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Section 11 in The Income- Tax Act, 1995
Section 13 in The Income- Tax Act, 1995
Commissioner Of Income-Tax vs Dr. Anand Sarabhai Trust And ... on 7 February, 1996
The Income- Tax Act, 1995
Section 2(15) in The Income- Tax Act, 1995
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Mj Charitable Trust, Meerut vs Assessee on 29 February, 2016
M.J. Charitable Trust, Meerut vs Acit, Meerut on 16 December, 2016

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Income Tax Appellate Tribunal - Delhi
Dy. Director Of Income Tax vs Maharishi Institute Of Creative ... on 25 October, 2004
Equivalent citations: 2006 7 SOT 650 Delhi

ORDER P.M. Jagtap, A.M.

This appeal is preferred by the revenue against the order of learned Commissioner (Appeals)-XVI, New Delhi dated 14-121998.

2. The relevant facts of the case giving rise to this appeal are that the assessee is a Trust formed with a purpose to disseminate the knowledge of Science of Creative Intelligence and Transcendental Meditation. It is registered under the Societies Registration Act as well as under section 12A(e) of the Income Tax Act. During the year under consideration, it derived income from rent and interest as well as from agricultural and dairy activities. It filed its return of income for the year under consideration on 30-10-1995 which was accompanied by audit report in Form No. 10-B. In the said return of income, exemption was claimed by the assessee under section 11 and an option under section 11 (2) was also exercised by filing Form No. 10. During the course of assessment proceedings, it was noticed by the assessing officer from the income and expenditure account filed by the assessee alongwith its return of income that the expenditure debited therein was mainly related to its agricultural and dairy activities and apparently nothing was spent by the assessee-society on charitable activities for which it had been established. He, therefore, required the assessee-society to offer its explanation in the matter and in reply, it was submitted on its behalf that the income earned during the year under consideration was, inter alia, applied for the construction of building which was allowed to be used by other societies of the same Maharishi Group for their charitable activities. The assessing officer, however, was of the opinion that even though the said buildings of the assessee-society were being used by other societies of the same group for charitable activities, it did not mean that income of the assessee is being applied for charitable purpose because such use could not be treated as use by the assessee for carrying Out its own charitable activities. He also found that the major expenditure debited by the assessee in its income and expenditure account was on account of agricultural and dairy activities carried on by it which, according to him, was not of the nature of application of its income for charitable purpose. He, therefore, held that the assessee-society was not engaged in any charitable activity during the year under consideration in accordance with its aims and objects and proceeded to disallow the exemption claimed by it under section 11.

2. The relevant facts of the case giving rise to this appeal are that the assessee is a Trust formed with a purpose to disseminate the knowledge of Science of Creative Intelligence and Transcendental Meditation. It is registered under the Societies Registration Act as well as under section 12A(e) of the Income Tax Act. During the year under consideration, it derived income from rent and interest as well as from agricultural and dairy activities. It filed its return of income for the year under consideration on 30-10-1995 which was accompanied by audit report in Form No. 10-B. In the said return of income, exemption was claimed by the assessee under section 11 and an option under section 11 (2) was also exercised by filing Form No. 10. During the course of assessment proceedings, it was noticed by the assessing officer from the income and expenditure account filed by the assessee alongwith its return of income that the expenditure debited therein was mainly related to its agricultural and dairy activities and apparently nothing was spent by the assessee-society on charitable activities for which it had been established. He, therefore, required the assessee-society to offer its explanation in the matter and in reply, it was submitted on its behalf that the income earned during the year under consideration was, inter alia, applied for the construction of building which was allowed to be used by other societies of the same Maharishi Group for their charitable activities. The assessing officer, however, was of the opinion that even though the said buildings of the assessee-society were being used by other societies of the same group for charitable activities, it did not mean that income of the assessee is being applied for charitable purpose because such use could not be treated as use by the assessee for carrying Out its own charitable activities. He also found that the major expenditure debited by the assessee in its income and expenditure account was on account of agricultural and dairy activities carried on by it which, according to him, was not of the nature of application of its income for charitable purpose. He, therefore, held that the assessee-society was not engaged in any charitable activity during the year under consideration in accordance with its aims and objects and proceeded to disallow the exemption claimed by it under section 11.

