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TMI Blog2008 (7) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... articularly the educational institutions, the members of the other community are also admitted. The assessee is also giving support to the poor - In the same way, in the case of another assessee, it is not the case of the AO that the activities of the assessee are not otherwise than religious and charitable activities. It is interpreted that as per the words used in section 11(1)( a ) of the Act, for any institution or trust it must have either wholly charitable or wholly religious activities. The entire controversy is revolving around the interpretation of section 11(1)( a ) of the Act. In both these appeals, it is not the case of the Department either that any of the bars provided u/s 13 of the Act are applicable to both these assessees as per the interpretation given by the AO as well by the CIT(A). As per the provisions of section 11(1)(a) of the Act, it requires that there should be nexus between the property held under the trust wholly for charitable or religious purposes and the income under consideration. The interpretation given by the AO as well as by the CIT(A) is that the purpose should be wholly charitable or wholly religious. We are afraid, whether such interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rong to say that proceedings contemplated u/s 12A of the Act are in the nature of quasi-judicial proceedings and CIT has to decide whether the applicant trust or institution are eligible to get the benefits of section 11 or 12 and for deciding the eligibility CIT has to examine the byelaws and objects of the trust. In our opinion, even u/s 12A, granting registration was not merely empty formality and our view is supported by the decision of the Hon ble High Court in Hiralal Bhagwati v. CIT [ 2000 (4) TMI 14 - GUJARAT HIGH COURT] , which is approved by the Hon ble Supreme Court in CIT v. Surat City Gymkhana[ 2008 (4) TMI 16 - SUPREME COURT] . Therefore, we are of the opinion that both these assessees are eligible to claim the exemption u/s 11 of the Act. We therefore cancel the order of the CIT(A) and direct the AO to give benefits of section 11 to both these assessees by treating their income as exempt. In the result, both the appeals of the assessees are allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case was selected for scrutiny and assessment was completed under section 143(3) of the Act. As per return of income filed by the Society, the assessee has declared total loss of Rs. 19,68,531. On perusal of the assessment order, it is seen that Assessing Officer made lot of enquiries by issuing the summons under section 131 of the Income-tax Act. The Assessing Officer also examined the Secretary of the Society, namely, Shri Mohammed M. by issuing summons under section 131 of the Act. The Assessing Officer also examined the byelaws of the Society. The Assessing Officer also examined the Memorandum of Association and he came to the conclusion that assessee trust is engaged in both religious and charitable activities and, therefore, the activity of the assessee is partly religious and partly charitable and thereby assessee is not eligible for claiming the exemption of its income under section 11(1)(a) of the Income-tax Act, 1961. The relevant observations of the Assessing Officer for denying the benefit of section 11(1) of the Act to the assessee are found on Page No. 5 of the assessment order, which are as under:-- "In this context it is pertinent to note that the trust is const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer before the CIT(A). 5. The CIT(A) put his stamp of approval on the stand taken by the Assessing Officer. The CIT(A) was of the opinion that in view of the language used by the Legislature in section 11(1)(a) of the Act, and as the assessee is engaged partly in religious activities and partly in charitable activities, the benefit of exemption cannot be availed by the assessee under section 11(1)(a) of the Act. The learned CIT(A) has referred to the plethora of decisions, including the rules of interpretation. The reasons given by the CIT(A) are mainly contained in Paragraphs 19 to 24 of his order, which read as under:-- "19.However, the logic of the Assessing Officer is found from another perspective, also leaving aside the various decisions cited. The Assessing Officer has taken a stand far ahead of the issues considered in any of the decisions cited by highlighting the disjunctive usage of the word OR in section 11(1)(a). In addition, he went on to point out that if any other interpretation were to be given for the word OR then it would lead to rendering meaningless the sub-section which follows i.e., sub-section 11(1)(b). Thus strictly speaking the decisions c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Cape Brandy Syndicate case et al. 23.An alternate reasoning of the Assessing Officer as is clear from the order is that if the word 'OR' were to be read as 'AND' as appearing in section 11(1)( a) then it would render the following section i.e., section 11(1)(b) as infructuous. It is seen that section 11(1)(b) provides for exemption of income of a trust which is either partly charitable or partly religious provided it was created before 1-4-1962. This section would not have been , necessary if as the appellant claims the word OR should have been read as AND with a conjunctive meaning as appearing in section 11(1)(a) with the result that partly charitable trust and partly religious trust would have their income exempted under section 11(1)(a) itself, making the provisions of section 11(1)(b) unnecessary. It is accepted law that a literal consideration that leads to absurdity, injust result or mischief is to be avoided. Construction which renders a provision constitutional is to be preferred - K. P. Varghese v. ITO Ekm. 131 ITR 597 (SC). Thus from this angle also, the appellants claim that 'OR' in section 11(1)(a ) should be read as 'AND' is not acceptable as it would then rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de religious activity also. 7.The exemption under section 11 is granted to a Trust which is for charitable or religious purposes i.e., a Trust within the meaning of section 11(1)(a) can be either a" Charitable Trust or a Religious Trust or a Trust having both Charitable as well as Religious activity. This is clear from the language and wordings of the section. 