Dr. Satish Chandra, J. - All the appeals have been filed by the Department under Section 260A of the Income-Tax Act, 1961 against the consolidated judgment and order dated 21.02.2008, passed by the Income Tax Appellate Tribunal, Lucknow in the following appeals :—
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ITA No. 245/Luc/2003 & 229/Luc/2003 for the Assessment Year - 1994-95; |
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ITA No. 56/Luc/2004 & 239/Luc/2005 for the Assessment Year - 1995-96; |
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ITA No. 57/Luc/2004 & 240/Luc/2005 for the Assessment Year - 1996-97; |
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ITA No. 246/Luc/2003 & 271/Luc/2003 for the Assessment Year - 1997-98; and |
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ITA No. 477/Luc/2002 & 500/Luc/2002 for the Assessment Year - 1998-99." |
2. On 03.09.2009, a Coordinate Bench of this Hon'ble Court has admitted the appeals on the following substantial questions of law:—
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Under the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has erred in law and on the facts in holding that the assessee society is entitled to exemption u/s 11 and is nut hit by the provisions of Section 13 of the I.T. Act, 1961 having failed to appreciate that the income of the society was being applied indirectly for the benefits of the persons mentioned in Section 13(3) of the I.T. Act, 1961. |
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Under the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has erred in law in allowing the benefit of statutory accumulation of 25% with reference to the gross receipts of the society when no specific resolution for accumulation was made by the assessee. |
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Whether on the facts and circumstances of the case the finding of the Income Tax Appellate Tribunal that the assessing officer has failed to bring on record that the case of assessee would fall in section 13(1)(c) of the I.T. Act is perverse. |
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Whether on the facts and circumstances of the case the finding of the Income Tax Appellate Tribunal that the accumulated amount was for the purposes of charitable purpose and hence there is sufficient compliance of the provisions of section (11)(2)(a) of the I.T. Act by the assessee is perverse." |
3. The brief facts of the case are that in the year 1963-64, the assessee-Sansthan was registered as a society. On 09.05.1980, CIT, Lucknow has granted recognition under Section 12A of the I.T. Act, to the assessee-Sansthan. The assessee-Sansthan was also registered under Section 80G(5) of the I.T. Act, vide notification dated 24.05.1995. The assessee-Sansthan was recognized as an Institution established for charitable purposes by the Government of India under Section 10(23C)(iv). During the assessment years under consideration, the CIT has not revoked the registration under Section 12AA of the Act.
4. But fact remains that on audit report in Form No. 10 was filed belated. Further, the AO observed in its order that the President, and Treasurer had occupied entire first floor and ground floor of the building "Atithishala" owned by the sister concern Motilal Memoriam Society at a nominal rent of Rs. 700/-; and Rs. 850/- respectively per month. Likewise, the Secretary was enjoying car and telephone facilities at the cost of Motilal Memoriam Society. It was also observed that the assessee is passing on its huge fund to Motilal Memorial Society every year. So, the AO has refused to recognize any exemption and made an addition while passing assessment orders for the assessment years under consideration, which was partly upheld by the first appellate authority. However, Tribunal has uphold the contention of the assessee in toto by dismissing the departmental appeals and allowing assessee's appeals. Being aggrieved, the department filed present appeals.
5. With this background, Sri D.D. Chopra, learned counsel for the Department, at the strength of written submission, submits that Sansthan has provided benefit within the meaning of Sections 13(2)(c) and 13(3) as well as Section 13(2)(g) of the Act. The benefit is prominent though the residential premises are provided by Motial Memorial Society, a sister concerned to whom the assessee society has given large chunk of donations inasmuch as 80% of its receipts. Secondly, the expenditure shown to have been incurred by the assessee on charitable object are not so because it has given donations/grants to other organizations and assessee itself did not carry out any charitable activity.