3. Aggrieved by the order of the assessing officer disallowing its claim for exemption under section 11, the assessee-society preferred an appeal before the learned Commissioner (Appeals) and after considering the submissions made on its behalf before him as well as the material available on record, the learned Commissioner (Appeals) agreed with the stand of the assessee-society that use of its property by another charitable trust is also a charitable activity carried on by the assessee-society. He further held that the assessing officer having not pointed out any violation as enumerated in section 13, the exemption under section 11 could not be denied to the assessee-society. He also held that the assessee-society having complied with the relevant provisions by filing Form No. 10, it was entitled to accumulate the income for the year under consideration to the extent it remained unutilized for charitable purpose. Accordingly, he allowed the appeal of the assessee by holding that its income for the year under consideration was eligible for exemption under section 11. Aggrieved by the same, the revenue is in appeal before the Tribunal on the following grounds:

3. Aggrieved by the order of the assessing officer disallowing its claim for exemption under section 11, the assessee-society preferred an appeal before the learned Commissioner (Appeals) and after considering the submissions made on its behalf before him as well as the material available on record, the learned Commissioner (Appeals) agreed with the stand of the assessee-society that use of its property by another charitable trust is also a charitable activity carried on by the assessee-society. He further held that the assessing officer having not pointed out any violation as enumerated in section 13, the exemption under section 11 could not be denied to the assessee-society. He also held that the assessee-society having complied with the relevant provisions by filing Form No. 10, it was entitled to accumulate the income for the year under consideration to the extent it remained unutilized for charitable purpose. Accordingly, he allowed the appeal of the assessee by holding that its income for the year under consideration was eligible for exemption under section 11. Aggrieved by the same, the revenue is in appeal before the Tribunal on the following grounds:

"1. On the facts and in the circumstances of the case the learned Commissioner (Appeals) has erred in allowing exemption under section 11 of the Income Tax Act, 1961.

2. On the facts and in the circumstances of the case the learned Commissioner (Appeals) has erred in allowing expenditure on agricultural and dairy operations as application of income."

4. The learned Departmental Representative submitted before us that the claim made for exemption under section 11 could be examined by the assessing officer in each and every year and if it is found that the requirements of the said provisions are not complied by the assessee, the exemption so granted can be denied in that year. He submitted that the assessee-society in the present case had acquired substantial immovable properties which were not being used for charitable purpose on its own by it in furtherance of its objects. He contended that the use of the said properties by other societies belonging to a same group for charitable purposes could not be treated as the use by the assessee for its charitable activities and the assessing officer, therefore, was right in holding the same to be not for 'charitable purpose' as defined in section 2(15). He also contended that such use by the other societies cannot be equated with the donation given by one charitable trust to other charitable trust and the learned Commissioner (Appeals), therefore, was not justified in extending the analogy laid down in the various judicial pronouncements in the context of donations for allowing relief to the assessee on this issue. He also contended that the objects of the assessee-society as set out in its memorandum of association were very specific and since its income earned during the year under consideration was not applied for the furtherance of the said objects, it was not eligible for exemption under section 11 as rightly held by the assessing officer. He further contended that allowing its property to be used by other charitable trust/ institution, in any case, was not the object of the society and the learned Commissioner (Appeals), therefore, was not correct in treating such use as charitable activity of the assessee-society for the purpose of allowing its claim for exemption under section 11. According to him, the assessee-society itself had not carried on any charitable activity in furtherance of its objects during the year under consideration and the same, therefore, was not eligible for exemption under section 11.

