TaxTMI 
TaxTMI 
2009 (3) TMI 252
X X X X Extracts X X X X
X X X X Extracts X X X X
....rsons as per section 13(2)(b); he ought to have appreciated that (i) the land belonged to the said trustee which was valuable and hence there was a contribution. (ii) the building was constructed by the trust and the rent fixed at Rs. 100,066 and advance paid Rs. 10 lakhs was more than the market value. (iii) the rent for the land was not being paid by the trust to the lessee; payment had ceased. (iv) the monthly rent of Rs. 100,066 plus the deposit afforded a recurring reasonable return on the capital invested by the trust. The assessee-trust filed its application in Form No. 10G on March 27, 2008 for renewal of approval under section 80G. The learned DIT (Exemptions) has mentioned that the trust was created vide trust deed dated October 12, 1979. The authors and the trustees of the trust deed dated October 12, 1979 were Shri S. Ramamurthy, Smt. Subhashini, W/o. S. Ramamurthy and two brothers of Shri S. Ramamurthy. The activities of the trust include running of educational institutions, free medical camps, feeding of poor during festival seasons, teaching of yoga, running of hostel for students, women and senior citizens, free dispensary and community hall. Shri S. Ramamurth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e trust: 6 The assessee-trust entered into a lease agreement with Shri S. Ramamurthy in his Hindu undivided family capacity in 2001 for a monthly rent of Rs. 54,000. On this site, the trust has constructed a community hall by investing Rs. 1,42,30,000 and leased it back to Shri S. Ramamurthy, Hindu undivided family for a monthly rent of Rs. 1,00,066. Thus, the trust has enabled Shri S. Ramamurthy to run a business activity in which there is an investment of Rs. 1,42,30,000 by the trust and Shri S. Ramamurthy has not made any investment. Thus, a benefit has been provided to the interested persons by the trust. According to the learned DIT (Exemptions), no scientific approach has been applied to determine the lease rent to be paid. The lease rent has been fixed by the trustees based on the market value of the building ignoring the fact that what is leased out is not only a building but a business undertaking which could earn substantial income. Thus, fixing of lease rent at the market value of the building ignoring the business capacity of the building has given undue benefits to the specified persons as per section 13(2)(b). It was further mentioned that the entire trustees of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....students, women and senior citizens loses its charitable nature in view of the insertion of proviso to section 2(15) with effect from April 1, 2009 The accounts furnished by the trust clearly show that the receipts are from the inmates for the lodging facilities provided to them. This activity of the trust will fall under the limb "other general public utility" as per section 2(15). In view of the insertion of the proviso to section 2(15), with effect from April 1, 2009, the said object of the trust becomes an activity, which is commercial in nature. The trust has also not furnished any reasons to substantiate as to how the said activity is charitable in nature though it has been specifically asked for. Accordingly, the learned DIT (Exemptions) did not grant renewal of approval under section 80G of the Income-tax Act. During the course of proceedings before us, the learned authorised representative has filed a paper book containing 26 pages. Page Nos. 1 to 10 contains the copy of the trust deed. Page 11 contains the copy of the registration certificate granted under section 12A of the Income-tax Act. Pages 12 to 21 contains the copies of the 80G certificates given to the trust on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents, women and senior citizens and therefore, it cannot be considered as a charitable activity coming under the limb of other general public utility. The trust is engaged in a number of charitable activities and leasing out of property should not be seen in isolation to deny the approval of renewal under section 80G of the Income-tax Act. The trust has been allowed approval under section 80G of the Income-tax Act for so many years and following the rule of consistency, the learned DIT (Exemptions) should have accorded approval for the renewal under section 80G. The learned authorised representative relied on the decision of the Madras High Court in the case of CIT v. Sengunthar Thirumana Mandapam [2008] 298 ITR 330. In that case, the trust constructed a kalyana mandapam for the benefit of weavers and agriculturists. The learned authorised representative submitted that the hon'ble Madras High Court held that the exemption is not to be denied on the ground that surplus funds of trust were not utilized for other charitable purposes. The learned authorised representative relied on the decision in the case of CIT v. Sri Rao Baghadur ADK Dharmaraja Educational Charity Trust [2008] 300 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see is not entitled to exemption under section 11. The learned Departmental representative also relied on the decision of the hon'ble apex court in the case of DIT v. Bharat Diamond Bourse [2003] 259 ITR 280. In that case, the trust advanced Rs. 70 lakhs to a person allegedly for procurement of appropriate premises for the assessee on lease from a builder. There was no written agreement or proper documentation. Money paid to B was neither intended as deposit for lease nor was it intended as deposit to be paid to the builder. Material on record clearly suggests that the money was given to B to enable him to purchase a property in his own name. Amount was lent for substantial period without interest and adequate security. The person concerned