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TMI Blog2015 (9) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from assessment year (AY) 2004-05. 2. In W.P.(C) 5711 of 2013, Hamdard has impugned the said order of the DGIT(E). In W.P.(C) 3599 of 2012, Hamdard challenges reopening of its assessment for AY (assessment year) 2005-06, and impugns the notice of reopening dated 27.03.2012 issued under Section 148 of the Act as well as the order dated 25.05.2012 rejecting Hamdard's preliminary objections pertaining to the reopening of assessment proceedings. Hamdard contends that the reopening of assessment by Assistant Director of Income Tax (Exemptions) ("ADIT(E)") is based on a mere change of opinion on the same set of facts. In WP (C) Nos. 5715 of 2013, 5716 of 2013, 5718 of 2013 and 5729 of 2013, Hamdard has challenged separate but identical orders dated 10.07.2013 passed by the Commissioner of Income Tax (Appeals) ("CIT(A)") for AYs 2006-07, 2007-08, 2008-09 and 2009-2010, holding that Hamdard was not entitled to the benefit of exemption under Section 11 of the Act. Since the focal point of the dispute involves the withdrawal of Hamdard's exemption under Section 10(23C)(iv) of the Act, the Court would first discuss the facts in W.P.(C) 5711 of 2013 before proceeding to discuss the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... people in the country. (3) To publish books, pictures, maps or literature or to aid in publication of the same by the publication of which the object of Wakf are fulfilled or achieved. 47. Help may also be given to needy orphans, needy widows or helpless persons, needy authors and research scholars and victims of unforeseen calamities without restriction of caste, colour or creed." 4. Following its objectives, Hamdard claims that it is involved in various secular, charitable, nation building activities and humanitarian objectives; and it is not guided by factors relating to caste, creed or religion. It asserts that it is a pioneer in the development and growth of the Unani system of medicine. Hamdard has set up around 25 medical, educational, literary, scientific and cultural organisations including, inter alia, the All India Unani Tibbi Conference, Institute of History of Medicine and Medical Research, Indian Institute of Islamic Studies, Ghalib Academy, Rabea Girls Public School, Hamdard Education Society, Majeedia Hospital, Jamia Hamdard (University), Rufaida Nursing School, Hamdard Study Circle, Hamdard Coaching Centre, Hamdard Primary School, Hamdard College of Pharmacy et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the same by the publication of which the objects of the wakf are fulfilled or achieved. 3. Help may also be given to needy orphans, needy widows or helpless persons, needy authors, scholars research scholars and students and victims of unforeseen calamities without restriction of castes, colour or creed." 6. Both Hamdard and HNF are registered under Section 12A read with 12AA of the Act. In Additional Commissioner of Income Tax v. Hamdard Dawakhana (Wakf), (1986) 157 ITR 639, this Court examined Hamdard's objects and activities and held them to be charitable. Hamdard had been enjoying exemption under Section 10(23C)(iv) of the Act since AY 1984-85. For renewal of the said exemption for AY 2004-2005, Hamdard submitted its application in the prescribed form. The Revenue sought clarifications from Hamdard and upon an examination of the objects, activities and financial records, renewed the exemption under Section 10(23C)(iv) of the Act on 28.12.2007, with effect from AY 2004-2005, subject to certain conditions stipulated in the order dated 28.12.2007. 7. On 14.01.2009, the DGIT(E) issued a show cause notice to Hamdard, for 03.02.2009, for rescinding the exemption order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification for subsequent years has also been applied for by the assessee which is pending. The main activity of the assessee is to provide healthcare in the field of Unani medicine, production, sale and marketing of unani and ayurvedìc medicines, the proceeds of which are governed by the Wakf Deed, and applied for charitable purposes. The activities of the assessee are within the meaning of section 2(15) of the Income Tax Act. As such, exemption is allowed to the assessee u/s 11 of the Income Tax Act, as claimed." 10. On 27.03.2012, the Revenue issued a notice to Hamdard under Section 148 of the Act, seeking to re-open its assessment proceedings for AY 2005-2006. The Revenue supplied the reasons for reopening assessment proceedings for AY 2005-06 to Hamdard on 16.04.2012. The said letter highlighted the sales and expenditure figures of Hamdard and based on such figures, concluded that Hamdard's activities were commercial in nature. It further stated that Hamdard had made huge surpluses and had made accumulations over the years for expansion of manufacturing units. Though Hamdard's objects are charitable, its activities were held to be not charitable in nature. Revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second Petitioner accordingly informed Hamdard's counsel and waited for second Respondent's arrival. It is further submitted that as the second Respondent did not attend office for two hours and no firm time for this purpose was indicated by his staff, the second Petitioner returned to his own office. 