9911796707
TMI Blog1995 (10) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess, he had considered the income by voluntary donations of Rs. 1,69,261 and income by way of interest derived by the assessee Trust, namely, Rs. 45,075, totalling to Rs. 2,14,336 as income earned by an Association of Persons. He gave a deduction of only Rs. 2,000 which according to him is the amount required to earn the said income by the AOP. The Assessing Officer held that the assessee Trust is not entitled to exemption under section 11 of the Income-tax Act and so all receipts of the said Trust should be considered and taxed as income of an AOP. 3. The assessee Trust was operating from C.4/41, Safdarjung Development Area. A raid and a consequent search over the said premises under section 132 took place on23-2-1988which falls in the assessment year 1989-90. In the course of the search proceedings, the statement was recorded from Shri Vallabh Vyas son of Shri Rattan Lal Vyas, employed as a Caretaker by the assessee-Trust. A copy of the statement of Shri Vallabh Vyas was found at pages 7 to 10 of the Department's paper book. The statement was recorded in a question and answer form. Shri Vallabh Vyas deposed that Vishwa Dharmayatan which is the name of the assessee Trust is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 is stated to have been given to Shri Dara Singh @ Rs. 9,000 p.m. for occupation of the building at C.4/41, Safdarjung Development Area,New Delhi. (iii) An amount of Rs. 22,260.50 was spent towards salary and wages; and the other items of expenditure are the following : (iv) Printing & Stationery Rs. 3,125.25 (v) Postage & Telegram 865.40 (vi) Travelling & Conveyance 3,274.70 (vii) General expenses 1,227.75 (viii) Bank charges 123.00 (ix) Audit fees 1,000.00 (x) Water filter 2,500.00 (xi) Telephone 784.00 (xii) Legal charges 500.00 The excess of income over expenditure shown as 1,941.30 4. Before proceeding further in the matter, we wish to point out that the whole of the seized material including diary and other documents do not pertain to the accounting year closing with30-6-1987. The whole of the search period pertains to assessment year 1989-90. During the assessment enquiry, certain questionnaire was served against the assesseeTrust and its answers were sought to be elicited. In reply to question Nos. 1 to 4, 10 and 11, the assessee-trust stated that because the premises bearing C.4/41, S.D.A., New Delhi from where the assessee Trust functions was also being used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is clear that the facts on paper are different from the facts in reality. The diary and seized material speak a lot of non-charitable and non-genuine activities which the assessee has not tried to answer and has avoided them. But this will not change the facts established amply from the statement recorded at the time of search and confront to the assessee during the assessment proceedings from the seized record. The assessee has himself accepted that during the year, there is no charitable activity as 80G is not granted vide order sheet dated6-3-1991. This is clearly a creation of Shri Chander Swamiji and an attempt is made to give colour of charitable nature to this Institution. Even the accounts, etc., are not correct. It does not call the contributions received as well as expenses incurred on food, etc., as are reported from the statement of the caretaker/ incharge Shri Vallabh Vyas. Under these circumstances, all receipts of this Trust will be taxed as receipts of a non-charitable Trust and exemption under section 11 will not be available. This will be taxed as the income of AOP." Thus an amount of Rs. 2,12,516 is considered to be the taxable income of the assessee-trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the income of the Trust should be spent for religious and charitable purposes, whether the assessee-trust was recognised and registered under section 12A of the Income-tax Act and whether any exemption to the donors of the assessee trust was given under section 80G of the Income-tax Act in earlier years as well as in the year under consideration as well as in the subsequent years to the year of account. 8. The assessee Trust was formed under the Trust Deed dated30-6-1980. The author of the Trust was one Shri Suraj Prasad Gupta s/o Late Lala Balbhadra Singh. He settled an amount of Rs. 10,000 towards the corpus of the Trust. Shri Chandra Swamy s/o Sri Dharam Chand Gandhi, Sri Suraj Prasad Gupta, Settlor and Shri Pawan Kumar Sharma s/o Shri Jagraj Chand Sharma were the appointed Trustees. The aims and objects of the Trust were all set out in para 1 of the Trust Deed. It is sub-divided into paras (a) and (b). There are (ten) clauses under para (b). Since the aims and objects of the Trust are very important to consider in order to know whether the assessee Trust is established to carry out the religious and charitable purposes or not, we set out the aims and objects as given in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc., for bringing peace and prosperity to the suffering humanity." 9. In para 3, the Settlor desired that the Trust should be designated as "Vishwa Dharmayatan" and the office of the Trust will be situated at E-9/5, Vasant Vihar, New Delhi- 110 057. In para 4, the Settlor ordained in what way income of the Trust should be spent. It is as follows : "4.The Trustees shall apply the incomes and profits of the said Trust properties and Funds as the case may be or such portion or portions thereof as may be necessary to pay, meet and discharge all outgoings and expenses of and incidental to the administration of the Trust and subject thereto shall hold and apply the capital and income of the Trust properties and funds for the aims, intents and purposes herein before declared and expressed of and concerning the Trust and Funds." 