6. Learned counsel further submits that the audit report in Form No. 10 was filed belated. He also submits that the President and Treasurer are occupying the premises on nominal rent. No market rent has taken from them. Funds were misused by providing telephone and car to the Secretary of the assessee's society. So, this is a case of providing benefit to the persons of prohibited category. Lastly, he justified the order passed by the AO by relying the ratio laid down in the following cases :-
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CIT v. Vijeta Educational Society Lucknow [IT Appeal No. 132 of 2006]; |
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Dr. S.C. Gupta v. CIT [2001] 248 ITR 782/118 Taxman 252 (All.) |
7. On the other hand, Sri S.K. Garg, learned counsel for the assessee Sansthan justified the impugned order passed by the Tribunal. He submits that the AO has not specifically made out a case as to under which section, case is covered. The conditions mentioned in Section 13(1)(c) are that income of the trust should have been used or applied directly or indirectly for the benefit of any person falling in prohibited category mentioned in Section 13(3) of the Act.
8. In the instant case, benefit would mean that some exgratia expenditure or money in cash or kind has passed to them without any contribution made by them to the society or its cause. He further submits that in Blacks Law Dictionary 8th Edition, the meaning of the word "benefit" is provided as under:-
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Advantage; Privilege; |
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Profit or gain; specially the consideration that moves to the promisee. |
If the persons in the prohibited category have rendered services then there is no benefit given as such but the expenditure incurred on them would be a compensation for such services. In other words, a benefit would said to have been given to the persons of prohibited category, if they did not, in return, do any thing but only enjoy the infrastructure of the trust or the society. But in the instant case, the concerning persons are providing the services and getting some remuneration, salary, allowances, perquisites which are permissible under the law. He also submits that the requirements of Section 11(2) is that if the assessee sets apart certain funds for charitable objects, then it will be treated as application of funds for charitable purposes and, therefore, it will be covered within the limit of 75% set out in Section 11 required to be applied by the assessee for charitable purposes. For this purpose, he has relied on the ratio laid down in the case of CIT v. Hotel and Restaurant Association [2003] 261 ITR 190/132 Taxman 76 (Delhi).
9. After hearing both the parties and on perusal of the record, it appears that the AO has made the addition by observing that the assessee had shown huge expenses on establishment and on passing the money to other organizations and had spent a small sum of Rs. 2 lakhs on charity on the ground that the amounts spent on establishment an amounts passed on two other organizations had no obvious link with charitable purpose and their immediate hidden purpose seeks to benefit the members of the Governing Council of the Sansthan. But in the facts and circumstances of the case, there is no basis for assuming it for the reasons that the amounts passed on to other organizations were in nature of donations/grants to organizations carrying on charitable activities of which the members of the Governing Council of the Sansthan would not be beneficiaries. The establishment expenditure incurred at the Head Office was only a fraction of the total of such expenditure, a major portion of which had been incurred on the units carrying on charitable activities. The conclusion of the AO that the bulk of the expenditure was on non-charitable activities is, therefore, by no means sustainable.
10. Further, the beneficiaries i.e. the President and the Treasurer, who got the accommodation were also the office bearer of the Motilal Memorial Society. Thus, if at all there is a case of providing benefit to the persons of prohibited category, then it should be invoked in the case Motilal Memorial Society and certainly not in the case of the assessee.
11. Needless to mention that the Hon'ble Allahabad High Court in the case of CIT v. Kamla Town Trust [2005] 279 ITR 89/[2006] 150 Taxman 107 has held that it has to be shown by the Department that trust has provided land and building or other property of the trust for use of the persons of prohibited category for any period during the previous year without charging adequate rent or other compensation. Therefore, in our considered view, the term "benefit" would cover a case of one way flow of privilege and advantages to the persons of prohibited category, out of the funds, property or income of the trust.
12. In the instant case, it has not been mentioned that the funds were misappropriated and were not utilized for the purpose according to the objects of the society, so the registration cannot be cancelled.
13. In the instant case, the registration was not cancelled, but the benefit of exemption was not given by the AO, which is not allowable as per the ratio laid down in the case of American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86/170 Taxman 306 (SC).
14. On the plain language of Section 11(1)(i) of the Act, the assessee was entitled to accumulate 25% of the donation received should be the income of the trust. Thus, the assessee-society is entitled to accumulate 25% of its income from the property/donation etc. held in the trust as rightly observed by the Tribunal.
15. In the light of above discussion and by considering the totality of facts and circumstances of the case, we do not find any reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with reasons mentioned therein.
16. The answer to the substantial question of law is in favour of the assessee and against the revenue.
17. In the result, the appeals filed by the appellant-Department are hereby dismissed.