TaxTMI 
TaxTMI 
2009 (9) TMI 75
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.... to the assessees on the ground that the assessees are societies/trusts established for carrying on activities of charitable as well as religious purposes. According to the AO, the law of s. 11 does not allow the assessees to carry on both the charitable and religious purposes simultaneously. According to the AO, an assessee may be entitled for the benefits of s. 11 if it is carrying on activities relating to charitable purposes or else it is carrying on the activities relating to the religious purposes. But if the assessee is carrying on activities of charitable as well as religious purposes, then according to the assessing authority an assessee is not entitled for the benefits provided under s. 11 of the Act. 4. The basis relied on by the assessing authority for the above proposition is the language of the statute provided in s. 11. The AO gives stress to the proposition 'or'. According to the assessing authority income under s. 11 shall not be included in the total income of the previous year of an assessee if the income is derived from property held for charitable or religious purposes. According to the assessing authority charitable or religious purposes permits an assessee t....
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....the income or property of the trust should be used or applied directly or indirectly for the benefit of the settlor or other specified persons, except to the extent permitted in the case of trusts constituted prior to 1st April, 1962. In the case of charitable trusts created on or after the 1st day of April, 1962, the further conditions are that the trust should not be created for the benefit of any particular religious community or caste and no part of the income should enure directly or indirectly for the benefit of the settlor or other specified persons. It is the case of the Revenue that the reading "or" as "and" is not to be resorted unless some other part of the same statute or the clear intention of it required that to be done. If the clause charitable or religious purposes in s. 11 (1)(a) is read as charitable and religious purposes, then purely charitable and purely religious trust will not become eligible for exemption under s. 11(1)(a) which is not the intention of the legislature. In the case of the trust where the property is held partly for charitable purposes and partly for religious purposes, to get exemption the trust should have been created before 1st day of Apri....
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....ot entitled for the exemption under s. 11. The Court did not examine the law relating to exemption under s. 11 as such and has not held in that judgment that an assessee should not be entitled for the exemption only for the reason that the assessee is carrying on charitable as well as religious activities. 10. The learned counsel for the assessee further submitted that all these legal and judicial expositions have been considered by the very same Tribunal in the case of Calicut Islamic Cultural Society, Kozhikode, mentioned supra and the rule of precedence and judicial propriety demand that the Tribunal is bound by the judgment of a Co-ordinate Bench and accordingly the above order of the Co-ordinate Bench must be followed in deciding these matters. The learned counsel further argued that even if for the sake of argument it is accepted for a moment that the judgment of Jammu & Kashmir High Court in the case of Ghulam Mohidin Trust is to be considered being the judgment of a constitutional Court, then the latest judgment of a High Court must be preferred and if so the judgment of Andhra Pradesh High Court in the case of CIT vs. Social Service Centre is rendered in favour of the ass....
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....ater than the judgment of the Jammu & Kashmir High Court in the case of Ghulam Mohidin Trust. The Andhra Pradesh High Court in the case of CIT vs. Social Service Centre has delivered the judgment accepting the contentions of the assessee and that being the later judgment, we have to follow that. Therefore, even before contributing our mites to the merit of the issue we have to state that we have to follow the judgment of the Co-ordinate Bench in the case of Calicut Islamic Cultural Society, Kozhikode and if we follow the judgment of another High Court, then to follow the judgment of the Andhra Pradesh High Court in the case of CIT vs. Social Service Centre where the decision was rendered in favour of the assessee. Therefore, on the outset itself we hold that the appeals of the assessees are to be allowed as the issues have been settled by the decision of the Co-ordinate Bench and by the judgment of another High Court. 13. Now coming to the merit of the case, we find that the only weapon in the armoury of the Revenue to hold against the contention of the assessee is the judgment of the Jammu & Kashmir High Court in the case of Ghulam Mohidin Trust. The general proposition of law la....