15. In the four writ petitions, Hamdard states that on 29.06.2013, the second Petitioner received a call from the second respondent, asking him to come to his office. Upon reaching there, he was informed by the said Respondent that he was to go abroad for some official work and that he would take up the appeal after returning; he further expressed his inclination to await the passing of a fresh order by the DGIT(E), on the issue of exemption under Section 10(23C) (iv) of the Act. However, Hamdard in its rejoinder affidavit submits that these events transpired on 01.07.2013 and not on 29.06.2013, and that the reference to 29.06.2013 was an inadvertent error as the events described hereinabove had occurred on the 'next working day', which had been incorrectly stated as 29.06.2013. 16. Hamdard further states that on 08.07.2013, the second Respondent again called up the second petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take a different view on the same set of facts. The manufacture and sale of unani medicines is the Hamdard's business since its inception and this pre-existing business was dedicated to the cause of public charity by the founder-Wakif Mutawalli in 1948. Hamdard submits that comparing it with a commercial private pharmaceutical company is ill-founded and perverse as in the case of commercial companies the profits and gains are free for distribution amongst shareholders and there is no obligation to apply the same for charitable objects. On the other hand, no part of its income is distributed or is capable of distribution for the private benefit of the mutawallis. 19. Considerable reliance is placed on the fact that Hamdard has been enjoying exemption from tax for a considerable period of time. Specifically, Hamdard cites this Court's decision in Additional Commissioner of Income Tax v. Hamdard Dawakhana (Wakf), [1986] 157 ITR 639, where its objects and the exact nature of its activities have been examined by this Court in detail in light of the Supreme Court's decision in ACIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1, and were held to be charitable. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 22. It is urged that the DGIT(E) erroneously surmised that Hamdard did not apply/accumulate its surplus towards its objects in violation of condition (a) of the order of exemption dated 28.12.2007. As correctly observed by the DGIT(E), the manufacture and sale of medicinal products is not the object of Hamdard in terms its Trust Deed. Not only are Hamdard's objects charitable but the activities are also charitable, the business being an asset dedicated to charity, and Hamdard utilizes the income generated from the manufacture and sale of Unani and Ayurvedic medicines for the attainment of the charitable objects. The details of accumulation and purpose thereof are a part of the return of income. Accumulation of income for the capital expansion of the asset is indispensable and incidental to put into effect the charitable purpose. No part of the surplus of Hamdard is distributable amongst the sons and grandsons of the Wakif Mutawallis, who are the current mutawallis. Like other employees of Hamdard, the mutawallis are also drawing nominal, fixed salaries. 23. As regards the investment in the Okhla and Manesar projects, Hamdard submits that the purpose and nature of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbark upon an enquiry into accumulations prior to AY 2002-2003; which were incidentally old details not in the possession of Hamdard. Mr. Tripathi submits that DGIT(E) fell into error in determining that Hamdard violated clause (b) of the third proviso to Section 10(23C) of the Act by reinvesting in its on going projects; as the said projects are an application of monies for charitable purposes. Further, Mr. Tripathi submits that Hamdard has made all investments in the specified modes, therefore, the Revenue's finding to the contrary is unfounded. No query or show cause, was raised in regard to this aspect of the matter. If the Revenue had issued a show cause regarding the violation of clause (b) of the third proviso to Section 10(23C) of the Act, Hamdard would have relied upon the details of its fixed deposits, being investments in specified modes, to show that the same had increased from Rs. 134.45 Crores in AY 2004-2005 to Rs. 419.56 Crores in AY 2012-2013. 29. Mr. Tripathi argues that the law laid down by the Supreme Court in CIT v. Thanti Trust, [2001] 247 ITR 985 has been misconstrued by the DGIT(E) in its application to Hamdard's case. Hamdard submits that the principle tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose." Reliance is also placed on the speech of the Finance Minister relating to the amended definition of 'charitable purpose', wherein he had stated that it is not meant to apply to genuine charitable organisations. 32. Thus, Hamdard submits that the scope, ambit and mischief of the newly introduced proviso is confined only to organisations which come under the fourth category of the definition of "charitable purpose", namely "advancement of any other object of general public utility" and it is not the intention of the legislature to target institutions engaged in genuine charitable activities. Further, it is contended that this Court in Hamdard Dawakhana (Wakf) (supra) has held that Hamdard's objects and activities are specifically relatable to and identifiable with the first three heads of charity; and that Hamdard's business is a business held under trust and is merely incidental to the effectuation and fulfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd., (2012) 343 ITR 155; Titanor Components Ltd. v. ACIT, (2012) 343 ITR 183; CIT v. Cray Research India Ltd., (2012) 343 ITR 212; and Artech Infosystems (P) Ltd. v. CIT, 206 Taxman 432. Finally, it is stated that the reference to the withdrawal of the notification