4. The learned Departmental Representative submitted before us that the claim made for exemption under section 11 could be examined by the assessing officer in each and every year and if it is found that the requirements of the said provisions are not complied by the assessee, the exemption so granted can be denied in that year. He submitted that the assessee-society in the present case had acquired substantial immovable properties which were not being used for charitable purpose on its own by it in furtherance of its objects. He contended that the use of the said properties by other societies belonging to a same group for charitable purposes could not be treated as the use by the assessee for its charitable activities and the assessing officer, therefore, was right in holding the same to be not for 'charitable purpose' as defined in section 2(15). He also contended that such use by the other societies cannot be equated with the donation given by one charitable trust to other charitable trust and the learned Commissioner (Appeals), therefore, was not justified in extending the analogy laid down in the various judicial pronouncements in the context of donations for allowing relief to the assessee on this issue. He also contended that the objects of the assessee-society as set out in its memorandum of association were very specific and since its income earned during the year under consideration was not applied for the furtherance of the said objects, it was not eligible for exemption under section 11 as rightly held by the assessing officer. He further contended that allowing its property to be used by other charitable trust/ institution, in any case, was not the object of the society and the learned Commissioner (Appeals), therefore, was not correct in treating such use as charitable activity of the assessee-society for the purpose of allowing its claim for exemption under section 11. According to him, the assessee-society itself had not carried on any charitable activity in furtherance of its objects during the year under consideration and the same, therefore, was not eligible for exemption under section 11.

5. The learned counsel for the assessee, on the other hand, strongly supported the order of learned Commissioner (Appeals) stating that it is well-reasoned and well-discussed on the issue under consideration. He submitted that although its buildings were not directly used by the assessee-society for any charitable activity on its own, the same were allowed to be used by the other societies of the same group for the charitable purpose. Relying on the decision of Hon'ble Mumbai High Court in the case of CIT v. Trustees of the Jadi Trust (1982) 133 ITR 494 (Mum), Hon'ble Gujarat High Court in the case of CIT v. Sarladevi Sarabhai Trust No. 2 (1988) 172 ITR 698 (Guj) and Hon'ble Calcutta High Court in the case of CIT v. Hindusthan Charity Trust (1983) 139 ITR 913 (Cal), he contended that such use by the other societies for their charitable activities was rightly claimed by the assessee as the use for charitable purpose and the learned Commissioner (Appeals) was fully justified in accepting the same. He further submitted that the expenditure incurred by the assessee-society on agricultural and dairy operations was never considered by the learned Commissioner (Appeals) as application of its income for charitable purpose and since there was enough income earned by the assessee-society from the respective sources to cover up the said expenditure, there was no question of treating the same as application of its income by the assessee-society. The learned counsel for the assessee also submitted that in the similar facts and circumstances involved in the previous year relevant to assessment years 1992-93 and 1993-94, the department has allowed the claim of the assessee for exemption of its income under section 11. He also placed on record copies of assessment orders for the said years at page Nos. 8 to 29 of his paper book.

5. The learned counsel for the assessee, on the other hand, strongly supported the order of learned Commissioner (Appeals) stating that it is well-reasoned and well-discussed on the issue under consideration. He submitted that although its buildings were not directly used by the assessee-society for any charitable activity on its own, the same were allowed to be used by the other societies of the same group for the charitable purpose. Relying on the decision of Hon'ble Mumbai High Court in the case of CIT v. Trustees of the Jadi Trust (1982) 133 ITR 494 (Mum), Hon'ble Gujarat High Court in the case of CIT v. Sarladevi Sarabhai Trust No. 2 (1988) 172 ITR 698 (Guj) and Hon'ble Calcutta High Court in the case of CIT v. Hindusthan Charity Trust (1983) 139 ITR 913 (Cal), he contended that such use by the other societies for their charitable activities was rightly claimed by the assessee as the use for charitable purpose and the learned Commissioner (Appeals) was fully justified in accepting the same. He further submitted that the expenditure incurred by the assessee-society on agricultural and dairy operations was never considered by the learned Commissioner (Appeals) as application of its income for charitable purpose and since there was enough income earned by the assessee-society from the respective sources to cover up the said expenditure, there was no question of treating the same as application of its income by the assessee-society. The learned counsel for the assessee also submitted that in the similar facts and circumstances involved in the previous year relevant to assessment years 1992-93 and 1993-94, the department has allowed the claim of the assessee for exemption of its income under section 11. He also placed on record copies of assessment orders for the said years at page Nos. 8 to 29 of his paper book.

