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TMI Blog1989 (11) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable institutions in the name of the Deity. It provided for the management and maintenance of the temple and the institutions attached to it. It also provided for dayto-day maintenance of accounts and also filing of an audited report and set out the powers, duties and responsibilities of the manager or deputy manager appointed under the Scheme. Thus, the temple and the institutions attached to it have over the years acquired the characteristics of public religious and charitable purpose. 3. The registration under section 12A(a) of the trust was granted by the learned Commissioner of Income-tax. The trust has been filing the audited receipts and payments account and the auditors' certificate year after year along with the returns of income, and the statements were accepted till the asst. year 1980-81. For some years up to 1980-81, exparte assessments were made under section 144 treating the trust as a taxable entity but then under section 146, assessments were re-opened and closed as " N.A ". For the first time in the previous year ending 31-12-1980 relevant to the assessment year 1981-82, the ITO declined to grant exemption to the trust for the reason that the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s scholarly brought out by Justice Shri S. Ranganathan of the Apex Court at page 57 of the book " lyengar on Income-Tax ", 7th Edition, and held that section 12A(b) is only a machinery section and not a charging section and the purpose of that section is to ascertain the amount of taxable income from the report furnished. The trust has also filed a report which is for the same purpose but in a different form. Simply because the report is in a form not commonly used or not prescribed, one cannot deny the assessee the benefit of the provision. Further, he went into the accounts of the trust and found that the amounts had in fact been utilised for the purpose of trust and that there was no warrant for taxing the income of the trust. The revenue is aggrieved. 5. The grounds of appeal taken by the Revenue are as follows : --- " 2. The learned CIT(A) erred in holding that the assessee is entitled to the exemption of its income under section 11 and the exemption cannot be denied merely on the ground that an audit report under section 12A(b) had not been filed. The learned CIT(A) failed to appreciate the fact that the assessee had never filed a Balance Sheet, and that it had always be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Shri V. Aiyappan, the learned Chartered Accountant, submitted that the trust had already applied for registration under section 12A of the IT Act. Ammachiveedu Moohurti Temple has been recognised as a public place of worship of renown throughout the State of Kerala for purposes of section 80G(2)(b) of the IT Act in the very previous year relevant for assessment year 1981-82. Therefore, the temple as an institution is not a private property of any individual but is dedicated for the public. If the trust carried on any business or trade, certainly it has to prepare profit and loss account and balance-sheet but in the case of a temple there is no need to prepare a profit and loss account and in the absence of a profit and loss account, a balance-sheet cannot be prepared. Therefore, the Rule 17A prescribed under section 12A(b) should be read down as referring to institutions having business or profit earning activity though held for charitable purposes. It cannot automatically apply to the case of a temple whose accounts are maintained on cash basis and where a statement of all receipts and all payments are prepared and subjected to audit and filed with the District Court. It canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no substance in the contention of the revenue. 9. As for the objection of the learned Departmental Representative that certain materials were admitted behind the back of the ITO in violation of Rule 46A of the IT Rules, Shri Aiyappan submitted that all the informations were before the ITO and what the assessee did was to file the audited statement of the accounts of the hospital. In fact, the payments made by the Ammachiveedu Moohurti Temple to the hospital are reflected in the accounts of the temple itself which were before the ITO and what was shown before the CIT(A) was only how the money received by the hospital from the temple was reflected in its account and how it was laid out or expended. In fact, even without the production of the hospital accounts, a decision could be taken on the basis of the temple accounts themselves and, therefore, even if there had been any violation under section 46A, it did not have a bearing on the decision of the CIT(A). Finally, Shri Aiyappan submitted that having regard to the nature of the trust, the manner in which it is administered, the fact that it had obtained the initial registration under section 12A as also the fact that it had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided that the (Chief Comissioner or Commissioner) may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid." It is not in dispute that the Trust was granted registration under section 12A of the IT Act. The dispute before us is that the permission of the Court granted in 1979 for running a hospital and a dispensary was not brought to the notice of the learned Commissioner of Income-tax and registration was not obtained for that purpose. There is nothing in section 12A(a) which provides for renewal of registration every time when there is an addition to the charitable or religious activity. Form 10A enjoins the applicant to give an undertaking to communicate forthwith any alteration in the terms of the Trust or in the rules governing the institution, made anytime after the submission of application for registration. There is nothing in the Act or the Rules for cancellation of registration in case of non-compliance. Therefore, we reject the objection of the Revenue. 