Section 12A(b). The accounts were audited, and the receipts and payments accounts were certified by a Chartered Accountant. Although the trust did not file a balance sheet, the CIT(A) held that the necessary information could be gleaned from the trust's books. The tribunal agreed, noting that the temple's antiquity made it impractical to prepare a balance sheet.

3. Filing of Balance Sheet and Profit and Loss Account:
The tribunal acknowledged the difficulty in preparing a balance sheet for a 600-year-old temple. It was noted that the trust maintained accounts on a cash basis, and the concept of a profit and loss account was not applicable to non-trading institutions like temples. Therefore, the tribunal held that the non-filing of these documents did not disentitle the trust to the benefits of Section 11.

4. Admittance of Evidence under Rule 46A:
The Department contended that the CIT(A) admitted evidence (hospital accounts) without giving the ITO an opportunity to examine them, violating Rule 46A. The tribunal found that the hospital accounts were shown to the CIT(A) only to demonstrate how funds from the temple were utilized. The tribunal concluded that the surplus or deficit from running the hospital could not be taxed, as the hospital was for public purposes and not for private profit.

5. Notification of Changes to the Commissioner of Income-tax:
The Department argued that the trust did not inform the Commissioner about the hospital and dispensary, violating Section 12A(a). The tribunal rejected this, noting that Section 12A(a) does not require renewal of registration for every new charitable activity. The trust had informed the Commissioner in a petition dated 18-12-1979, and the Central Board of Direct Taxes had recognized the temple as a public place of worship.

6. Utilization of Trust Funds for Charitable Purposes:
The CIT(A) meticulously analyzed the trust's accounts and found that the funds were utilized for charitable or religious purposes. The tribunal agreed, noting that the audited receipts and expenditure statements provided sufficient information. The tribunal also emphasized that the trust's scheme prohibited any benefit to the founders or their relatives, ensuring compliance with the provisions of the Act.

Conclusion:
The tribunal upheld the CIT(A)'s order, granting the trust exemption under Section 11. The appeal of the Revenue was dismissed, and the Cross Objection was allowed for statistical purposes. The tribunal found that the trust had substantially complied with the requirements of Section 12A(b) and that the non-filing of a balance sheet and profit and loss account was justified given the temple's antiquity and the nature of its activities.

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