6. We have considered the rival submissions and also perused relevant material on record. It is observed that the exemption claimed under section 11 by the assessee-society was denied by the assessing officer not on the ground of any violation as specified in section 13, but the same was denied on the ground that the use of assessee's buildings by the other societies from the same group albeit for charitable purpose, could not be considered as charitable activity of the assessee-society in furtherance of its object. In this regard, it is observed that there were number of societies formed broadly with the same aims and objects belonging to the same 'Maharishi' Group and in the Managing Committee Meeting of the assessee-society held on 4-1-1990, it was decided to work in cooperation with the said societies for achieving such common aims and objects and even the resolution to that effect was passed in the said Meeting as is evident from the extract of Minutes of the said Meeting placed at page No. 40 of the assessee's paper book. In the case of Trustees of the Jadi Trust (supra) cited by the learned counsel for the assessee, the Hon'ble Bombay High Court has held that when a charitable trust donates its income to another charitable trust, the provisions of section II(1)(a) can be said to have been complied by the donor trust and it can be said to have applied its income for charitable purposes. To the similar effect are the decisions of Hon'ble Gujarat High Court in the case of Sarladevi Sarabhai Trust No. 2 (supra) and of Hon'ble Calcutta High Court in the case of Hindusthan Charity Trust (supra).

6. We have considered the rival submissions and also perused relevant material on record. It is observed that the exemption claimed under section 11 by the assessee-society was denied by the assessing officer not on the ground of any violation as specified in section 13, but the same was denied on the ground that the use of assessee's buildings by the other societies from the same group albeit for charitable purpose, could not be considered as charitable activity of the assessee-society in furtherance of its object. In this regard, it is observed that there were number of societies formed broadly with the same aims and objects belonging to the same 'Maharishi' Group and in the Managing Committee Meeting of the assessee-society held on 4-1-1990, it was decided to work in cooperation with the said societies for achieving such common aims and objects and even the resolution to that effect was passed in the said Meeting as is evident from the extract of Minutes of the said Meeting placed at page No. 40 of the assessee's paper book. In the case of Trustees of the Jadi Trust (supra) cited by the learned counsel for the assessee, the Hon'ble Bombay High Court has held that when a charitable trust donates its income to another charitable trust, the provisions of section II(1)(a) can be said to have been complied by the donor trust and it can be said to have applied its income for charitable purposes. To the similar effect are the decisions of Hon'ble Gujarat High Court in the case of Sarladevi Sarabhai Trust No. 2 (supra) and of Hon'ble Calcutta High Court in the case of Hindusthan Charity Trust (supra).

7. In the present case, the property, i.e., building held under trust by the assessee's society was allowed to be used by it to other societies working for the same aims and objects for which it was formed and since the same undisputedly were of charitable nature, we do not see any reason why the analogy of the aforesaid judicial pronouncements can be extended to hold that such use of the buildings of the assessee-society by the other societies working for the same aims and objects could be construed as its charitable activities. Even in the Circular No. 1132 issued by the CBDT on 5-1-1978, it has been clarified by the Board that the payment of a sum by one charitable trust to other for utilization of the donee trustee towards its charitable objects is proper application of income for charitable purpose in the hands of donor trust and donor trust will not lose exemption under section 11 merely because the donee trustee did not spend the donation during the year of receipt itself. In the present case, there is no dispute that the buildings of the assessee-society were used by other societies for the similar aims and objects of charitable nature and this being so, we are of the view that such use could very well be treated as used by the assessee-society in furtherance of its aims and objects for the purpose of exemption under section 11. Moreover, as pointed out by the learned counsel for the assessee from the copies of relevant orders placed on record, exemption under section 11 was allowed to the assessee's society in the previous years relevant to assessment years 1992-93 and 1993-94 by the department in the similar facts and circumstances. As such, considering all the facts and circumstances, we are of the view that the learned Commissioner (Appeals) was fully justified in treating the use of assessee's property by other societies for charitable purpose as charitable activity carried on by the assessee and accordingly in allowing exemption to it under section 11 as claimed. His impugned order on this issue is, therefore, upheld dismissing ground No. 1 of the revenue's appeal.