10.Para5 of the Trust Deed sets out the various powers given to the Trustees. In paras 5(a), (b), (e), (f), (h) and (i), the assessee-trust is expected to set up, establish and maintain the cultural centres, educational institutions, hospitals, clinics, relief & rehabilitation centres and other welfare units. Para No. 7 of the Trust deed casts a duty on the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. If we go through the aims and objects of the Trust as set out in the document, one will certainly come to the conclusion that the Trust is wholly religious and charitable Trust. It is significant to note that one of the objects of the Trust is to distribute food, rugs, blankets and all kinds of woollen cloth to the poor. We have got evidence in the shape of the statement of Shri Vallabh Vyas recorded in question answer form that in the Ashram 15 to 20 people used to dine and the food, etc., was served to them by spending offerings made to the God situated in room No. 6 of the S.D.A., New Delhi which is a tenanted premises. Another object of the Trust appears to be construct buildings, maintain Dharamsalas, Sarais, Piaos for public use or benefit and which shall not involve the carrying on of any activity of profit. To grant aids, to promote, establish, support and maintain institutions for the growth of advancement and diffusion of knowledge on all subjects including Indian Philosophy and Mythology is also of the objects. Undertaking scientific research in the field of Ayurvedic medicine, running Rasayan Shales and preparation and development of Ayurvedic medicine and drugs w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act up to30-6-1987vide order CIT-6/TE/94/80 dated19-8-1986. It is no doubt true that the application for renewal of exemption under section 80G for the period from1-7-1987to31-12-1991is pending with the learned CIT. It is also intimated that further renewal of registration under section 80G was prayed for a period of three years from1-1-1992. This information is gathered from the application dated13-3-1992of the assessee Trust filed before the CIT (Exemption), Mayur Bhavan,New Delhicopy of which is enclosed at page 9 of the paper book of the assessee. It is made clear in the said application itself at page 10 that at present the assessee-trust was engaged in the activities of constructing the building at Qutub Institutional Area,New Delhiand other activities of human and social welfare. It is further clarified that provisions of section 11 have been complied with. 14. Along with the income and expenditure statement and balance sheet, an auditor's report was also filed before the ITO. In the balance sheet, it is stated that a land was purchased at Rs. 4,96,338 and a building in the said land was under construction and for the year ending30-6-1987, a sum of Rs. 1,36 15. Now let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for 1984-85 was provided at page 178 of the assessee paper book. 18. Now for assessment year 1986-87, photocopy of the assessment order was provided at page 179 of the assessee's paper book. During that year donation to an extent of Rs. 47,000 was received towards building fund. Out of the said amount of donation, the assessee claimed to have spent Rs. 42,955 on the addition made to the building. It is specifically stated by the ITO in the said assessment order that the facts of the case are the same as having been discussed in the earlier assessment order. There is no change in the aims and objects of the Trust which are considered charitable within the meaning of section 2(15) of the Income-tax Act. A perusal of the said assessment order would reveal a continued consistent position adopted by the revenue recognising the assessee-trust as public charitable trust and granted exemption to it under section 11(1). 19. Now it is not the case of the Revenue that the Trust deed under which the Trust was formed was altered or its aims or objects were altered. The nature of the expenditure spent towards providing additional construction to the building situated in Qutab Institutional Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of documents of trust or in the law applicable, the court will not allow a review of the question again and again. The principle of res judicata would apply to proceedings under the Income-tax Act regarding questions relating to assessment which do not vary with the income every year but depend on the nature of the property or questions on which the rights of parties to be taxed are based. The question whether a trust is entitled to exemption as regards the income derived by it for the purpose of carrying out the directions of the author of the trust and as set apart by him in the deed creating the trust is not a question the answer to which can vary from assessment year to assessment year." The above statement of law is said to be the ratio of two following Delhi High Court decisions : 1. CIT v.Shree Ram Memorial Foundation [1986] 158 ITR 3; 2. Addl. CIT v. Hamdard Dawakhana (Wakf)[1986] 157 ITR 639. In Hamdard Dawakhana (Wakf)'s case, the Delhi High Court held that as long as the user was for charitable purposes, the exemption had to be granted. From the facts of that case, it was found that the Trust had been accepted to be a charitable trust for a long period a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question. In fact the exemption was extended up to30-6-1987by the order of the Commissioner dated19-8-1986which is in Hindi and which is found at page 15 of the assessee's paper book. The items of expenditure and the amounts of expenditure incurred over staff wages, salary, etc., were already provided in this order in the above paras. The list of donors and the amounts of the donation for the period from1-7-1986to30-6-1987totalling to Rs. 1,69,261 was provided at pages 4 and 5 of the departmental paper compilation. The amount of Rs. 24,100 was paid towards salary and wages and the names of the persons and the amounts paid towards their salary including the daily wages were provided at page 13 of the departmental paper book. In the course of the assessment, hearing on16-1-1991, certain information was sought to be secured from the assessee Trust which includes information about the rent, if any, paid for the premises C.4/41, S.D.A.,New Delhi. In that connection, the assessee filed the necessary information, a copy of which is provided at pages 14 and 15 of the departmental paper book, clarifying the position with regard to the rent paid at para No. 2, the following is what is stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record to falsify the claim of the expenditure claimed to have been incurred by the assesseetrust for the accounting year under consideration. 