under Section 10(23C)(iv) of the Act does not justify the reopening and exemption can still be examined under Section 11 of the Act. Orders dated 10.07.2013 passed by the CIT(A) 36. Hamdard submits that the orders dated 10.07.2013 wrongly record the presence of the authorized counsel for Hamdard, who never attended any proceedings before the second respondent. No such presence is recorded in the order sheets of 28.06.2013 and 08.07.2013. The presence recorded in the order dated 10.07.2013 is contrary to the order sheets dated 28.06.2013 and 08.07.2013. Prior to 28.06.2013, the second Respondent had not even assumed charge of the office of CIT(A). Accordingly, on 19.07.2013, the counsel for Hamdard wrote to the second respondent, categorically refuting the factum of his presence, even once, in the appellate proceedings before the said officer. 37. Hamdard further contends that the orders dated 10.07.2013 do not deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions on Behalf of Revenue Withdrawal of Exemption Under Section 10(23C)(iv) 40. Mr. Rohit Madan, learned Counsel for the Revenue, justifies the withdrawal of exemption under Section 10(23C)(iv) of the Act, stating that the impugned order comprehensively deals with all the facts in light of the prevalant position of law. It is stated that Hamdard is engaged purely in business activities and accordingly notification dated 28.12.2007 under Section 10(23C)(iv) for AY 2004-05 onwards has been withdrawn. The assessment records for AY 2006-07 to 2009-10 show that Hamdard is carrying on the business of manufacturing and sale of medicine on commercial scale and donating a part of its surplus to its sister organization - HNF. Revenue has relied on the following chart in support of its contention: AY 2006-07 AY 2007-08 AY 2008-09 AY 2009-10 Gross Surplus 352001618 390139031 650201108 842529235 Less:-15% as General reserve -52800243 58520855 97530166 126379385 Donations and Corpus Funds to HNF -158400000 294381000 292600000 348000000 Applied to Fixed Asseets -19311271 13604038 13230941 25342372 Applied for ongoing projects 19817621 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application/accumulation of income towards its objects. Further, Hamdard has accumulated its income in excess of five years, in violation of the second part of condition (a) in the order of exemption. 45. Mr. Madan reiterates that Hamdard has not invested its surplus in accordance with the provisions of Section 11(5) of the Act, as the said provision does not permit investment in business activities. He submits that none of the decisions relied upon by Hamdard deal with a case of investment in business. 46. As regards condition (c), it is stated that it is an admitted fact that Hamdard has not been maintaining separate books of accounts for its income applied to charitable activities. Hence, there is a blatant violation of condition (c) imposed in the order of exemption as well seventh proviso to Section 10(23C), which disentitles it for the exemption granted by the revenue under the law. Hamdard's contention that Section 11(4A) does not apply to businesses held in trust does not hold good in light of the Supreme Court's decision in Thanthi Trust. 47. It is further submitted on behalf of the revenue that Hamdard ceases to be a charitable institution in light of the amended defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djournment. Accordingly, the case was adjourned to 08.07.2013 for hearing. The second Respondent denies having called the second Petitioner on 08.07.2013, or that he was asked to sign the order sheets for 28.06.2013 on 08.07.2013. Analysis and Conclusions 52. As noted at the outset of this Court's judgment, the focal point of the six writ petitions involved here is the nature of the objects and activities carried out by Hamdard. Indeed, this Court's determination as regards Hamdard's entitlement to exemption under Section 10(23C)(iv) of the Act has a direct bearing on the outcome in W.P.(C) 3599 of 2013 (reopening of assessment for AY 2005-06) and WP (C) Nos. 5715, 5716, 5718 and 5729 of 2013 (validity of CIT(A)'s orders dated 10.07.2013). Therefore, this Court proceeds to examine this issue first. Grounds for withdrawal of exemption under Section 10(23C)(iv) 53. In the order dated 28.12.2007, the DGIT(E), while granting exemption to Hamdard under Section 10 (23C)(iv) of the Act with retrospective effect from AY 2004-05, had imposed the following conditions on Hamdard, which were to be continuously complied with to seek exemption: "(a) the assessee will apply its income, or ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . d. Hamdard's business is not incidental to the attainment of its objects and it did not maintain separate books of accounts (violation of condition (c)). e. In view of the amendment to Section 2(15) with effect from 01.04.2009, Hamdard cannot be held to be existing for 'charitable purpose'. The DGIT(E) relied upon the Supreme Court's decision in Thanthi Trust (supra), and held that the decision in Surat Art Silk (supra) which was relied upon by this Court in Hamdard Dawakhana (Wakf) (supra) was no longer applicable on account of change of law. This court proceeds to examine the legality of each of the reasons, contained in the impugned order, for the withdrawal of exemption under Section 10(23C)(iv). 