7. In the present case, the property, i.e., building held under trust by the assessee's society was allowed to be used by it to other societies working for the same aims and objects for which it was formed and since the same undisputedly were of charitable nature, we do not see any reason why the analogy of the aforesaid judicial pronouncements can be extended to hold that such use of the buildings of the assessee-society by the other societies working for the same aims and objects could be construed as its charitable activities. Even in the Circular No. 1132 issued by the CBDT on 5-1-1978, it has been clarified by the Board that the payment of a sum by one charitable trust to other for utilization of the donee trustee towards its charitable objects is proper application of income for charitable purpose in the hands of donor trust and donor trust will not lose exemption under section 11 merely because the donee trustee did not spend the donation during the year of receipt itself. In the present case, there is no dispute that the buildings of the assessee-society were used by other societies for the similar aims and objects of charitable nature and this being so, we are of the view that such use could very well be treated as used by the assessee-society in furtherance of its aims and objects for the purpose of exemption under section 11. Moreover, as pointed out by the learned counsel for the assessee from the copies of relevant orders placed on record, exemption under section 11 was allowed to the assessee's society in the previous years relevant to assessment years 1992-93 and 1993-94 by the department in the similar facts and circumstances. As such, considering all the facts and circumstances, we are of the view that the learned Commissioner (Appeals) was fully justified in treating the use of assessee's property by other societies for charitable purpose as charitable activity carried on by the assessee and accordingly in allowing exemption to it under section 11 as claimed. His impugned order on this issue is, therefore, upheld dismissing ground No. 1 of the revenue's appeal.

8. As regards the other issue raised by the revenue relating to the expenditure on agricultural and dairy operations being treated by the learned Commissioner (Appeals) as application of income, it is observed that no such decision was expressly rendered by the learned Commissioner (Appeals) in his impugned order. However, the amount of income claimed to be applied by the assessee-society for charitable purposes during the year under consideration to the extent of Rs. 2,87,498 as certified by the auditor also included an amount of Rs. 86,675 incurred by the assessee on agricultural and dairy expenses and this claim of the assessee was allowed by the learned Commissioner (Appeals). In this regard, it is observed that agricultural and dairy activities were being carried on by the assessee's society as separate business activities and the same, therefore, constituted "property held under trust" of the assessee-society as provided in sub-section (4) of section 11 and income of the said activities, in any case, was to be determined in accordance with the provisions of the Income Tax Act, 1961, i.e., after deducting the expenditure incurred in connection with the said business. As is evident from the income and expenditure account of the assesseesociety for the year under consideration, it had derived gross income of Rs. 2,95,011 from the said activities and this amount being more than sufficient to cover the expenses incurred in connection with the said activities, the allowance of the same by the learned Commissioner (Appeals) as application of its income as claimed by the assessee hardly made any difference in the ultimate position so as to cause any grievance to the revenue. We, therefore, find no merits in ground No. 2 raised by the revenue and upholding the order of learned Commissioner (Appeals) on this issue, we dismiss the same.

8. As regards the other issue raised by the revenue relating to the expenditure on agricultural and dairy operations being treated by the learned Commissioner (Appeals) as application of income, it is observed that no such decision was expressly rendered by the learned Commissioner (Appeals) in his impugned order. However, the amount of income claimed to be applied by the assessee-society for charitable purposes during the year under consideration to the extent of Rs. 2,87,498 as certified by the auditor also included an amount of Rs. 86,675 incurred by the assessee on agricultural and dairy expenses and this claim of the assessee was allowed by the learned Commissioner (Appeals). In this regard, it is observed that agricultural and dairy activities were being carried on by the assessee's society as separate business activities and the same, therefore, constituted "property held under trust" of the assessee-society as provided in sub-section (4) of section 11 and income of the said activities, in any case, was to be determined in accordance with the provisions of the Income Tax Act, 1961, i.e., after deducting the expenditure incurred in connection with the said business. As is evident from the income and expenditure account of the assesseesociety for the year under consideration, it had derived gross income of Rs. 2,95,011 from the said activities and this amount being more than sufficient to cover the expenses incurred in connection with the said activities, the allowance of the same by the learned Commissioner (Appeals) as application of its income as claimed by the assessee hardly made any difference in the ultimate position so as to cause any grievance to the revenue. We, therefore, find no merits in ground No. 2 raised by the revenue and upholding the order of learned Commissioner (Appeals) on this issue, we dismiss the same.

9. in the result, the appeal of the revenue is dismissed.

9. in the result, the appeal of the revenue is dismissed.