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....e carrying on charitable activities alone or religious activities alone will be entitled for the benefits under s. 11 and an assessee will not be entitled to for such benefits if the assessee is carrying on charitable as well as religious activities. There is no room for such an interpretation. If the law grants exemption to charitable activities and if the same law grants exemption to religious activities, then there is no reason why exemption should not be given to an assessee where the assessee is carrying on charitable as well as religious activities. For the purpose of s. 11, charitable activities and religious activities are not strange. Therefore, we have to hold that expression "or" is conjunctive in nature and therefore it is necessary to read that income derived from property held under the trust wholly for charitable or religious purposes or both shall not be included in the total income of the assessee. 17. The apprehension of the Revenue is that if the above interpretation is accepted, then s. 11(1)(b) becomes inoperative/otiose. The Revenue says that the above interpretation stands good for the trusts formed before 1st April, 1962 and thereafter by virtue of s. 11(1)....
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....e religious activities, even then s. 11(1)(a) nowhere provides that activities of religious purposes are not entitled for the benefits of s. 11. On the other hand the law provides that activities of religious purposes are also entitled for benefits of s. 11. 19. When the law has categorically provided in s. 11(1)(a) that the benefits are available to assessees carrying on activities of charitable as well as religious purposes, there is no provocation to read down the law and state that the benefits will be available only if the assessee is carrying on charitable purposes alone or carrying on religious purposes alone. Charitable purposes as well as religious purposes are covered by the benefits provided under s. 11(1)(a) and as both of them are holy waters, there is no justification for segregating them as exclusive poles only for the reason that the expression given in s. 11(1)(a) is "charitable or religious purposes". Charitable or religious purposes should be read as charitable or religious purposes or both charitable and religious purposes. 20. In the facts and circumstances of the case, we accept the contentions of the assessees and direct the assessing authority to grant the....
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.... to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;" 4. Sec. 11(1)(a) clearly postulates the condition of income derived from property held under trust wholly for charitable or religious purpose. It is not the combination of both purposes. Therefore, after 1st April, 1962, there cannot be a trust with the combination of both charitable and religious purposes. This is the view taken by the AO while rejecting the assessees' claim. While perusing the assessment order in the case of The Society of Presentation Sisters for this asst. yr. 2003-04 which is dt. 27th March, 2006, it is seen that the assessee filed the return of income on 29th Dec., 2003 admitting nil income. This return was accompanied by audit report. Permission was sought for to set apart assessee's income i.e. to accumulate sufficient funds to carry out the purpose. While framing the assessment under s. 143(3) i.e. regular assessment, the AO found that the objects in cls. (a) to (f) ar....
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....mixed trust activities which were being carried out before 1st April, 1962 and for that only Explanation is inserted. Hence, on this score also, there cannot be a mixed trust after 1st April, 1962. The decision of the Hon'ble Jammu & Kashmir High Court in the case of Ghulam Mohidin Trust is directly applicable wherein their Lordships have relied on the decision of the Hon'ble Supreme Court in the cases of State of Kerala vs. M.P. Shanti Verma Jain (1998) 149 CTR (SC) 279 : (1998) 231 ITR 787 (SC), Yogiraj Charity Trust vs. CIT 1976 CTR (SC) 211 : (1976) 103 ITR 777 (SC) and East India Industries (Madras) (P) Ltd. vs. CIT (1967) 65 ITR 611 (SC). Respectfully following the above decision, I humbly differ with my learned Brother that in the cases of both assessees the assessees are not entitled to claim the benefit under s. 11. The word "or" cannot be read as "and". Hence, on that score also. I differ with the findings of my esteemed Brother. The decision of the Hon'ble Jammu & Kashmir High Court in the case of Ghulam Mohidin Trust has not been properly considered by my learned Brother particularly with reference to s. 11 exemption. Further, before us as observed by my learned Brother....
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....by the Act in s. 11(1)(a) as 'income derived from property held under trust wholly for charitable or religious purposes......' 2. Whether, after 1st April, 1962, can there be a mixed trust? 3. Whether, the construction of dome, chapel or convent, etc. amounts to religious purpose or it is simply an object of general public utility?" 2. The facts are that The Society of Presentation Sisters, Calicut is a trust registered under s. 12A of the IT Act with the CIT. It filed a return declaring nil income for the above asst. yr. 2003-04 on 29th Dec., 2003. The return was accompanied by audited accounts and assessee claimed exemption of its income as a charitable institution. On scrutiny of books of accounts, AO noted that receipts and payments account includes the following debits: 1. Chapel running expenses 2. Chapel articles 3. Religious books, and 4. Religious function expenses The AO was of the view that above expenses were for religious purposes. He also found that objects as per memorandum of association of the society were as under: "(a) 'To perform works of charity by caring for the sick and disabled without distinction of caste, religion or race. (b) To establish conduc....