55. A clarification is called for at this stage, regarding the scope of applicability of previous decisions of this Court vis-à-vis the Hamdard itself. Hamdard underlines that it enjoyed exemption under the Act for these past decades, and that this Court in several cases- for previous assessment years had approved the charitable purpose of the organisation. Further, it underscores that the Revenue had thoroughly examined almost all relevant facts concerning the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009 is no longer res integra. The court would examine the charitable nature of the organisation from 01.04.2009 onwards in the relevant section below. 58. That brings the court to the crucial issue to be considered i.e. whether Hamdard's objects fall within either or all of first three heads of 'charitable purpose' stated in Section 2(15) or within the residual category. While examining Hamdard's objects, the DGIT(E) noted that its primary mode of expenditure on charitable activities is through HNF, and that its direct expenditure on charitable objects is negligible. Further, it was stated that HNF carries out its charity through four Section 12A registered entities, viz. Jamia Hamdard University (education), Hamdard Education Society (HES) (education and residual category), Business and Employment Bureau (BEB) (residual category), All India Unani Tibbi Conference (AIUTC) (residual category) and through Saeda Hospital. It was held that since Hamdard does not have control over the charitable activity of HNF, as it may choose to spend on activities falling within the residual category as opposed to the first three categories of charitable purpose in Section 2(15), Hamdard ought to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its donees may choose to apply the donations to charitable activities falling in the residual category, Hamdard ought to be within the residual category. In the opinion of this Court, while the activities of 'donee trusts' may have some relevance for determining the nature of Hamdard's objects for the purposes of Section 2(15), the primary basis for such determination must needs be Hamdard's trust deed containing its objects. 61. Now, coming to an examination of Hamdard's objects, Clause 44 (a) of the Deed dated 28.08.1948 lists out objects of public charity to include 'relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity of profit'. At first look, it would appear that the object is to promote charity generally, as opposed to limiting to any specific class of charitable objects. However, clause 45 of the Deed specifies the heads of charity, which may be classified under 'education' (sub-clauses 45(1) and 45(2)) and 'medical relief' (sub-clause 45(3)). Clauses 46 and 47 permit Hamdard to engage in other activities which would qualify under the head of 'relief for the poor'. Whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity is donation to Jamia Hamdard University - which qualifies under 'education' in Section 2(15). Further, it was noted that HNF is making 'relatively small donations' to HES, BEB and AIUTC. It was held that HES is carrying out charitable activities falling in the first three categories as well as the residual category, whereas BEB and AIUTC are carrying out charitable activities under the residual category. This Court does not deem it necessary to examine the activities of HES, BEB and AIUTC in detail, for it has already found that Hamdard's and HNF's objects fall within the first three categories of 'charitable purpose' under Section 2(15), and the fact that HNF's charitable activity carried out through Jamia Hamdard University - admittedly comprising of bulk of HNF's charity - also falls under one of the first three categories ('education'). Further, the DGIT(E) itself has held that 36% of HNF's direct charity falls within the first three heads of 'charitable purpose'. As regards the balance 64%, the DGIT(E) erroneously classified scholarship schemes under the head 'object of general public utility'. However, this Court holds that since scholarship schemes are directed towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... byasachi Mukharji J., in terms, held that the assessed donor trust was entitled to exemption under Section 4(3) of the Income-tax Act. It must, therefore, be held that when a donor trust which is itself a charitable and religious trust donates its income to another trust, the provisions of Section 11(1)(a) can be said to have been met by such donor trust and the donor trust can be said to have applied its income for religious and charitable purposes, notwithstanding the fact that the donation is subjected to any conditions that the donee trust will treat the donation as towards its corpus and can only utilise the accruing income from the donated corpus for religious and charitable purposes, and that the question whether the gifted income is to be utilised by the donee trust fully for its religious and charitable purposes or whether the donee trust had to keep intact the corpus of the donation and has to utilise only the income there from for its religious and charitable purposes, would not make the slightest difference, so far as entitlement of the donor trust for exemption under Section 11(1) goes." 66. The above decision of the Gujarat High Court was concurred in Shriram Memoria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and augmenting the income generating capacity of its charitable corpus constitutes an application for charitable purpose. It relies on the decisions in DIT v. Abul Kalam Azad Islamic Awakening 2013 VAD (Delhi) 44; DIT v. Govindan Naicker Estate, (2009) 315 ITR 237; CIT v. St. George Forana Church, (1988) 170 ITR 63. It is submitted that the application/permitted accumulation of its income for capital expansion and maintenance of charitable assets is indispensable and incidental