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TMI Blog2014 (7) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... der the following substantial question of law:- "Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has erred in cancelling the order under section 263 of the Income Tax Act, 1961 ignoring that the assessment order was passed without going through the books of account and without bringing to tax the correct and complete income?" 3. The facts, in brief, necessary for adjudication of the controversy involved, as narrated in the appeal may be noticed. The assessee trust was registered under Section 12A of the Act. Return declaring nil income for the assessment year 1997-98 was filed on 28.10.1997 which was processed under Section 143(1) (a) of the Act vide order dated 26.2.1998. Assessment under section 143(3) of the Act was completed on 21.3.2000, Annexure P.1 at nil income. The said assessment was cancelled under section 263 of the Act by the Commissioner of Income Tax, Rohtak (CIT) vide order dated 26.3.2001, Annexure P.2 holding that the Assessing Officer had not examined the books of account and passed order under Section 143 (3) of the Act without making enquiries regarding the genuinene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act by treating the assessee to be a charitable institution without their due compliance. The CIT exercising the powers under section 263 of the Act after noticing the activities of the assessee had rightly set aside the said order in its revisional jurisdiction and the Assessing Officer thereafter had passed an assessment order taxing the assessee as an association of persons. It was contended that the major portion of the receipts was spent by the assessee on construction of temple and other non-charitable activities and, therefore, it could not be held to be utilisation of funds for charitable purposes. Reliance was placed upon judgments reported in Shri Gopal Lalji-ka-mandir Trust v. CIT, (1984) 146 ITR 513 (MP) and Kizhakke Kovilakam Trust v. Assistant Commissioner of Income Tax, (2002) 256 ITR 238 (Ker.). 6. Controverting the submissions made by learned counsel for the appellant-revenue, learned counsel for the respondent-assessee submitted that the assessee was a charitable trust and had been granted registration under section 12A of the Act and as such the assessment was required to be made in accordance with Sections 11 and 12 of the Act. Learned counsel also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution. In terms of Clause 4 of the trust deed, the aims and objects of the Trust were to give education and medical relief, relief of poor and any other objective of general public utility not involving the carrying of any activity for profit and such purposes: (a) To establish, promote, support, maintain and/or grant aid or other financial assistance to schools, colleges, hostels, libraries, reading room, lecture hall, museum and other establishment and institutions for the development of education and diffusion of useful knowledge. (b) To grant scholarships, stipends, free studentship, prizes, rewards and allowances or other financial assistance to students. (c) To establish, promote, support, maintain, help run and grant aid/or other financial assistance to dispensaries, hospital, nursing homes, maternity homes, child welfare centres, sanitoriums, clinics, laboratories, mobile medical units, ambulances, medical and/or surgical camps and other establishment for giving medical relief to the public. &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (o) To render assistance and/or grant aid to recognized public charitable trusts or institutions. (p) To do any other act for the advancement of general public utility not involving the carrying on of any activity for profit. (q) Generally to do all such other things as are incidental or conclusive to the attainment of the above objects. The then CIT after scanning the objects of the trust as enumerated in the trust deed had registered it under Section 12A of the Act. It had also been granted exemption for five years from 1.4.1993 to 31.3.1998 under Section 80G of the Act on 26.9.1996. The assessee filed the return for the assessment year 1997-98 declaring nil income on 28.10.1997 which was accepted by the Assessing Officer under Section 143(3) of the Act on 21.3.2000. The Assessing Officer had accepted that the assessee respondent was a charitable trust and its income was exempted under Sections 11 and 12 of the Act. The CIT had invoked revisional jurisdiction under section 263 of the Act holding the said assessment order to be erroneous and prejudicial to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 3000/- and by appointing as the sole trustee Shri Shambu Dayal Shastri alias Swami Sudernancharya Ji Maharaj. (ix) That the assessee trust was running a book shop in the premises whose receipts were not being disclosed in the accounts of the trust. It may be mentioned that this is an observation made by the CIT in para 6 of his order and apparently he visited the trust premises himself without disclosing his identity. According to the CIT, he purchased a small booklet for Rs. 3/- but he noted as a fact that no piece was printed on the booklet and the persons running the bookshop informed him that they were not issuing any receipts for the articles sold. It also appears from para 6 of the order of the CIT that on his insistence a kachha receipt dated 9th October 2000 was issued although he is supposed to have visited the trust premises and the book shop on 10.11.2000. (x) The sole trustee was given all the powers to collect donations and to apply the income of the trust for one or more of its objects, to invest, borrow, sell, open accounts, to appoint further trustees and members of the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or medical relief or on any other object of general public utility. (xviii) That the trust was on a building and temple construction spree on its own land or on unauthorized land and recently the state Government had demolished some of the unauthorized constructions. The aforesaid showed that the trust had no regard for law and order and it was simply spreading superstition amongst the public and working against the general public interest." 11. Each ground was elaborately challenged by the assessee by countering the allegations in the following terms as noticed by the Tribunal in para 5 of its order:- "(i) The appellant is a charitable trust and had been granted registration under Section 12A of the IT Act, 1961 and as such the assessment had to be made in accordance with sections 11 And 12 of the said Act. (ii) In case the income was applied for charitable purposes and there had been no violation committed under sections 13(1) and 13(2), the exemption had to be granted. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a luxury vehicle. (x) It had been completely overlooked by the Commissioner that a sum of Rs. 28 lakhs and odd had been spent on langar and which was definitely expenditure for charitable purposes. (xi) There was no material on record for the CIT to hold that any benefit had been derived by the persons specified in Section 13(2) of the IT Act, 1961. (xii) In the Hindu system, there was no line of demarcation between religion and charity since charity was regarded as a part of religion and what were purely religious purposes and that were charitable purposes was to be decided entirely according to Hindu law and Hindu notions. For instance construction of the Samadhi of a saint was also to be considered as a charitable purpose. (xiii) There was a distinction between public and private temples and the former were generally built or raised by the public and the deity installed to enable the members of the public or a section thereto to offer worship and in such a case the temple would clearly be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being in the property belonging to the trust were not the points raised/indicated. It was a fact that the Swamiji was living in a separate property located at Sector 16A Faridabad. (xxii) There was no bookshop in existence during AY 1997-98 and observations of the CIT with reference to his informal visit to the premises at the end of 2002 would not be relevant since this was in his private capacity and in case the same had to be considered as official, then the assessee should have been confronted with relevant facts before recording the facts, which were adverse. Further,the aforesaid action on the part of the CIT reflected bias and prejudice towards the assessee. There was no evidence with the department for the allegation that the trustees were eating food belonging to the trust and further, action under Section 263 was required to be restricted to the allegations made in the notice. (xxiii) That more than 75% of the total income arising during the assessment year under consideration had been applied for charitable purposes and this would be apparent from the copy of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to statutory notices issued by the assessing authority, the assessee had furnished details/information from time to time as required. The Tribunal had after appreciating the respective submissions of learned counsel for the parties, concluded that the assessment was rightly framed under Section 143(3) of the Act on 21.3.2000. It had also been noticed that the donations received by the assessee had been applied for the purpose for which the trust had been created which included the construction of the building and other charitable purposes. The reason recorded by CIT in the notice issued under section 263 of the Act was that the books of account of the assessee were impounded on 13.7.1998 during the course of proceedings for grant of exemption under Section 80G of the Act and that the assessment was finalized without checking the books of account and making due enquiries. The Tribunal did not accept the aforesaid reason as the books impounded relating to the assessment year 1997-98 were in the possession of the Assessing Officer and in such circumstances, it could not be concluded that the same were not considered/examined by the Assessing officer while finalizing the assessment. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has recorded that more than 75% of the total income during the assessment year had been applied for charitable purposes as per return. The amounts invested for the construction of immovable property had to be treated as application of income. The requirement of 75% was enhanced to 85% by Finance Act 2002 w.e.f 1.4.2003. Learned counsel for the revenue was unable to dislodge the finding of facts recorded by the Tribunal. 14. The contention of the learned counsel for the revenue that the assessee was constructing a temple and had utilized the funds for religious purposes only which did not constitute charitable purpose, is repelled in view of the judgment of the Apex Court in Ramchandra Shukla's case (supra), which was followed in Barkate Saifiyah Society's case (supra). 15. In Barkate Saifiyah Society's case (supra), while dealing with similar issue with regard to religion and charity, it was held that there was no line of demarcation between the two. It was observed as under:- "It is to be noted that definition of the phrase "charitable purpose" is inclusive and it covers a wider field than the field cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rifices, gifts to the priests at the time of such sacrifices, preservations of vedas, religious austerity, rectitude, vaisvadev sacrifices and hospitality. Among the Purta acts are construction and maintenance of temples, tanks, wells, planting of groves, gifts of food, dharamshalas, places for drinking water, relief of the sick, and promotion of education and hearing. (cf. Pandit Prannath Saraswati's Hindu Law of Endowments, 1897, pages 26-27). Istha and Purta are in fact registered as the common duties of the twice born class. (cf. Pandit Saraswati, page 27)." In view of the aforesaid discussions, it can be said that a trust can be either for religious purposes or for charitable purposes or it can be for both charitable and religious purposes." 16. The Apex Court in Malayammal's case (supra) had held that there was no distinction between religion and charity. It was recorded as under:- "In Hindu system there is no line of demarcation between religion and charity. On the other hand, charity is regarded as a part of religion. But what are purely religious purposes and what religious purposes will be charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of processions for the honour of deities and so on. Gifts for the promotion of education and knowledge are considered specially meritorious." This judgment was affirmed by the Apex Court in Surat City Gymkhana's case (supra). 18. A Division Bench of the Andhra Pradesh High Court in Social Service Centre's case (supra) had held that construction of a church was a purpose of general public utility. It was further noticed that expenditure on religious activities was also entitled to exemption. It was indicated as under:- "We do not find that donation to a church or construction of a church is not a purpose which is not of general public utility. Therefore, the contention of the Department that the expenditure on religious activities could not be given exemption cannot be accepted particularly in the context of our polity. We are aware that most of the religious and charitable activities go together in this country. Secondly, if we look at Section 11 which is reproduced below it becomes clear that it is not necessary that an institution which is dealing in charitable and religious activities should get a not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to S. RM. M. CT. M. Firm, Rangoon, on the "assets" side was substituted by "building for Rs. 8 lakhs" on the assets side. It was the case of the assessee that during the assessment year 1970-71, the advance to the said firm at Rangoon was in effect realized and invested in a building for the purpose of starting a hospital. The trust had also earned during that assessment year other income amounting to Rs. 1,64,210.03.The assessee claimed exemption for the total income of Rs. 8 lakhs plus Rs. 1,64,210.03 under Section 11(1) of the Income-tax Act, 1961. The Income-tax Appellate Tribunal by a majority of 2:1 held that the sum of Rs. 8 lakhs was to be treated as income of the assessee for the purposes of Section 11. The Tribunal gave the benefit of section 11(1) to the assessee for the assessment year 1970-71 in respect of the entire income consisting of Rs. 8 lakhs plus Rs. 1,64,210.03. On a reference to the High Court, the High Court has held that the sum of Rs. 8 lakhs was an asset acquired in realization of an outstanding due and hence, the sum of Rs. 8 lakhs cannot be included in the income of the assessee for the purposes of section 11(1).....xxx xxx xxx A mere look at secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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