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.... it was left to the exclusive discretion of the society to spend whatever they liked and hence the assessee is not entitled to claim exemption under s. 11 of the IT Act in respect of its income. The decision of Hon'ble Jammu & Kashmir High Court in the case of Ghulam Mohidin Trust vs. CIT (2001) 168 CTR (J&K) 367 : (2001) 248 ITR 587 (J&K) is applicable to the facts of the assessee's case." Total income of assessee trust was taken at Rs. 1,49,05,230 and exemption claimed under s. 11 was denied. The assessee was assessed as an AOP. Wayanad Muslim Orphanage 5. The facts of the aforesaid case are that the assessee is registered trust under s. 12A with the CIT. It filed a return declaring nil income on 15th Feb., 2004. 6. During the scrutiny of the case, assessee was asked to file copy of trust deed/memorandum of association of the trust from which AO found that it has the following objects noted in the assessment order: "(a) To protect the orphan and destitute children both male and female and give them food, shelter and clothe and educate them of religious, technical and other items and give them technical training, equip them for job. (b) Run orphanages, handicraft centres, ind....
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....s denied and its total income was taken at Rs. 1,67,66,760 in the status of an AOP. 8. Assessees being aggrieved took up the matter in appeal before the CIT(A). CIT(A) noted orders of the AO in both the cases. He further noted the submissions advanced on behalf of the assessees. 9. In appeal by The Society of Presentation Sisters, it was contended that AO has misconstrued requirement of s. 11 (1)(a). It was argued that section provided that a charitable trust should be wholly charitable and should not engage in any non-charitable activity. Likewise, wholly religious trust should be religious and not engaged in any private religious or non-religious activity. Exemption could not be denied if trust had mixed objectives i.e. charitable and religious authorized by the memorandum. Income of trust can be applied both for religious and charitable purposes. It cannot be presumed that charitable purposes cannot include religious purposes and vice versa. It was also claimed that all along the claim of the assessee as a charitable institution was accepted and, therefore, Revenue should maintain a consistent approach. In support of the contentions, the assessee relied upon decisions noted in....
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....f the assessee were not applicable to the facts of the case. Learned CIT(A) further rejected the contention of the assessee that both the religious and charitable purposes are entitled to exemption and, therefore, there was no logic in not granting exemption to a trust which is partly charitable and partly religious. Reference in the appellate proceedings was also made to provisions of s. 115BBC and s. 10(23C)(v) of IT Act to support assessee's claim. However, the learned CIT(A) held that above provisions did not advance the case of the assessee. The view of the AO was accordingly upheld. 12. Both the assessees challenged the order of CIT(A) in further appeal before Cochin Bench of the Tribunal. These appeals were disposed of by a consolidated dissenting order. According to the learned AM, who wrote the leading order, the issue in appeals stood recently decided by the Cochin Bench in the case of Calicut Islamic Cultural Society, Kozhikode, as per their order dt. 31st July, 2008 wherein it has been held that s. 11(1)(a) did not preclude an assessee from carrying on charitable as well as religious activities for the purpose of claiming benefit of s. 11. The learned AM further observ....
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....rverse to argue that assessee carrying on charitable activities alone or religious activities alone will be entitled for the benefits under s. 11 and an assessee will not be entitled to for such benefits if the assessee is carrying on charitable as well as religious activities. There is no room for such an interpretation." 12.3 The learned AM further observed that apprehension of the Revenue that above interpretation will render s. 11 (1)(b) after 1st April, 1962 nugatory, is not well founded. The learned AM held that s. 11(1)(b) is provided not to tinker with the expression "charitable or religious purposes" but is meant for restraining multiple objectives of charitable as well as non-charitable activities. Even the ratio laid down in the case of Ghulam Mohidin Trust is in fact speaking in above direction. According to learned AM, s. 11(1)(b) does not contradict between charitable purposes and religious purposes but distinguishes between charitable and non-charitable purposes. 12.4 As regards functional activities of the two trusts are concerned, the learned AM observed as under: "18. As far as the two cases placed before us in these appeals are concerned, they are carrying on ....