to the effectuation of its charitable purpose. It would, therefore, be appropriate to first examine the objects of Hamdard, prior to determining whether its application and accumualation of income is in accordance with the same. 69. The starting point for discussion is this Court's decision in Hamdard Dawakhana (Wakf) (supra), where, upon an examination of Hamdard's objects and its activities, the dominant object of the trust was to held be charitable and not carrying out a business activity. The Revenue's contention that this Court in that case did not have the opportunity to examine the actual nature of the activity carried out by Hamdard is unfounded. The revenue had then contended that Hamdard's objects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the business for being used for charitable purpose As long as the user of that money is charitable, then the exemption has to be granted. XXX XXX XXX 26. It was submitted before us that clause 46 shows that it is possible to use the trust even for running profitable businesses such as commercial institutions, schools, laboratories, inns and also by publication of books. Thus, a non-charitable purpose was visualised by this trust. 27. No doubt, the words actually used do suggest that conceivably the trust income could be used for non-charitable purposes. At the same time, we think that the object of the trust was not to use the income for non-charitable purposes. When one visualises that education and medical relief are themselves charitable purposes within the meaning of section 2(15), we do not see why the charitable income cannot be used for running such educational and commercial institutions. What is visualised is the running of institutions for the employment of the poor. Similarly, the inns referred to in clause 46 are really not hotels run for commercial purposes, but sera is for the housing of the poor. The context in which the objects have been specified sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to instances of businesses held in trust, such as the instant case (and it was so held by the DGIT(E), in its impugned order). However, this Court (for reasons explained in the section concerning violation of condition (c) below) holds that in light of the decision in CIT v. Mehta Charitable Prajnalay Trust, (2013) 357 ITR 560, Section 11(4A) is not applicable to Hamdard's case. Further, the Supreme Court in CIT v. Gujarat Maritime Board, (2007) 295 ITR 561 as well as in its recent decision in Queen's Educational Society (supra) has also applied the Surat Art Silk (supra) test to determine the dominant object of the respective assessees, notwithstanding its earlier pronouncement in Thanthi Trust (supra) and the insertion of Section 11(4A). This Court in Institute of Chartered Accountants of India v. DGIT, [2013] 358 ITR 91 has also held that the dominant object test of Surat Art Silk (supra) continues to apply for determining whether an entity carries on business. The reliance placed by the DGIT(E) on CIT v. Dharmodayam, (2001) 116 Taxman 204 is out of place, as the Supreme Court in that case did not hold that the Surat Art Silk (supra) test had been rendered obsolete in light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10.10.1985 with effect from 01.01.1973 to abolish the concept of family income; and all proceeds generated from Hamdard's activities are solely in furtherance of its charitable objectives. The relevant declaration reads as follows: "6. That the words 'Khandani Income' and all provisions and references relating thereto, wherever they appear in the Wakf Deed and/or in the subsequent declarations, modifications and amendments thereto, or elsewhere, are abrogated, annulled and deleted therefrom and the Hamdard Dawakhana (Wakf) is 64/64 or 100% Charitable Wakf and there is no Khandani Income whatsoever and no private beneficiary whomsoever." 74. The Revenue urges that Hamdard had been enjoying enormous profit margins year after year, generating considerable surplus and consequently, its activities cannot be considered as those of a charitable organisation. However, this submission runs afoul a plethora of Supreme Court decisions, the most recent being Queen's Educational Society (supra), where, following the law laid down in Surat Art Silk (supra), Aditanar Educational Society (supra) and American Hotel and Lodging Association v. CBDT, (2008) 301 ITR 86, the Court held that merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial property as the law does not mandate any extra bar. 7.3 Coming to the other aspect that because the assessee is not carrying out any educational activity in this commercial property, therefore, the investment becomes for non-charitable purposes and the assessee has endeavored to enter into business operations. In our view the assessee's charitable objects include spreading education and opening of schools; investment even in commercial property assets remains charitable purposes so long as the income generated by it is applied to charitable objects. It has not been demonstrated that the assessee applied rent received from these properties to any non-charitable purposes. Besides, it has not been demonstrated that the assessee's intention was to enter in business of purchase and sale of commercial property inasmuch as we are in year 2012, the property was purchased in FY 2004-05 and the Trust still retains this property. In these circumstances, we are unable to hold that the assessee's investment can be held non-charitable in nature." However, the DGIT(E) refused to apply the above observations to Hamdard's case, drawing a