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TMI Blog2010 (2) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... rred for the construction of the building is the expenditure incurred for charitable purposes. For the construction of the building if the land is taken on lease from PMT Society on which hospital was constructed and is being run, it cannot be said that the amount incurred in the construction of the hospital building on the land taken on lease from PMT Society was not for charitable purposes. We are of the view that the object of the PMT Society is wholly irrelevant to judge the object of the present assessee. However, the fact is that the object of PMT Society has also been treated as charitable object by the appellate authority which is valid till date. The Apex Court in the case of CIT v. Gujarat Maritime Board [ 2007 (12) TMI 7 - SUPREME COURT] has interpreted the words any other object of generally public utility of section 2(15) of the Act. It has been held that the said expression is of the widest connotation. The word general in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basic necessity. There is another society known as Pt. Pyare Lal Sharma Memorial Trust Society (hereinafter referred to as PMT Society ), which owned prime commercial land situate at Hapur Road in the town of Meerut. The assessee approached the said society for the purpose of acquiring a building and a Memorandum of Understanding was arrived at between the assessee and the said society. A copy of memorandum of understanding is part of the record. This states that the PMT Society was also established for the purposes of establishing a hall, library, hospital etc., but was unable to fulfil its objects for want of funds and the assessee wanted to help it by giving a donation by constructing a building on the front portion of the PMT Society s land, known as Pyare Lal Sharma Memorial land. According to this Memorandum, the assessee was to construct at its own cost on the aforesaid land belonging to PMT Society, seven shops and a main gate along with staircase, basement, hospital and examination rooms etc. The plans of the building were to be as desired by the present assessee and the constructions were to be raised in the ground floor and first floor and after 10 years the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 5,73, 767.26 7. It is admitted that this entire expenditure was possible only out of donations received by the assessee. The Income-tax Officer has taken the view that the sum of ₹ 5,62,917.77 spent during the previous year relevant to assessment year 1985-86 was not spent by the assessee for charitable purposes. He, therefore, held that donation of ₹ 5,62,917.77 spent in construction of building is not being treated as having been applied for charitable purposes and, therefore, this amount was added to the income of the assessee-trust. In doing so he has observed that a detailed discussion on the various aspects of construction and donation to PMT Society has been made in the assessment order for 1986-87. A copy of the assessment order for assessment year 1986-87 in case of PMT Society is part of the record. Perusal of the assessment order reveals that Income-tax Officer had laid stress mainly on the following points : (1)Construction cost is borne by the assessee-trust. (2)Ownership of the constructed building vests with the Pt. Pyare Lal Sharma Trust Society. (3)The transfer by the assessee-trust to the society is not irrecoverable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le activities but major portion thereof has been siphoned off to the PMT Society for construction of a building on the land of PMT Society and by vesting the ownership in the society, which is not recognised to be charitable society. On this approach the learned CIT(A) has upheld the assessment as framed by the ITO. 9. Aggrieved by the order of the Commissioner (Appeals) the assessee filed appeal before the Tribunal. The Tribunal vide order dated 11-8-1989 allowed the appeal and held that the sum of ₹ 5,62,917.77 paise spent by the assessee on the construction of the building in question was an expenditure incurred by it for the purposes of carrying out the charitable objects of the assessee-society and was an application of income for charitable purposes within the meaning of section 11(1)(a) of the Act. Therefore, the assessee s income was exempt under section 11 of the Act. 10. The Tribunal held as follows : We have given the details of the transaction entered into by the assessee with the PMT Society and we are unable to appreciate the line of approach taken by the authorities below that the PMT Society is the sole beneficiary of these transactions and the funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted area to the PMT Society. The rent to be paid is just nominal. Therefore, by constructing the building at its own cost the assessee has acquired the building at a nominal rent. The cost to the assessee would have been much more if it had purchased the land also or if the PMT Society had constructed the building at its own cost and then let out the same to the assessee. None of the authorities below has held that such a large area of building could have otherwise been acquired by the assessee on a perpetual lease on a rent of ₹ 525 p.m. or that if the buildings had been raised by PMT Society at its own cost, even then the rent that they could have fetched, would have been only about ₹ 525 p.m. Such an assertion would have been absurd and, therefore, neither the authorities below have advanced the same nor the learned Departmental Representative said so before us. A copy of the building plan has been placed at page 6 of the paper book which shows that the covered area in the ground floor is 5,957 sq.ft. and that in the first floor it is 5,733 sq. ft. Out of this the area of the shops given to the PMT Society is only about 1,800 sq.ft. Can it be said that an area of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ody s case that the building so constructed by the assessee is not in its actual use and occupation. Thus, the expenditure in question was incurred by the assessee in acquiring a building for carrying out its purposes and such an expenditure would necessarily be an expenditure incurred for the carrying out of the objects of the assessee-trust. It is settled law