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.... charitable activities or religious activities, but not both. This view was derived on the basis of the word 'or' in s. 11 (1)(a) disjoining charitable-religions purposes. (2) Explanation 2 to s. 13(1)(b) which forfeits the exemption of public charitable trust, if any part of income is for the benefit of any particular religious community or caste. According to learned JM, after 1st April, 1962. "There cannot be a trust with the combination of both charitable and religious purposes. This is the view taken by the AO while rejecting the assessees' claim". In the case of The Society of Presentation Sisters, the AO found that the objects and cls. (a) to (f) are charitable, but part of cl. (g) insofar as it relates to construction of chapels and convents is religious in nature. The learned JM held that the trust is partly charitable and partly religious. The learned JM noted assessee's contention that convent referred to by the AO is the residence of the members of the society and the chapel represents prayer room. According to the JM, the assessee in its letter has admitted that purpose of the society was only charitable and not combination of both religious and charitable. The reason....
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.... : (1998) 231 ITR 787 (SC), (ii) Yogiraj Charity Trust vs. CIT 1976 CTR (SC) 211 : (1976) 103 ITR 777 (SC), and (iii) East India Industries (Madras) (P) Ltd. vs. CIT (1967) 65 ITR 611 (SC). As per his proposed order, the learned JM dismissed both the appeals. 15. On account of above difference, the matter has been referred under s. 255(4) of the IT Act. 16. In order to resolve above differences, the case was fixed and I have heard Smt. Lalitha Nair for Society of Presentation Sisters and Shri R. Krishna Iyer for Wayanad Muslim Orphanage. For the Revenue, Shri A.K. Thattai, CIT, senior Departmental Representative appeared and argued. Facts and circumstances of the case in the light of argument of parties have been examined. The submission of the parties were the same as were advanced before the lower authorities. There is no dispute on facts. The only controversy involved is whether assessee trusts who have been held to be partly religious and partly charitable are entitled to exemption under s. 11(1)(a). The controversy in the third question is whether construction of room, chapel and convent amounts to religious purposes or it is simply an object of general public utility. I h....
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....g out of a primary purpose of the institution, or (ii) the work in connection with the business is mainly carried on by beneficiaries of the institution....... (iii) Any income of a religious or charitable institution derived from voluntary contributions and applicable solely to religious or charitable purposes." 17.1 There have been some changes in the above provisions but basic and fundamental principles as far as controversy before me is concerned remain the same without any material difference. The word "or" has always separated religious and charitable purposes. The decisions to which I have referred have all along considered the provision relating to grant of exemption containing word "or". Therefore, rejection of claim of the assessee on account of word "or" is unjustified. 17.2 In the case of Fazlul Rabbi Pradhan vs. State of West Bengal AIR 1965 SC 1722, their Lordships of Supreme Court noted the following observations with approval on 'charity' of Lord Macnaghten in Commr. for Special Purposes of the IT vs. John Frederick Pemsel (1891) AC 531 (HL): "'Charity' in its legal sense comprises four principal divisions; trusts for the relief of poverty; trusts for the advan....
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....hole, it transpires, particularly in the light of the decision of the Bombay High Court in Advocate General of Bombay vs. Yusufalli (l922) 24 Bom LR 1060 : AIR 1921 Bom 338, 360, that the apparently wide discretion has to be exercised within the four corners of the Wakf and for Dawat purposes. What are Dawat purposes, have been described by Marten, J., at p. 1102, in Yusufalli's case and, in our opinion, it is only within the four corners of Dawat purposes as recognized by the Dawoodi Bohra community that the Mullaji Saheb can use the corpus or the income of this fund." 17.5 In the case of CIT vs. Barkate Saifiyah Society, the objects of the trust were noted as, under: "(i) To help the poor and needy. (ii) Medical relief. (iii) Provision for education. (iv) To carry out the religious activities." The AO denied exemption to the assessee trust under s. 11(1) with the finding that the trustees did not carry out any religious activity and it was not provided in the trust deed that specified portion of the income or corpus would be spent on any of the objects. It was further, held that trustees were carrying on activities of charitable nature only and the assessee had wrongly labe....