distinction between investment in immovea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 11(5) would not be available for exemption under Section 11 of the Act. The guiding provision for application of funds of a charitable institution, therefore, is Section 11(5). Section 11(5) does not in any manner precludes the application of funds of a charitable institution for its objects. This Court in Abul Kalam Azad Islamic Awakening has held that "investment even in commercial property assets remains charitable purposes so long as the income generated by it is applied to charitable objects". As a result, the insertion of Section 11(5) or Section 13(1)(d) does not negative the applicability of this Court's decision in Hakim Abdul Hameed (supra) to the facts of this case. Secondly, the deletion of clauses from the Trust Deed prescribing the mode of utilisation of Reserve Funds is not relevant, as the principle on which this Court held the amounts in Reserve Fund to be exempt from tax would continue to apply. According to the Court, "[f]rom a perusal of the above clauses it would be clear that the Reserve Fund has to be applied primarily for either presenting the Wakf business or for expanding or developing the said business and as such it retains the character of the Wak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lamic Awakening (supra), where it was held the application of income derived from investment in commercial property to be the determining factor, is squarely applicable. Here, too, Hamdard, in accordance with its Trust Deed, has been applying and accumulating its income from business activities for charitable purposes. Hamdard has rightly placed reliance on this Court's decision in DIT v. Eternal Science of Man's Society, (2007) 290 ITR 535, where the Court allowed acquisition of moveable and immoveable property if it achieved the objects of a charitable trust. Therefore, this Court holds that Hamdard did not fail to apply or accumulate its income/surplus towards its objects. Whether Hamdard accumulated its income in excess of five years? 82. The DGIT(E) in his impugned order held that Hamdard accumulated its income beyond five years in respect of accumulations made upto AY 2005-06. It also held that Hamdard had admitted a sum of Rs. 17.21 crores as amount deemed to be income as per Section 11(3) for AY 2010-11, which was not offered to tax in the return filed for the said assessment year. 83. This Court finds that the DGIT(E) has misintepreted the provision concerning accumulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.05.2013. Since Hamdard has admittedly made investments in ongoing business activities, condition (b) of the order of exemption read with Section 11(5) of the Act has not been complied with. 85. A perusal of the order dated 22.02.2012 indicates that the Revenue had alleged violation of third proviso to Section 10(23C) of the Act. However, there was no finding on the same. Further, the written submissions filed by Hamdard, including the submissions dated 21.05.2013 relied upon by the Revenue, also do not deal with such allegation. Given these facts, this Court does not have any basis to accept the Revenue's contention that this issue was the subject matter of hearing before the DGIT(E). Therefore, the Revenue's submission that Hamdard was aware of allegations of violation of this condition does not have any merit. In such circumstances, Revenue cannot rely upon this purported non-compliance for withdrawal of exemption under Section 10(23C)(iv). 86. Hamdard has contended that its accumulated surplus is invested in fixed deposits with nationalized banks and therefore, there is no violation of condition (b) imposed in the order of exemption dated 28.12.2007. However, in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required, the issue of violation of Section 11(4A) or condition (c) or the seventh proviso to Section 10(23C)(iv) would not arise. 89. The DGIT(E) concluded that Section 11(4A) is applicable to Hamdard, even though it is admittedly a business held in trust. In so holding, the DGIT(E) relied on the Supreme Court's decision in ACIT v. Thanthi Trust (2001) 247 ITR 785, and ruled that the Court therein had rejected the distinction between a business held in trust and a business carried on by the trust insofar as the applicability of Section 11(4A) was concerned. Hamdard relied upon this Court's decision in CIT v. Mehta Charitable Prajnalay Trust, (2013) 357 ITR 560, where it was held that Section 11(4A) of the Act would not apply to a business held under trust. However, the DGIT(E) refused to follow Mehta Charitable Prajnalay Trust (supra) since it was a case of a trust doing business, as opposed to business held in trust; since both Thanthi Trust (supra) and the instant case involve the latter, the decision in Thanthi Trust (supra) was held to be applicable. 