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TMI Blog2012 (7) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... the department had to ultimately assess income under Chapter III. The decision in the case of Allahabad Agricultural Institute (2007 (3) TMI 208 (HC)) shows that the AO could have made a departure from past even in earlier years. In the light of the aforesaid decision, grant of benefit u/s 11(1)(a) would be beyond the purview of law. In such a situation, the rule of consistency cannot prevail over the well entrenched principle of res-judicata. As discussed earlier by references to the decision in the case of Pragati Construction Co. (2003 (12) TMI 281 (Tri)) and All India J.D. Educational Society (2010 (11) TMI 668 (HC)). Therefore, we are of the view that the AO was well within his right to examine the facts of this year independently. Since there were pressing reasons to make a departure, he was well within his right to do so. Whether deduction of depreciation on fixed assets is allowable when full cost of the assets had been allowed in earlier years u/s 11 as application of income, thereby allowing the deduction of the same expenditure twice over - assessee is not entitled to exemption u/s 11 in respect of expenditure incurred on medical relief through allopathic system of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying out two objects- (i) imparting education in and preaching Sanskrit according to Sanatan Dharma methods, and (ii) devising means for imparting education in and improving the Ayurvedic system of medicines and preaching the same. In order to attain object no. (ii), it is not prohibited to take help from the English or Unani or any other system of medicines and according to need one or more than one ayurvedic hospitals may be opened. 2.2 Thereafter, he referred to form no. 10A filed by the assessee on 28.06.1973. A certified copy of Will of the donor had been attached with this form, on the basis of which the registration was granted under section 12A(a). A copy of the order of registration has been placed in the paper book on page no. 7. This order mentions that the certificate of registration does not by itself confer any right to claim exemption from tax in respect of its income, in as much as such exemption depends upon the satisfaction of all other conditions in this behalf laid down in sections 11, 12, 12A(b) and 13 of the Act. 2.3 He also draws our attention towards the submissions made before the AO for assessment year 1973-74, in which the details of the patients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjects permit the taking of help of any other system of medicine in order to achieve object no. 2. It has been held that the reference of taking help from English, Unani or any other system of medicine is for imparting education in ayurvedic system of medicine. The trust has been authorized to open one or more ayurvedic hospitals, therefore, the claim that it is permitted to open an allopathic hospital is not correct. 2.7 It was further submitted that the trust can only open the hospitals but it cannot compel the community to choose the system of medicine, therefore, patients wanting allopathic treatment are being provided treatment under this system. This submission has been rejected by mentioning that although the trust cannot compel the community to choose the system of medicine, but that does not mean grant of any authority to the trust under the Will to carry out objects beyond the permitted objects. 2.8 It was also submitted that even at the time of grant of registration and in earlier years, the hospital was engaged in providing medical relief through modern medicine. Yet, it was granted benefit under sections 11 and 12. This submission has also been rejected by ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of medicines far exceed the receipts and expenditure in providing medical relief through ayurvedic system of medicine, the former is in aid of the latter. Therefore, the trust has not exceeded the objects in the trust deed. 3.1 Our attention has been drawn towards the definition of the terms "charitable purpose", furnished in section 2(15), which includes medical relief. It is argued that providing medical relief through allopathic system of medicine is also a charitable purpose, therefore, the assessee is entitled to exemption under sections 11 and 12. 3.2 Further, our attention has been drawn towards the application made for registration of the assessee-trust and the grant of registration in 1972 or thereabout. The assessee has also been granted approval under section 80G(5) for the period 01.04.2004 to 31.03.2007 vide order dated 26.04.2004, a copy of which has been placed in the paper book on page no. 8. It is argued that the assessee has been carrying on same activities as in past. The registration is in force and the approval is valid for the period under consideration. Therefore, there is no reason for not granting exemption under sections 11 and 12. 3.3 It is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of this year are mentioned in paragraph no. 2.5 ( supra ). The case of the ld. CIT, DR is that the assessee is not entitled to exemption under sections 11 and 12. On the other hand, it is the case of the ld. counsel that the assessee is entitled to the aforesaid exemption. 5.1 The first issue in this connection is as to whether the assessee has been following the objects narrated in the Will. The case of the ld. CIT, DR is that while help could have been taken from other systems of medicines, the prime object was to provide medical relief through ayurvedic system of medicines and to promote research in this area. As against the aforesaid, the trust provides medical relief through allopathic system of medicines in its hospital. Therefore, it is not a case of taking help from allopathic system of medicines to carry out research or treatment of patients in ayurvedic system of medicines. The arguments of the ld. counsel are not very clear in this regard. He merely referred to the objects and submitted that help can be taken from any other system of medicine. Therefore, activities of the trust are confined to its objects. Having considered the facts and rival arguments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to the Tribunal. The ratio of the case is that notwithstanding grant of registration, the AO has to examine in each year whether deduction u/s 11 is admissible to the assessee. In the case of Cane Development Council ( supra ) also, it has been held that the question of deduction u/s 11(1) will have to be looked into at the time of assessment in the light of provision contained in section 2(15) read with its proviso. In the case of Red Rose School ( supra ), it was inter-alia held that the misuse of income derived by a charitable institution from its charitable activities may be a ground for refusing exemption only with respect to that part of the income, however, the same is not synonymous with the expression that activities of the institution are not genuine. In the case of New Life In Christ Evangelistic Association ( supra ), it was held that at the stage of granting registration, the Commissioner cannot insist on the society to show that its income will not be used for religious purposes. The question of exemption under sections 11 and 12 would come