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....he trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in anyone or more of the forms or modes specified in sub-s. (5) of s. 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) any shares in a company (not being a Government company as defined in s. 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act) are held by the trust or institution after the 30th day of November, 1983. " It is to be stated that there is no material change in above provision of s. 13 as far as assessment years with which I am concerned in these cases. Their Lordships analyzed provision of s. 13 and held that they were applicable in the following circumstances: "By reading the aforesaid section, it is clear that it carves out an exception to s. 11 or 12 by providing that in those cases which are covered by cls. (a), (b), (c) and (d), provisions of s. 11 or 12 shall not operate. Broadly speaking, it is divided into three categories and exception is carved out in case of private religious trust, charitable trust and charitable or religious trust if the conditions....
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....ed only for the benefit of any particular religious community or caste, then provisions of s. 11 would not be applicable. But in the case of a trust or an institution for religious purposes wherein certain activities can be termed as charitable activities for the benefit of any particular religious community or caste, cl. (b) would not be applicable." 18, In the case of CIT vs. Social Service Centre, the AO had found, that the trust was mainly engaged in religious activities namely, donation to church or construction of a church and exemption was denied because the expenditure was incurred for donation to a diocese and for construction of a church. The Tribunal reversed the order of the AO. 19. On further appeal, their Lordships of Andhra Pradesh High Court observed as under: "2. Now the only question is whether an institution which has been given exemption as a charitable institution can claim exemption for the activities which have been termed as religious by the Revenue. The dispute is with regard to the following entries: 'Construction of church-Rs. 40,000 Donation to Diocese of Srikakulam-Rs. 1,00,29,820' It is not in dispute that the institution is given an exemption as....
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....shtra AIR 1981 SC 1462. Considering these judgments, we are of the view that the Tribunal was right. Therefore, this appeal is dismissed." It is clear from plethora of authorities where after considering provisions of s. 11(1)(a) that so far as aforesaid provision is concerned, no distinction is made between charitable and religious purposes. A charitable institution can have religious purposes; whereas a religious institution may be partly charitable. Most of the decisions were given under 1961 Act. Even where decision was on consideration of 1922 Act. there is no material difference as is demonstrated in the above discussion. Their Lordships of Supreme Court have held, as noted earlier, that charitable and religious purpose overlaps in India. Even otherwise relief and help to the poor, medical help to the needy, looking after of deity and temples (mosque, church included) are no doubt religious purposes but these are also considered as charitable in India. Therefore, the view taken in the two cases before me that exemption under s. 11(1)(a) cannot be allowed to a charitable trust as it is also carrying some purposes which are termed as 'religious' is totally unwarranted. Above v....
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....icable only to a charitable institution and not to any institution which is created both for charitable and religious purposes. There is no elaboration as to how any particular religious community or caste is to be benefited from the trust in question. No violation of provision of s. 13 of the Act has been stated or established. The finding or basis for denial of exemption under s. 11 (1)(a) is that trusts are partly religious and partly charitable, whereas exemption is permissible to wholly charitable or wholly religious trusts. Such basis is not legally tenable. 22. In the case of The Society of Presentation Sisters, the AO noted expenses under the following four heads: 1. Chapel running expenses 2. Chapel articles 3. Religious books, and 4. Religious functions. According to the AO above objects were religious. After considering objects of the trust, he observed that objects (a) to (h) are charitable. Out of these, object (g) is noted as under: "(g) To effect hospitals, infirmaries, dispensaries, chapels, convents, bungalows, schools, hospitals, orphanages, homes for the aged." According to the AO, erection of chapels and convents was religious in nature. Accordingly purp....