90. This Court in Mehta Charitable Prajnalay Trust (supra) categorically held that Section 11(4A) of the Act is not applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of the actual carrying out of a primary purpose of the Trust. Section 13(1)(bb), therefore, will apply to a Public Charitable Trust for the relief of the poor, education or medical relief that carries on a business, regardless of whether or not that business is held by the Trust in Trust, that is, as a part of its corpus. Even a business that is held by such a Trust as a part of its corpus is carried on by the Trust and, therefore, section 13(1)(bb) will apply to such Trust." (emphasis supplied) Although a similar contention was raised by the assessee's counsel in the context of Section 11(4A) (as it originally stood), the Court did not give any unequivocal finding on the same. This is evident from the following excerpts: "21. Learned counsel for the Trust laid emphasis on the fact that in the Bill to introduce sub-section (4A) into section 11, sub-section (4) thereof had been proposed to be deleted, but it had been retained when the Bill was passed. A business held under Trust had, therefore, not been intended to be excluded from the benefit of section 11 by reason of the enactment of sub-section (4A). This was also evident from the fact that sub-section (4A) did not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held under trust. The Court arrived at the said conclusion based on an elaborate discussion of the historical background of Section 11(4A), and the interpretation given by the Supreme Court to an analogous provision (Section 4(3)(ia)) under the 1922 Act. The Court held: "15. The question whether sub-section (4A) would apply even to a case where a business was held under trust was answered in the negative in several authoritative pronouncements starting from the judgment of the Lahore High Court in Gadodia Swadeshi Stores v. Commissioner of Income Tax, Punjab, (1944) 12 ITR 385. The general provision under Section 4(3)(i) of the 1922 Act exempted income derived from property held under trust from taxation. However, section 4(3)(ia) provided that any income derived from a business carried on behalf of a religious or charitable trust would be entitled to exemption only if the business was carried on in the course of carrying out of a primary purpose of the trust or the work in connection with the business is mainly carried on by the beneficiaries of the trust. The contention of the revenue in that case was that since clause (ia) was a special provision dealing with the topic of exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als with a case of business which is not vested in trust for religious or charitable purposes within the meaning of the substantive clause of section 4(3)(i). 16. Thus, if a property is held under trust, and such property is a business, the case would fall under Section 11(4) and not under Section 11(4A) of the Act. Section 11(4A) of the Act, would apply only to a case where the business is not held under trust. 17. In view of the above settled legal position, we are unable to accept the contention urged on behalf of the revenue before us that the provisions of Section 11(4A) are sweeping and would also take in a case of business held under trust." 93. This Court rendered a clear finding in the above terms regarding the exclusion of a business held under trust from the scope of Section 11(4A), that too upon an overall consideration of the decision in Thanthi Trust. In such circumstances, we hold that the DGIT(E)'s refusal to follow Mehta Charitable Prajnalay Trust (supra) is erroneous. The distinction drawn by the DGIT(E) on facts, viz. that in Mehta Charitable Prajnalay Trust (supra) the business was not held in trust, which is admittedly the case herein, is immaterial, given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the 'business' is nothing but intrinsically connected with acts for attainment of the objects and goals of the petitioner. We fail to understand when the petitioner is maintaining the books of accounts with regard to their receipts/income as well as the expenses incurred for their entire activity then how it can be held that separate books of accounts have not been maintained for 'business' activities. The "business" activities are intrinsically woven into and part of the charitable activity undertaken. The "business" activity is not feeding charitable activities. In any case, when we hold that the petitioner is not carrying on any business, trade or commerce, question of requirement of separate books of accounts for the business, trade or commerce is redundant." (emphasis supplied) Did Hamdard cease to be a charitable institution with effect from 01.04.2009? 95. The Finance Act 2008 altered the scope of definition of 'charitable purpose' with effect from 01.04.2009 by inserting the first proviso to Section 2(15) of the Act. The said proviso reads as follows: "Provided that the advancement of any other object of general public utility shall not be a charitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carrying on charitable purpose covered by the residuary clause i.e. 'advancement of any other object of public utility'. The proviso is not applicable in case an assessee or institution claims that it is carrying on charitable purpose like relief to poor, education, medical relief etc., i.e. purposes which have been specifically enumerated and stated in the earlier part of Section 2(15)." 98. This Court holds that arguendo if Hamdard's objects were to be construed to be falling within the residual category of 'charitable purpose' with the result of attracting the applicability of the first proviso, it would not cease to be a charitable organisation with effect from 01.04.2009. The interpretation of first proviso put forward by the DGIT(E) would exclude all entities advancing an object of general public utility from the definition of 'charitable purpose' if such entities carry on any activity of trade, commerce or business, irrespective of the nature of application of surplus generated from such activity. This unduly broad interpretation has been rejected by this Court in Institute of Chartered Accountants of India (supra), where the Court held that while determining whether an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, nonetheless