8.The authorities below failed to note that the religious or Charitable Trust is entitled for exemption so long as no part of the income can be utilised for purposes which is neither Charitable nor religious. 9.The authorities erred in not following the decisions cited by the appellant and in following certain other decisions which are distinguishable on facts. 10.The officers below failed to note that the appellant had been granted exemption for the previous years under section 11(1)(a) of the Income-tax Act. Both the appellant and the department had allowed the position to be sustained by not challenging the orders for all those years and the department cannot be allowed the position to be changed because the fundamental fact permeate through the different years. 11.The appellant applied to the Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tha Kerala Sunni Yuvajana Samgham is a religious and charitable society is undisputable. This is registered under the Societies Registration Act, vide No. 20/70. The first aim mentioned in the Memorandum of Association of "Markazu Ssaquafathi Ssunniya" is that "to perform the administration in pursuance to the principles and alms of Samastha Kerala Sunni Yuvajana Samgham State Committee and to look after and protect all the institutions acting under the Samgham". The Markazu Ssaquafathi Ssunniya is another independent registered under the Societies Registration Act vide Registration Number 124/82, dated 31-5-1982. The society is also registered under section 12A of the Income-tax Act, 1961, vide No. M-1/87-88, dated 28-6-1988. The Samastha Kerala Sunni Yuvajana Samgham is also registered under section 12A of the Income-tax Act, 1961. Both the institutions are having independent existence for the purpose of Income-tax Act, 1961. Rule V of Clause (c) of objects of the Samastha Kerala Sunni Yuvajana Samgham is to establish, develop and manage Madrassa, Mosque, Pallidarz, Arabic College, Boarding Madrassa, Centre for the orphans and destitutes, Job training Institute, Schools, Nurserie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and partly charitable activities. It is also observed that the society is actively engaged in Religious activities besides the charitable activities mentioned in the Rules and Regulations. On perusal of the final accounts submitted it is seen that the society has spent an amount of Rs. 99,401 for the Ground Construction for constructing a mosque in their premises and has undertaken the extension work of mosque building spending Rs. 65,601 which are in consonance with the objects of the trust. Besides the above the society has spent an amount of Rs. 44,288.20 towards the expenses of Madrassa. The assessee has acquired the following assets which is used exclusively for religious purpose i.e., Hifful Quaran College Building, Masjid Urine Block Building. The assessee has undertaken the construction of Korangad Secondary Madrassa Building during the previous year relevant to the assessment year which is a religious institution. It is also found that the assessee is doing charitable activity as well by giving alms to, the poor and imparting education to all in the society irrespective of their caste and creed which can be treated as altruism. I therefore, have no hesitation in holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dominantly created for charitable purposes and it runs the institutions, viz., Orphanage, school for the blind and the deaf, Higher Secondary School for the handicapped, home for mentally retarded children, Lower Primary School, Industrial Training Centre, residential Higher Secondary School, etc. The beneficiaries of the said institutions are from all sections of society irrespective of community, caste or sex. The income is derived from the property of the trust as well as from voluntary contributions received by the trust and such income is fully utilised for charitable purposes in India. 11.1 The learned counsel argued that the assessee had been filing its return since inception claiming exemption under section 11(1)(a) of the Act and the claim had been accepted by the Department up to the assessment year 2002-03, having found that the claim is valid in the eye of law. However, for the assessment year 2002-03, i.e., the year under consideration, the case was selected for scrutiny assessment and the claim of exemption has been rejected only on the ground that the assessee is carrying both charitable and religious purposes. The assessee filed objections. The Assessing Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied to the assessee's case. 11.2 The learned counsel further argued that the mosque maintained by the assessee trust was open to public and people of other religions or community are not forbidden. The amount spent on maintenance of the mosque is very small. The maintenance is only an incidental and ancillary function and does not in any way adversely affect the dominant or main function involving major and multiple charitable activities prescribed in the objects of the trust. The trust is created to advance the cause of charity to the general public, as such, exemption claimed ought to have been allowed. The definition of 'Charitable purpose' in section 2(15) of the Act is not exhaustive but only inclusive. The inclusive definition of the