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....ept that he differs from the view taken by the leaned AM who has relied upon decision of already existing Cochin Tribunal in the case of Calicut Islamic Cultural Society. He has not said anything as to the propriety of not following the decision of a Co-ordinate Bench. Nor the learned JM has stated that it is a fit case to review the decision of Co-ordinate Bench, by referring the matter to a Larger Bench. No value has been attached to settled law or even to directions of Supreme Court issued from time to time debarring the Benches from taking a different view on identical facts, without referring to a Larger Bench. 25.1 The Hon'ble Delhi High Court, in a recent decision in the case of Thironi Chemicals Ltd. vs. Dy. CIT (IT Appeal No. 417/Del/2004) delivered on 23rd Jan., 2009 has observed as under: "It may be mentioned that in DLF Universal Ltd. vs. CIT, IT Appeal No. 854 of 2007 decided on 11th Jan., 2008 [reported at (2008) 6 DTR (Del) 113-Ed.], it has been held by this Court that a Co-ordinate Bench of the Tribunal cannot take a view contrary to a view expressed by an earlier Bench and it is bound by the decision of the Co-ordinate Bench rendered earlier. In case the later Be....
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....e learned JM, thereafter laid great emphasis on letter of the assessee dt. 27th March, 2006 wherein contention raised was that assessees trust was charitable but subsequently learned AM has held it to be partly charitable and partly religious. I am of view that no adverse inference can be drawn from what is stated by the assessee in letter dt. 27th March, 2006 wherein assessee claimed that its trust is wholly charitable. In my considered opinion, facts and circumstances of the case are required to be considered in the light of statutory provisions to decide the case. On consideration of the relevant facts, in my view the assessee is entitled to exemption under s. 11(1)(a) of the IT Act. No case has been made out to apply any clause of s. 13 of the IT Act. 26.4 The learned JM has also relied upon decisions of Hon'ble 'Supreme Court in the cases of: (1) State of Kerala vs. M.P. Shantiverma Jain; (2) Yogiraj Charity Trust vs. CIT, and (3) East India Industries (Madras) (P) Ltd. vs. CIT. In the case of East India Industries (Madras) (P) Ltd. vs. CIT, the object of the trust was both charitable and religious as well as non-charitable object and trustee had absolute discretion to ap....
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....t India Industries (Madras) (P) Ltd. vs. CIT (1967) 65 ITR 611 (SC) and Mohammad-Ibrahim Riza Malak vs. CIT AIR 1930 PC 226]. ............. In CIT vs. Radhaswami Satsang Sabha (1954) 25 ITR 472 (All), several industrial and commercial concerns were started for the benefit of the Satsanghis. Those were not run for individual profits nor were the profits distributed among the members. The concerns were started in furtherance of its objects of religious and cl1aritable nature." The Court ultimately laid down the test to be applied and held as follows: 'The test is that if one of the objects of the trust deed is not of a religious or charitable nature and the trust deed confers full discretion on the trustees to spend the trust funds for an object other than of a religious or charitable nature, the exemption under s. 4(3)(i) of the Act is not available to the assessee [Lakshmi Naram Lath Trust vs. CIT (1969) 73 ITR 402 (Raj)]." 26.8 It is quite evident from above that the decision, instead of supporting the Revenue, is supporting the case of the assessee. The decision has clearly laid down that it is to be seen whether any object of the trust is "non-charitable" or "non-religious"....
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.... of the present case. In this case also the objects of the assessee-trust contained in cls. 13 and 14 of the Instrument of trust clearly show that the dominant purpose of the trust is promotion of Muslim theology among Muslim intelligentsia. Another object is promotion of science and technology but that too among the Muslim intelligentsia. Similarly, in cl. 14 of the Instrument of trust which confers powers on the trustees to give financial assistance by way of ex gratia grants or loans on easy terms to scholars of educational institutions to enable them to prosecute their further studies and research in science and technology, it is specifically provided that the selection for such grants has to be confined to Muslims only. The trustees, however, have been given a discretion to extend this benefit to such other communities as in their opinion are backward in this regard. It is obvious that the author of the trust felt, as indicated in cl. 14 of the Instrument of trust that the Muslims of the State and some other sections of the population had lagged behind in this particular branch of learning and it was to improve that situation that power was conferred on the trustees to grant f....