25. Now the question is how to compute the income of a public charitable Trust. It is the contention of the assessee's learned Advocate Shri C.S. Agarwal that the income should be computed by applying commercial principles and all the expenditure incurred should be excluded from out of the income and the excess only should be considered to be the income available with the Trust for application towards religious and charitable purposes. Now in this case, the excess amount is shown only at Rs. 2,170. It is also the contention of Shri C.S. Agarwal that the whole of the expenditure incurred by the assessee-trust in this year of account should be deemed to be the income applied for charitable or religious purposes. In support of this proposition, he relied upon several case laws. He relied upon CIT v. Janaki Ammal Ayya Nadar Trust [1985] 153 ITR 159 (Mad.). In that case, the assessee-trust claimed exemption from tax under section 11of the Income-tax Act on the ground that it had spent moneys during the year for purchase of land, payment of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the question of allowing any other outgoing by way of expenditure would not arise." The Third decision on which reliance is placed is again a Madras High Court decision in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485. The ratio of the decision correctly reflected in the Head Note of the decision which is as follows: " Whenever Parliament considered that the computation of income should be in accordance with the provisions of the Income-tax Act, 1961, it introduced the concept by using appropriate language. In the absence of any such language in section 11(1) of the Act, the computation as envisaged by the other provisions of the Act cannot be imported into section 11(1). Section 11 contemplates an application of the income for charitable purposes. The charity can accumulate 25% of the income. Taking into account the purpose for which the conditions of section 11(1)(a) are imposed, it would be clear that the income to be considered will be that which is arrived at in the context of what is available in the hands of the assessee subject to an adjustment of any expenses extraneous to the trust. The application of income for charitable purposes will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculated on the basis of accrual under the mercantile system of accounting is conceived as income for the purposes under section 11(1)(a) of the Act, it must be conceded that such notional income can never be actually applied or accumulated or set apart for the purposes of the trust and the assessee trust, while being liable to pay income-tax on accrual basis will not be able to derive the benefit conferred by the said provision. We are, therefore, of the view that the Tribunal was right in coming to the conclusion that the income derived from trust property must be determined on commercial principles and in doing so, all outgoings including outgoing by way of income-tax paid by the assessee trust must be deducted and it is only from the surplus income in the hands of the trustees that the question of application or accumulation or setting apart of income can arise." 27. Having regard to the ratio of all the above cases cited above, we have to hold that the income of the assessee-trust is to be ascertained by applying commercial principles and not by considering the heads of income under section 14 of the Income-tax Act. The expenditure incurred towards rental payment amount of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstructed so as to exclude all other incidental expenses which are directly connected with the upkeep, maintenance and expenses of the Trust itself. 29. As against the above arguments of learned Advocate for the assessee Shri C.S. Agarwal, Shri Haldar learned Sr. D.R. argued firstly that the details of salary, wages, purported to have been paid to Shri Vallabh Vyas, Shri V.P. Singh, Shri Ram Bahadur, Shri Shen Singh and Shri Chhedilal as per the information furnished to the Revenue was disclosed at page 1 of the departmental paper book and it bore the signature of Shri Pradeep Kumar Nahata one of the trustees of the assessee-trust. However, when we compare the salary and wages particulars furnished at page 173 of the assessee's paper book, we come across salary being paid only to two persons, namely, Ashok Kumar and Ramu, the total payment during the relevant previous year being Rs. 24,160. These two names are never noted at page 13 of the departmental paper book. Therefore, it was argued that the assessee had furnished a wrong certificate in the paper book filed before the Tribunal with reference to page 171 of the assessee's paper book. It is contended that page No. 171 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1986issued by the CIT could disclose that 80G certificate was provided for the period from1-7-1983to30-6-1987would conclusively prove that perhaps it was mistakenly thought that the certificate did not cover the accounting year in question. However, the mistake cannot bind the assessee since mistaken admission is no admission at all. 