2021 (2) TMI 860 - HC - Income Tax

Court clarifies tax exemption criteria for religious entities under Section 10(23BBA), dismissing one petition and allowing another. (23BBA)

The court allowed the writ petition of the Sri Vaithiyanathaswamy Devasthanam (W.P.No.29315 of 2019), granting exemption under Section 10(23BBA) but ... Exemption u/s 10(23BBA) - Exemption from income-tax in the case of statutory bodies or authorities for the administration of public religious or charitable trusts or endowments, etc. - whether the petitioner Devasthanams fall within the structure of Section 10(23BBA)? - devasthanams had made cash deposits - non filing of return of income - HELD THAT:- The Sri Vaithiyanathaswamy Devasthanam was under the supervision and administration of the British till, in 1842, its management was handed over to the Pandarasannadhi of Dharmapuram Adheenam, who has been managing the same since then, through a Kattalai Thambiran. The handing over is pursuant to the enactment of the Religious Endowments Act, 1863. The scheme sets out a framework for governance and administration of the assets and receipts of the devasthanam and constituent temples by the Pandarasannadhi, who was named as trustee. Suffice it to say that the Supreme Court set aside the appointment of the Executive Officer confirming the scheme as framed originally. Thus, the temples, endowments and charities comprising the Vaithiyanathaswamy or Velur Devasthanam continue to be administered and managed till date by a Kattalai Thambiran appointed periodically by the Pandarasannathi in his capacity as trustee under a scheme of administration framed in a scheme suit filed under Section 92 of the Civil Procedure Code 1908 in line with the provisions of the Madras Hindu Religious & Charitable Endowment Act, 1951 (‘1951 Act’) and its precursor enactments, in the year 1919. In light of the above facts, the requirements of Section 10(23BBA) appear to be satisfied in this case (i) the body or authority being the Devasthanam, (ii) the required enactments being the Civil Procedure Code 1909 (Central) and the Madras Hindu Religious & Charitable Endowment Act, 1951 (State) and precursor State enactments (iii) the devasthanam holding within its fold several constituent temples as detailed in paragraph 2 of this order. The argument of the Sri Amirthakadeswaraswamy Devasthanam to the effect that it should be deemed to have been constituted under the 1863 Central Act is, in my view, not liable to be accepted as the link is too circuitous and indirect. While one could take a purposive view on the meaning of ‘established, constituted or appointed’ in Section 10(23BBA), the object and spirit of the provision is to bifurcate the managerial entity from the temple/religious establishment that it manages, in order that the roles, functions and two income-generating apparatus, are clearly demarcated. This is not possible in the absence of a scheme as there is no clarity on the bifurcation of assets or functions. The intention of the exemption under Section 10(23BBA) is to benefit only those entities whose role is managerial or administrative and not commercial, engaged with the purpose of income generation. In the case of the Sri Vaithyanathaswamy devasthanamhe role of the Pandara Sannidhi is as a trustee, and that of the Kattalai Thambiran is as a Manager. All incomes earned by the constituent temples vest in the respective deities. Thus, the apparent division of roles enables the grant of exemption to the managerial entity leaving the constituent temples to bear the brunt of taxation, subject to any claim for exemption that may be made by the latter, to be considered in accordance with law. This enabling feature is absent in the case of the Sri Amithakadeswaraswamy devasthanam and for this reason, we reject its arguments. As regards the argument of the revenue to the effect that ‘body’ or ‘authority’ referred to in Section 10 (23BBA) would be the HR&CE Board, this argument is misconceived as the Hindu Religious and Charitable Endowments Department constitutes an arm of the State Government which is, in any event, not liable to tax. The reference in Section 10 (23BBA) to ‘body’ or ‘authority’ cannot thus be the HR&CE Department but an independent authority constituted under a Central, State or Provincial Act. The argument that the Central Wakf Board is equitable to the HR&CE department is rejected. Petition relating to Vaithyanathaswamy Devasthanam is allowed, but it is made clear that the individual constituent temples, endowments and charities are liable to tax in the light of the proviso to Section 10(23BBA). It is open to the income–tax authorities to proceed accordingly qua the constituents of the devasthanam, in accordance with law. Petition relating to Sri Amirthakadeswarasamy Devasthanam is dismissed. Issues Involved:1. Interpretation of Section 10(23BBA) of the Income Tax Act, 1961.2. Taxability of cash deposits made by the Devasthanams during the demonetization period.3. Obligation of the Devasthanams to file returns of income.4. Eligibility of the Devasthanams for exemption under Section 10(23BBA).Detailed Analysis:1. Interpretation of Section 10(23BBA) of the Income Tax Act, 1961:The writ petitions filed by the Devasthanams raised significant questions regarding the interpretation of Section 10(23BBA) of the Income Tax Act, 1961 (IT Act). This section exempts the income of any body or authority established by or under any Central, State, or Provincial Act for the administration of public religious or charitable trusts or endowments. The proviso to this section, however, excludes the income of any trust, endowment, or society from this exemption.2. Taxability of Cash Deposits Made by the Devasthanams During the Demonetization Period:The Devasthanams made substantial cash deposits during the demonetization period, which attracted the attention of the Income Tax Department. Notices under Section 142(1) of the IT Act were issued to the Devasthanams to file returns of income. The Devasthanams claimed that these deposits were voluntary donations made in specified bank notes (SBN) by devotees and sought exemption under Section 10(23BBA). However, the Income Tax Department proposed to tax these deposits as unaccounted cash credits under Section 115 BBE of the IT Act.3. Obligation of the Devasthanams to File Returns of Income:The Devasthanams did not file returns of income for the assessment year 2017-18, leading to notices and reminders from the Income Tax Department. The Devasthanams argued that they were not obligated to file returns of income due to their claim for exemption under Section 10(23BBA). The Income Tax Department, however, maintained that the Devasthanams were required to file returns and comply with the provisions of the IT Act.4. Eligibility of the Devasthanams for Exemption Under Section 10(23BBA):The court examined whether the Devasthanams qualified for exemption under Section 10(23BBA). The section exempts the income of bodies or authorities established by or under a Central, State, or Provincial Act for the administration of public religious or charitable trusts. The court noted that the Devasthanams were under the supervision and management of the Dharmapuram Adheenam and were governed by schemes framed under the Civil Procedure Code and the Madras Hindu Religious & Charitable Endowment Act, 1951.The court concluded that the Sri Vaithiyanathaswamy Devasthanam satisfied the requirements of Section 10(23BBA) as it was managed by a trustee (Pandarasannadhi) and a manager (Kattalai Thambiran), with the income of the constituent temples vesting in the respective deities. This structure allowed for the grant of exemption to the managerial entity, leaving the constituent temples to be taxed. However, the Sri Amirthakadeswaraswamy Devasthanam did not meet these criteria as there was no clear bifurcation of roles and assets, and thus, its claim for exemption was rejected.Judgment:The court allowed the writ petition of the Sri Vaithiyanathaswamy Devasthanam (W.P.No.29315 of 2019), granting exemption under Section 10(23BBA) but clarified that the individual constituent temples, endowments, and charities are still liable to tax. The writ petition of the Sri Amirthakadeswaraswamy Devasthanam (W.P.No.29312 of 2019) was dismissed.Conclusion:The court's decision highlights the importance of understanding the specific requirements for exemption under Section 10(23BBA) and the need for clear bifurcation of managerial and income-generating roles within religious and charitable entities. The judgment underscores the necessity for such entities to comply with the filing requirements of the IT Act, even when claiming exemptions.