phrase 'charitable purpose' covers a wider field and includes 'advancement of any other object of general public utility.' The Mosque is a prayer hall for general public utility. The concept of charity is comprehensive enough to include religious activities as well. The religious and charitable activities are interrelated and there is no line of demarcation between religion and charity, which always go together. For the above proposition, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural which connotes' the intention of the Legislature to include mixed trusts for charitable as well as religious purposes and the same word is used for application of income. He relied on the decision of Hon'ble Andhra Pradesh High Court in the case of CIT v. Social Service Center [2001] 250 ITR 39, wherein their Lordships held that once an exemption is granted for charitable activities, the religious activities are also included. Their Lordships placed reliance on the ratio laid down by the Hon'ble Supreme Court that if the primary or dominant purpose of an institution was charitable any other object which by itself might not be charitable but was merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity. Similar view was expressed by the Hon'ble Gujarat High Court in the case of Addl. CIT v. A.A. Bibijiwala Trust [1975] 100 ITR 516 and in the case of CIT v. Barkate Saifiyah Society [1995] 213 ITR 492. The learned counsel also relied on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Ahmedabad Rana Caste Associations [1973] 88 ITR 354 . In this case though the Hon'ble High Court fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to which such income was applied for such purposes in the State of Kerala. The Hon'ble Supreme Court held that the dominant purpose of the trust was propagation of Jain religion, and to serve its follower and hence exemption was denied. The learned counsel submitted that since in the instant case the assessee was not a private religious trust and the income is used for charitable purposes, the aforesaid decision is not applicable on the facts of the present case. Moreover section 13(1)(b) was not invoked by the Assessing Officer in the present case. The learned counsel further argued that the two other decisions of the Hon'ble Supreme Court relied by the Hon'ble Jammu & Kashmir High Court in the case of East India Industries (Madras) (P.) Ltd. v. CIT [1967] 65 ITR 611 (SC) and Yogiraj Charity Trust v. CIT [1976] 103 ITR 777 (SC) are also distinguishable wherein one of the objects of the trusts was neither charitable nor religious and it was for that reason the Hon'ble Supreme Court refused to grant exemption in the said cases. In the case of Yogiraj Charity Trust (supra) the Hon'ble Supreme Court also held that if the primary or dominant purpose of the trust is charitable, anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Addl. CIT v. Hamdard Dawakhana (Wakf) [1986] 157 ITR 639 . The finding of the CIT(A) that the Assessing Officer has applied reasoning different from earlier years will not justify taking a different approach in the matter. A mere change in opinion cannot be a reason for denying the exemption. 11.7 The learned counsel argued that without prejudice to the contention that the entire income of the assessee trust is exempt from tax, if at all any disallowance is called for, such disallowance can be restricted to that part of income which is found used for alleged non-charitable purposes only. There is no law, logic or reason to disallow the claim on purely charitable application of the trust fund. The other provisions of the Income-tax Act where section 11 has been referred, viz., section 80G and section 115BBC, supports the contention of the assessee that a trust or society formed for both charitable and religious purposes is entitled for exemption. Section 115BBC dealing with taxation of anonymous donations has exempted trusts or institutions established wholly for religious and charitable purposes. The conclusion arrived at by the CIT(A) that if the word 'or' is taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kozhikode in the case of Samastha Kerala Sunni Yuvajana Sangam (another assessee) where also it was found that the society was doing public charitable and religious activities. The learned counsel submitted that the Assessing Officer, on a perusal of the Rules and Regulations and the accounts, found that the assessee has utilised amounts for charitable and religious activities in consonance with the objects of the trust. It was specifically found by him that "the assessee has utilised 85 per cent of the income towards the objects of the society and the balance 15 per cent is accumulated as per the final accounts submitted". The learned counsel referred to the assessment order and submitted that the observations of the Assessing Officer that the assessee is doing charitable activity as well by giving alms to the poor and imparting education to all in the society irrespective of their caste and creed which can be treated as altruism, are very much important as his finding goes contrary to it. The CIT(A) wrongly upheld the assessment by stating that the Assessing Officer has rightly followed the decision of the Hon'ble Jammu and Kashmir High Court in the case of Ghulam Mohidin Trust ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be read as a conjunction introducing two alternatives. It has to be understood that the word 'or' is used to give option to carry out either charitable or religious or both. In Maxwell on interpretation of the statutes, it is observed that in ordinary usage 'and' is conjunctive and 'or' is disjunctive but to carry out the intention of the Legislature it may be necessary to read 'and' in place of the word 'or' vice versa. 