only when such exemptions are claimed in the return of income. Such is also the decision in the case of Aggarwal Mitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects. Thereafter, the AO granted exemption u/s 11 read with section 80G by an order passed on 04.03.1969. In a subsequent assessment, the AO took an objection that certain clauses which were omitted did not constitute charitable purpose and that subsequent rectification deed was not valid, therefore, he refused to grant the relief. The Hon'ble Court came to the conclusion that the trust deed, as it originally existed, had both charitable and non-charitable objects. The trust deed did not grant any authority to the trustees to alter the objects. The well-established law on the issue is that once a valid trust has been created, even the founder of the trust cannot make any change in the objects. Thus, the deleting of some of the objects was not valid. It has also been held that even if it is assumed that the district court is empowered to delete the offending clauses, it cannot do so retrospectively. Accordingly, the question was answered against the assessee and in favour of the revenue. 5.8 In the case of Allahabad Agricultural Institute ( supra ), the Hon'ble Court mentioned that the argument that the registration can be cancelled by the Commissioner only u/s 12AA(3) applies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court should be read in the light of the main issue before it. The decision of the court is that the assessee is required to show substantial prima facie case in its favour, which means that a prima facie error should have been shown in the assessment. He relied on the decision of Hon'ble Supreme Court in the case of S. RM. M. CT. M., Tiruppani Trust v. CIT [1998] 230 ITR 636/96 Taxman 635. The factual basis on which exemption u/s 11(1) was denied in this case was that before giving information for accumulation of income in form no. 10, the assessee utilized a sum of Rs. 8.00 lakh in the accounting year for purchase of a building meant for a hospital instead of investing the amount in government securities. The Hon'ble Court held that section 11(1)(a) grants deduction in respect of income which is applied towards charitable purpose. The assessee is not claiming any benefit u/s 11(2) and it also cannot claim this benefit because condition of section 11(2) is not satisfied. However, the assessee is entitled to claim the benefit of section 11(1)(a) as it has applied Rs.8.00 lakh for charitable purpose in India by purchasing a building which is to be utilized as a hospital. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not fall within the objects of the institution. We are aware that the decision in the case of Allahabad Agricultural Institute ( supra ) was decided on a different point, but the fact remains that the Hon'ble Court mentioned at length that the income applied to objects other than the permitted objects cannot be deducted as the basis of registration ceases to exist. Since we are relying on this judgment, it will be appropriate to reproduce the contents of placitum 10 on page 119 of the report, which reads as under:- "The argument is misconceived. The registration is granted by the Commissioner. It can be cancelled by the Commissioner under s. 12AA(3). However, the words of that statutory provision show that it applies where the objects of the trust or institution remain the same on paper, but the actual activities of such trust or institution are contrary to the said objects or are fictitious or fraudulent or not genuine or not within the scope of those objects. However, where the objects of the trust or institution, which were the basis of grant of registration, are altered after such grant of registration, the very foundation of the registration having been removed by a volu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of registration undergoes a change. Therefore, we find force in the argument of the ld. CIT (DR) that for claiming exemption u/s 11(1)(a) the assessee will have to adhere to the objects for which it was formed. Accordingly, it is held that since medical relief through allopathic treatment does not fall within the ambit of the objects mentioned in the Will, the income and expenditure from this activity will have to be treated separately. A consequence of this finding is that surplus from this activity cannot form subject matter of exemption u/s 11. 7. In regard to the applicability of principle of res-judicata, the ld. CIT, DR submitted that where there is a breach of law, the error in earlier orders cannot be allowed to be continued. For this purpose, he relied on following cases:- ( i ) Pragati Construction Co. v. Asstt. CIT [2004] 89 ITD 271 (Delhi); and ( ii ) All India J.D. Educationnal Society v. DGIT (Exemptions) [2011] 338 ITR 218/198 Taxman 443/10 taxmann.com 177 (Delhi). 7.1 In the case of All India J.D. Education Society ( supra ), the Hon'ble Court mentioned that the application made by the assessee was admittedly filed beyond the prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance was taken of the fact that the trustees exceeded their authority under the Will. However, due to inadequacy in legal framework, the department had to ultimately assess income under Chapter III. The decision in the case of Allahabad Agricultural Institute ( supra ) shows that the AO could have made a departure from past even in earlier years. In the light of the aforesaid decision, grant of benefit u/s 11(1)(a) would be beyond the purview of law. In such a situation, the rule of consistency cannot prevail over the well entrenched principle of res-judicata. As discussed earlier by references to the decision in the case of Pragati Construction Co. ( supra ) and All India J.D. Educational Society ( supra ). Therefore, we are of the view that the AO was well within his right to examine the facts of this year independently. Since there were pressing reasons to make a departure, he was well within his right to do so. 9. In the result, ground no. 1 is partly allowed. 10. Ground no. 2 is that the ld. CIT(Appeals) erred in granting depreciation on fixed assets whose full cost had been allowed to be deducted u/s 11(1)(a) in earlier years. The finding of the AO is that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature which enable the assessee to write off certain items of capital expenditure against his business profits. It is further mentioned that the mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier. On the basis of this finding, some pre-existing decisions were overruled. It is also mentioned that the Parliament never intended to provide for a double deduction which is supported by the opinion of Direct Tax Laws Committee (Popularly known as Choksi Committee). In the case of Adi Sankara Trust ( supra ), this decision has been followed. In the case of Institute of Banking Personnel Selection (IBPS) ( supra ) it has been held that the Tribunal was right in law in directing the AO to allow depreciation on the assets, the cost of which had been fully allowed as application of income u/s 11 in the past year. The effect of aforesaid decisions is that in so far as income from providing relief through allopathic system of medicine is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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