33. Next, it was contended by the learned Sr. D.R. that the assessee never tried to argue before the Assessing Officer that the amount of Rs. 2,12,168 was an allowable expenditure and its claim was that this amount should be considered as application of income for charitable or religious purposes inIndia. Even the submissions before the learned CIT(A) also remain the same. See pages 30 to 48 of the assessee's paper book. Thus it is contended that the assessee cannot take an alternative plea which would lead to enlargement of controversy before the Hon'ble Tribunal and it would not be within the subject-matter of appeal. The learned Departmental Representative relied upon the following case laws for the proposition that the controversy cannot be enlarged before the Tribunal : 1. Ugar Sugar Works Ltd v.CIT [1983] 141 ITR 326,333 (Bom.) 2. P.R. Mukher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court observed that there is nothing in the Income-tax Act which restricts the powers of the Tribunal to the determination of the questions raised before the departmental authorities. All questions, whether the law or of fact, which relate to the assessment of the assessee may be raised before the Tribunal. Therefore, the contention that there is enlargement of the scope of the appeal before this Tribunal inasmuch as some points which were never raised before the lower authorities were for the first time sought to be raised before the Tribunal, is not well founded. If the so-called new points are essential to be determined and they came within the scope of the assessment, then all of them are entitled to be raised. Ultimately what exactly is the income of the assessee-trust is to be determined. Whether it is entitled to exemption under section 11 is also to be determined. All questions which come within the scope of enquiry of these two broad questions can all be gone into by the Tribunal and there is nothing which bars the way of the Tribunal to do so especially when the Hon'ble Supreme Court itself declared the law on the subject. Therefore, the contention of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the office will be situated in E. 9/5, Vasant Vihar,New Delhi. The office is now shifted to C.4/41, S.D.A.,New Delhi. Before letting out the said premises on rent, certain deposit is required. Therefore, it is a compelling necessity to offer deposit especially when it is an institution and for that purpose, a bank guarantee was given for Rs. 5 lacs and on which the payment of interest accrued which became a necessary disbursement. In order to arrive at the true income of the trust, to construct buildings and maintain Dharamshalas, Sarais, Piaos for public use or benefit is stated to be categorically one of the aims and objects of the trust. The basic aim and object of the trust stated to be to undertake, promote and assist in the relief of welfare and uplift of the poor, needy backward, underprivileged, sick and handicapped people in theterritoryofIndia, irrespective of nationality, community, caste, creed, colour, religion and sex. A conjoint reading of the aims and objects would leave no one in doubt that for the purpose of achieving the objects and aims, the assessee-trust is entitled to secure its own building. In fact the assessee purchased a site by spending an amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 199 ITR 215. The ratio of the decision is neither here nor there for our purposes. The point for consideration before the Calcutta High Court was whether the charitable trust is entitled to deduction under section 80G in respect of its long-term capital gains. The Calcutta High Court held that it is not entitled. It is not known how the ratio will be of any help to the Department. The Calcutta High Court had clearly followed the Madras High Court decision in Rao Bahadur Calavala Cunnan Chetty Charities' case and also the Andhra Pradesh High Court in Trustee of H.E.H. the Nizam's Supplemental Religious Endowment Trust's case. In both the cases, it is categorically held that the income of the Trust should be determined on commercial principles but not by application of section 14 of the Income-tax Act. Thus there is no conflict between theCalcuttadecision cited by the learned D.R. and theMadras, A.P. and Gujarat High Court decisions cited on behalf of the assessee. The main point discussed in the Calcutta High Court decision missed the attention of the learned Sr. D.R. and thus making his argument misconceived. 38. Last but not the least, it was contended by the learned Sr. D.R. th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Held, affirming the decision of the High Court, that it was not possible to cull out in clear terms any specific charitable or religious object from the trust deed to conclude that the trust was set up wholly for religious or charitable purposes. The 'religious, charitable, cultural and social' purposes referred to in the deed were not avowed as the objects of the trust: they were only the objects of those who wished to put the trust property to use. There was no mention in the deed as to how the income derived from the trust property was to be utilised. There was no mandate that the income was to be spent on religious or charitable purposes. Therefore, the trust deed did not meet the requirements of section 11(1)(a), and the income of the trust was not exempt from tax. The Supreme Court also rejected the plea for a remand on the basis that one of the judges of the High Court who decided the reference had earlier given his opinion, as special counsel for the Income-tax Department, that the trust was ineligible for exemption, for the reasons that (i) owing to a long lapse of time the judge could not have remembered that he had given a 'routine'opinion: (ii) the judgment of the High ..... X X X X Extracts X X X X X X X X Extracts X X X X
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