12. It is not in dispute that the activities of the trust were avowedly of a public religious nature and with the addition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of the audit. In my/our opinion, proper books of account have been kept by the head office and the branches of the abovenamed trust/institution visited by me/us so far as appears from my/our examination of the books, and proper returns adequate for the purposes of audit have been received from branches not visited by meiaus, subject to the comments given below : In my/our opinion and to the best of my/our information, and according to information given to me/us, the said accounts give a true and fair view--- (i) in the case of the balance sheet, of the state of affairs of the abovenamed trust/ institution as at. . . . , and (ii) in the case of the profit and loss account, of the profit or loss of its accounting year ending on ..... The prescribed particulars are annexed hereto. Place ............ Date.................... ................................... Signed Accountant " It is the contention of the learned Chartered Accountant that as the temple is 600 years old it was not possible for it to prepare the balance-sheet since the cost of construction of the temple and the additions made thereto over the centuries are not available with it. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of profit and loss account or income and expenditure account and balance-sheet are rested on the accrual basis but not on cash system of accounting. Unless the accounts are converted from cash basis to accrual basis, neither an Income and Expenditure statement nor a Balance-sheet can be projected so as to reflect the " true and fair view " of the " surplus " or " deficit " in the case of the former or a " true and fair view " of the state of affairs in the case of the latter. Form 10B which speaks of the profit loss account and balance-sheet and the " true and fair view " thereof thus imposes a new obligation on the assessee in disregard of the provisions of section 145 which enjoins the computation of income from business or other sources in accordance with the method of accounting regularly employed by the assessee. To this extent, the requirement in Form 10B overrides the provisions of section 145. The assessee by the orders of the Court has been maintaining only receipts and payments account which would mean the cash system of accounting, and the non-filing of profit and loss account and balance-sheet as prescribed in Form 10B cannot, therefore, disentitle the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a different view. 16. Shri Menon for the Department vehemently contended that the trust was running a hospital and a dispensary and at least there could be a profit and loss account and balance-sheet for such an institution. Those accounts were not produced before the ITO but were only produced before the CIT(A) and the CIT(A) accepted the materials without giving an opportunity to the ITO under Rule 46A of the IT Rules. 17. Shri Aiyappan, the learned Chartered Accountant, submitted that the accounts for the hospital and dispensary are kept separately again on cash basis and they are never mixed up with the temple account. Such accounts are also forwarded to the District Court after being duly audited by the Chartered Accountant. In terms of the revised scheme formulated by the District Court, the funds of the hospital cannot be appropriated by any person associated with the trust or, in other words, nothing can enure to the benefit of the founders or the relatives of the trustees. The accounts of the hospital were shown to the CIT(A) only for the purpose of showing that the funds which flowed from the temple to the hospital have been reflected in the accounts of the hospita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments are in approved securities and whether any of the members of the trust or the founders of the trust or their relatives or any person having any substantial interest in the trust are deriving any benefit out of the trust funds or profits. The audited receipts and expenditure statement provide enough information regarding the utilisafion of the funds of the trust whether on revenue account or on capital account. The very Scheme under which the trust is managed prohibits any benefit to the founders of the trust or to any person associated with it and, therefore, whatever information is required to be filed up in Annexure 10B prescribed under Rule 17A of the IT Rules are available from the trust Scheme itself as well as from the accounts that were furnished before the ITO. Unfortunately, the ITO did not apply his mind to these aspects of the matter but was hyper-technical in his outlook. On appeal, the CIT(A) analysed the facts of the case at great length and also went into the Receipts and Expenditure statement and had recorded a finding that the trust had applied its funds for charitable or religious purposes and the information that are required to be furnished in Form No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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