that even capital expenditure incurred by an assessee in acquiring assets which are necessary for carrying out its objects amounts to application of income of the trust for charitable objects. In Satya Vijay Patel Hindu Dharam Shala Trust v. CIT 86 ITR 683(Guj.) it was held that expenditure incurred in acquiring a capital asset for carrying out the dominant purpose of the trust was an expenditure within the meaning of section 11(1)(a) of the Income-tax Act, 1961. In this case assessment for the immediately preceding year, i.e., assessment year 1984-85 was made on 7-2-1987. The previous year was the financial year 1983-84, during which the assessee had spent ₹ 3,13,241.90 for the construction of the same building. A copy of the assessment order is at page 41 of the paper book and shows that the assessee s income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as owner, out of which it got 7 shops which it could let out at fair rent and was to get some more rent from the assessee-society. In the process it did not lose the ownership of the land though it did get deprived of the use of a portion of its land, which it was not being able to put to any good use for want of funds. The rental income generated in the process would certainly help the PMT Society in carrying out its objects and it was in this sense that the District Judge, Meerut permitted the transaction holding that it was for the benefit of the PMT Society to enter into such a transaction. In view of the above discussion, we hold that the sum of ₹ 5,62,917.77 paise spent by the assessee on the construction of the building in question was an expenditure incurred by it for the purposes of carrying out the charitable objects of the assessee-society and was an application of income for charitable purposes within the meaning of section 11(1)(a) of the Act. Therefore, the assessee s income was exempt under section 11 and the amount in question could not be taxed. Accordingly, we allow the assessee s appeal and delete the addition in question, with the result that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble purposes. He submitted that the Tribunal having regard to the entire facts and circumstances has recorded a categorical finding that the income was spent in the construction of building in question for the purposes of running hospital was an expenditure incurred for the purposes of carrying out the charitable objects and was an application of the income for charitable purposes within the meaning of section 11(1)(a) of the Act. He submitted that if any amount is incurred to achieve the object which is in the charitable nature, the amount incurred will be considered to be an expenditure and application of amount for charitable purposes within the meaning of section 11(1)(a) of the Act. In support of the contention he relied upon the following decisions : 1.In the case of Bar Council of Uttar Pradesh v. CIT [1983] 143 ITR 5841 (All.). 2.In the case of CIT v. Banaras Brass Merchant Manufacturers Association [2000] 241 ITR 702 (All.). 3.In the case of S. RM. M. CT. M. Tiruppani Trust v. CIT [1998] 230 ITR 636(SC). 4.In the case of CIT v. Shri Ram Memorial Foundation [2004] 269 ITR 354(Delhi). 14. Having heard learned counsel for the parties, we have gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and (ii )for charitable or religious purposes, created before the 1st day of April, 1952 to the extent to which such income is applied to such purposes outside India : Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; (d )income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. Section 12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- (a )the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA: Provided that where an application for registration of the trust or institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from tax. Section 12A of the Act contemplates the registration of the trust for the purposes of section 11 of the Act. 18. Admittedly the assessee-trust is registered under section 12A of the Act. The genuineness of its existence is undisputed. The object of the assessee-trust is primarily to run the hospital, nursing home etc. for medical aid to the general public. We are of the view that such object falls within the purview of charitable purposes defined under section 2(15) of the Act. Construction of building for running the hospital or dispensary is the basic necessity. Without the building hospital cannot run and the medical facility cannot be provided to the public at large. Therefore, any expenditure incurred for the construction of the building is the expenditure incurred for charitable purposes. For the construction of the building if the land is taken on lease from PMT Society on which hospital was constructed and is being run, it cannot be said that the amount incurred in the construction of the hospital building on the land taken on lease from PMT Society was not for charitable purposes. We are of the view that the object of the PMT Society is wholly irrelevant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petent in law but who are respectable and proper persons to belong to the noble profession of lawyers; the said activities have been held for the advancement of general public utility within the meaning of section 2(15) of the Act. 23. In the case of Banaras Brass Merchant Mfrs. Association (supra), the object of the association to promote and protect the trade, commerce, industry of the mercantile community has been held as the object of the general public utility and its income has been held exempted under section 11 of the Act. 24. In the case of S. RM. M. CT. M. Tiruppani Trust (supra) the assessee was a charitable trust. Its objects were to carry out Thiruppani or repairs to old Hindu temples, building new ones, giving aid to or establishing hostels, educational and industrial institutions, etc. A trust has utilized a sum of ₹ 8 lakhs in purchasing building to be utilized as a hospital. Such investment has been treated to have been made for charitable purposes. 25. In the case of Shri Ram Memorial Foundation (supra), the Division Bench of Delhi High Court has held that the donation of income to another charitable trust amounts to application of income for char ..... X X X X Extracts X X X X X X X X Extracts X X X X
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