12.5 The learned counsel further argued that to correctly understand the meaning of the phrase "wholly religious or charitable", we have to take the support of some of the sections in the Income-tax Act, in which the identical phraseology is used by the Legislature. It is submitted that in section 10(23C)(v), section 12(2), section 80G, etc., it is clear from the language used by the Legislature that even if the purpose is partly religious and partly charitable means if the purpose is having the religious as well as the charitable activities, then the person is entitled to get the benefit under the Act. 12.6 The learned counsel further argued that under section 11(1)(a) of the Act, the trust should be one wholly for charitable purposes or religious purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cannot withdraw such an exemption. Though the principle of res judicata does not apply to income-tax matters, where the fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging that order it would not be at all appropriate to allow the position to be changed in a subsequent year unless there was any material change justifying the revenue to take different view of the matter. 12.8 The learned counsel therefore, prayed that the orders of the Assessing Officer as well as the CIT(A) may be set aside to the extent of denying exemption under section 11 of the Act to the assessee. 13. Per contra, the learned Departmental Representative, Shri G. Vijayan Nair, in the case of Markazu Ssaquafathi Ssunniya (ITA No. 641/Coch./2006) argued that merely because the assessee is granted the registration under section 12A of the Income-tax Act on 28-6-1988, cannot be said to be the absolute qualifying condition for granting the exemption under section 11 of the Act. The Assessing Officer has power and jurisdiction even to go into the objects and aims and motives of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving mixed objectives of charitable and religious nature will not be eligible for exemption. The society had been granted exemption for all the earlier years, and the same cannot be denied now is not correction as the Assessing Officer has power to examine objects while doing assessment. The learned DR submitted that various decisions of the High Courts/Supreme Court, relied by the assessee in the case of A.A. Bibijiwala Trust (supra); Barkate Saifiyah Society's case (supra), Ahmedabad Rana Caste Association's case (supra); Andhra Chamber of Commerce's case (supra), H.H. Sir Shahaji The Chhatrapati Maharajasaheb of Kolhapur's case (supra), etc. for the proposition that the trusts with mixed objectives of religious and charitable nature are eligible for exemption under section 11(1)(a), are not applicable in the instant case of the assessees. The learned DR submitted, the decision of the Hon'ble Supreme Court in the case of P. Krishna Warriar (supra) is also not applicable in the instant case of the assessees as in that case if the property is held partly for religious and partly for charitable objectives, then exemption can be claimed under section 11(1)(b) but it is not the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that charitable purpose includes religious purposes for the purpose of section 11(1)(a) of the Act is not correct interpretation of the term "charitable". Section 80G is for the benefit of the donors and not for the trust. Section 80G does not make any distinction of trusts created before and after the commencement of the Act. The Trusts applying for exemption under section 80G include trust created before 1-4-1962 also which may be having religious objectives along with charitable objectives. It is to clarify that such trust will not be eligible for exemption under section 80G i.e., trusts created with mixed objectives even if created before 1-4-1962 will not be eligible for exemption under section 80G of the Act, such Explanation is added. 13.7 In short, the argument of the learned DR supporting the orders of the Assessing Officer as well as CIT(A) can be summarized as under :-- (1)The society is formed after 1-4-1962 and registered under section 12A of the Act before 1-4-1997. (2)The society has religious objectives. (3)The society had utilised money for the construction and maintenance of the mosque and expenses for the religious institutions. (4)The assessee has admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligious objectives along with charitable one. 2.The Executive Committee of the society has powers to utilize funds for such objectives. 3.The society had utilized money for the construction and maintenance of the Mosque, and that is only religious purpose. 4.The assessee has claimed before the Assessing Officer that the society is for the benefit of the Muslims only. 5.The society had utilized its funds for religious activities which are not charitable activities. 6.The society has mixed objectives of charitable and religious nature. 7.Hon'ble High Court of J&K has held that trust with charitable and religious objectives are not eligible for exemption under section 11(1)(a) of the Act. 8.Section 11(1)(a) envisages exemption only when the objectives are either charitable or religious and not charitable and religious. 