the test of dominant object of an entity would be relevant to determine whether the entity is carrying on business or not." 99. More recently, this Court in India Trade Promotion Organization v. Director General of Income-tax (Exemptions), [2015] 371 ITR 333, while adjudicating upon the constitutional validity of the first proviso to Section 2(15), read down the said proviso when applied in the context of Section 10(23C)(iv) and reiterated the dominant purpose test discussed in Institute of Chartered Accountants of India (supra). The objects of the assessee therein fell under the residual category of Section 2(15), and the Revenue withdrew the exemption granted to the assessee under Section 10(23C)(iv) with effect from 01.04.2009 in light of the insertion of the first proviso. The Court held that the assessee's activities could not be said to be within the nature of a business, for: "...merely because the petitioner derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in the exhibition grounds, does not, in any way, affect the nature of the petitioner as a charitable institution if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes." 101. This Court has already held above that Hamdard's dominant purpose is charitable in nature, and it is not guided by the motive of profit-making. Therefore, the first proviso to Section 2(15) does not alter the charitable status of the organisation. This outcome is also in consonance with the rationale for the insertion of first proviso to Section 2(15), which was noted by this Court in M/s. GS1 India v. DGIT, [2014] 360 ITR 138, citing a CBDT Circular of 2008, as follows: "It is, evident from the Circular no. 11 of 2008 that the new proviso of Section 2(15) of the Act is applicable to the assessees who are engaged in commercial activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lure on part of assessee to disclose fully and truly all material facts necessary for assessment. XXX XXX XXX The AO in this case has not changed its opinion but based on the exemption status of the assessee and changed facts & circumstances of the case has re-opened it u/s 147/148 of the I.T. Act. When assessee's exemption has been withdrawn by a higher authority, AO has to give effect to that Order as assessee now falls under the non-exempt category. The various case laws quoted by the assessee can be distinguished from the facts stated above." 105. Hamdard contends that the proviso to Section 147 is squarely applicable herein, as the notice of reopening has been issued after the expiry of four years from the end of the relevant assessment year (AY 2005-06). Further, it is contended that the reopening of assessment is based on a mere change of opinion, as the AO's predecessor had examined the same set of facts. 106. It is not disputed that an order of assessment under Section 143(3) of the Act was passed for AY 2005-06 on 21.03.2007 and the assessment proceedings for AY 2005-06 have been re-opened after the expiry of four years prescribed in the first proviso to Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent stated in the orders dated 16.04.2012 and 25.05.2012 are identical to those contained in the order dated 28.07.2013. Therefore, in light of this Court's order in W.P.(C) 5711 of 2013, the basis for re-opening of assessment proceedings for AY 2005-06 does not survive. Consequently, the notice of reopening dated 27.03.2012 and orders dated 16.04.2012 and 25.05.2012 passed by the ADIT(E) are hereby quashed. WP (C) Nos. 5715, 5716, 5718 and 5729 of 2013 108. The CIT(A) through separate but identical orders dated 10.07.2013 for AY 2006-07 to AY 2009-10 dismissed Hamdard's appeal against the AO's orders denying exemption under Section 11 of the Act. Hamdard contends that the CIT(A) passed the said orders dated 10.07.2013 without providing an opportunity of oral hearing to Hamdard. It is contended that the CIT(A) has passed the order without taking into consideration its submissions. The Revenue, on the other hand, defends the impugned orders on the ground that the CIT(A)'s predecessor had given several opportunities of hearing to Hamdard, and that the case was heard on 08.07.2013 by the CIT(A) who passed the impugned orders. 109. This Court holds that the second Respondent, acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in charitable activities within the meaning of Section 2(15) of the Act. The CIT(A) held in this regard as follows: "4.9 I have considered the order of the AO and the submissions of the assessee and I do not find any merit in the submissions of the assessee. There is no dispute and it is in fact admitted by the assessee that the assessee is engaged in business activities of manufacturing and sale of Hamdard medicines. The assessee itself is wholly and solely engaged in business activity and the assessee by itself is not engaged in any charitable activity except the donations made to HNF, which the assessee considers as a charitable organization. But it is seen that even the activities of HNF is not charitable as no free treatment or free medicines are distributed to the poor. The exemption u/s. 11 is available when the assessee is engaged in charitable activities, but in the present case it is an admitted fact that the assessee is engaged in business and is not directly involved in any charitable activity as provided u/s. 2(15). After considering all the facts and circumstances of the case, I am of the view that the assessee is not a charitable organization as provided u/s. 2(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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