14.2 The learned DR relied on the following precedent:-- (1)CED v. R. Kanakasabai [1973] 89 ITR 251 (SC). (2)CED v. Alladi Kuppuswamy [1977] 108 ITR 439 (SC). (3)CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412 (SC). (4)New Life in Christ Evangelistic Association v. CIT [2000] 246 ITR 532 (Mad.). (5)Pocket Testament League (India) v. Dy. DIT (Exemption) [2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-religious or the non-charitable activities. In fact, from the assessment order, we find that the Assessing Officer has undisputedly accepted the fact that, more particularly in the case of Calicut Islamic Cultural Society (supra), the assessee is not constituted only for the benefits of the backward community alone but for the benefit of the entire public as such. Moreover, in the institutions run by the assessee, more particularly the educational institutions, the members of the other community are also admitted. The assessee is also giving support to the poor. In the same way, in the case of another assessee, it is not the case of the Assessing Officer that the activities of the assessee are not otherwise than religious and charitable activities. It is interpreted that as per the words used in section 11(1)(a) of the Act, for any institution or trust it must have either wholly charitable or wholly religious activities. The entire controversy is revolving around the interpretation of section 11(1)(a) of the Act. 19. We may refer here section 11(1)(a) of the Act, which has undergone the interpretation by both the authorities, which reads as under :-- "11. (1) Income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11(1) of the Act that save the provisions of sections 60 to 63 of the Act for claiming the income exempt which is derived from the property held under the trust which must wholly for the charitable or wholly religious purposes. If the institution or trust are engaged into the mixed object which are partly religious and partly charitable or as per the case of the Assessing Officer as well as the CIT(A) the institution or trust is having the mixed activities of charity as well as religion then the exemption cannot be claimed. The argument of the learned senior counsel is that there is a very thin line of demarcation between the charity and religion. Every religion is having the principles of the charity and many charitable purposes may not have the principles of religion, though the religion is the question of faith. It is to be mentioned here that "charitable purpose" in section 2(15) of the Act making the inclusive definition and trying to make the charitable purpose more elaborate but there is no definition of the "religious purpose" under the Act. No doubt the law recognises no purpose as charitable unless it is of the public character. In short, it should be for the benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registration is granted to the assessee by the CIT, Assessing Officer cannot go into probing the objects and the purposes of the trust or institution and that is within the exclusive domain and jurisdiction of the CIT. What Assessing Officer can do that he can at the most investigate the matter within the four corners of section 13 of the Act. In this case the Assessing Officer has gone with investigating and probing the basic objects of the trust by entering into shoes of the CIT and such exercise is not permissible. 24. Both the senior counsels relied on the plethora of decisions to emphasize that the concept of charitable purpose is very much wide. In the case of H.H. Sir Shahaji the Chhatrapati Maharajasaheb of Kolhapur (supra), which is a case under the Gift-tax Act, while interpreting the phrase "charitable purposes" occurring in section 5(1)(vi) of the Gift-tax Act, the Hon'ble High Court of Bombay held that the charitable purposes includes the public religious purposes also. The other precedent relied by the learned Senior counsels, more particularly, Andhra Chamber of Commerce's case (supra), Social Service Center's case (supra), is on the proposition that even the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter reached before the Tribunal, after examining clauses 13 and 14 of the Instrument of Trust, Tribunal held that the trust was partly charitable and partly religious and there was no apportionment of income between the two objects of the trust and it was left to the exclusive discretion of the trustee to spend whatever they like on any objects and hence the assessee was not entitled to claim exemption under section 11 of the Act. The matter was carried to the Hon'ble High Court by way of Reference. The operative part of the observation of the Hon'ble High Court is as under :-- "The ratio of the above decision squarely applies to the facts of the present case. In this case also the objects of the assessee-trust contained in clauses 13 and 14 of the instrument of trust clearly show that the dominant purpose of the trust is promotion of Muslim theology among the Muslim intelligentsia. Another object is promotion of science and technology but that too among the Muslim intelligentsia. Similarly, in clause 14 of the instrument of trust which confers powers on the trustees to give financial assistance by way of ex gratia grants or loans on easy terms to scholars of educational insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra). In that case - it was held that as per the objects of the trust it was partly charitable and partly religious but as far as the present these two cases are concerned, nowhere it is the case of the Assessing Officer that in both these cases the objects of the assessee are partly non-charitable or partly non-religious. Further, in that case there was no proper apportionment of the income between the two objects of the trust as it was left to the exclusive discretion of the trustees to spend whatever they like. In short, it was an arbitrary discretion given to the trustees to apply the income for the non-charitable and non-religious purposes. Moreover, in that case it was held that section 13(1)(b) of the Act is attracted as the trust was intended to promote science and technology and Muslim theology among Muslim intelligentsia, which was the main and dominant object of the trust. In the present two cases it is not the case of the Assessing Officer. In our opinion, the principles laid down by the Hon'ble High Court of Jammu & Kashmir has no application as far as the facts of the present these two cases are concerned. 27. We may mention here that the Assessing Officer himself ..... X X X X Extracts X X X X X X X X Extracts X X X X
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