to whom the amount was advanced was a subscriber to the memorandum of association and therefore, he can be referred as founder of the institution. The hon'ble apex court held that the assessee will lose the benefit under section 11 by falling within the mischief of section 13(3)(a) read with section 13 (1)(c) (ii). The learned Departmental representative also relied on the decision of hon'ble Andhra Pradesh High Court in the case of Action for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions and community halls open to all communities irrespective of any religion; (d) to provide medical facilities to poor and needy citizens irrespective of their caste and creed, religion; (e) to construct out patient wards, nursing homes in order to provide medical facilities to poor and needy people; (f) to contribute to charitable institutions having similar objects of the trust; (g) to undertake and carry out any other activity calculated to promote the above objects. Charitable purpose has been defined under section 2(15) of the Income-tax Act. This clause has been substituted by the Finance Act, 2008 with effect from April 1, 2009. The clause, which is relevant for the assessment year 2009-2010 and relevant to the financial year 2008-09 onwards, is as under: "(15) 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly." From the above section, it is clear that voluntary contributions received by a trust created only for charitable or religious purposes is to be deemed as income under section 11. In case some of the objects of the trust are charitable and some of the objects can be termed as non charitable, then such a trust will not be covered under section 12 because then it is not a trust created wholly for charitable purpose. The trust is seeking renewal of approval under section 80G with effect from April 1, 2008, i.e., for the previous year relevant to the assessment year 2009-10. Therefore, the amended definition of charitable purpose is applicable. We had reproduced the objects of the trust. Some of the objects of the trust include relief of the po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me for the trust. Since the trust was finding it difficult to administer and to look after the day-to-day activities, therefore, the same was leased. This shows that the convention centre, i.e., kalyana mantapa was constructed for the purpose of carrying out the business activity. It has not been given on long lease but the lease is only of 36 months though it is renewable for a further period on mutually agreed terms and conditions. Such an activity of giving the convention centre on lease is part of the nature of activity in the form of trade or commerce. The Board vide Circular No. 11 of 2008 ([2009] 308 ITR (St.) 5) has clarified the definition of charitable purpose as substituted by the Finance Bill, 2008. Paragraph 3, 3.1 and 3.2 of the circular are reproduced as under for ready reference: "3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility', i.e., the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re us, the learned authorised representative has submitted that the kalyana mantapa has been given on lease and therefore, the income arising from such lease is not taxable under the head "Income from business" but is taxable under the head "Income from other sources". If the contention of the learned authorised representative is accepted, then all such institutions having an activity in the nature of trade or commerce may hire such activity and may say that they are out of the proviso to section 2(15) of the Income-tax Act. Perhaps that is not the intention of the Legislature. The provision is to be interpreted so that the purpose for which the provision is introduced is achieved. The proviso to section 2(15) also provides that if the object of the trust is advancement of any other object of general public utility, then the activity of rendering any service in relation to trade, commerce or business will make such an object of general public utility as not qualifying for charitable purpose. The words "in relation to" has been used in section 14A of the Income-tax Act. As per section 14A, expenditure incurred by the assessee in relation to the income which does not form part of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....disallowance of expenditure relatable to the exempt income, are concerned. What to talk of that Act as homogeneous to the Income-tax Act, it has no matching shades at all. Moreover, in this judgment the hon'ble Supreme Court was dealing with the scope of the expression 'relating to'. However, in the case of Doypack Systems Pvt. Ltd. [1989] 65 Comp Cas 1 (SC); [1988] 2 SCC 299 the question for consideration was to determine whether the shares etc. held by the Swadeshi Cotton Mills would vest in the Central Government or not. The hon'ble Supreme Court observed that in section 3 of the Swadeshi Cotton Mills Co. Ltd. (Acquisition and Transfer of Undertakings) Act, 1986, the phrase used was in 'relation to'. Giving meaning to this expression, it was held as under: 'The expression "in relation to" (so "also pertaining to"), is a very broad expression which presupposes another subject-matter. These are words of comprehensiveness which might have both a direct significance as well as an indirect significance depending on the context... Assuming that the investments in shares and in lands do not form part of the undertakings but are different subject-matters, even then these would be broug....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... If a wider meaning is given, the expression 'expenditure incurred by the assessee in relation to income which does not form part of the total income' would encompass not only the direct or proximate expenditure incurred for the purpose of making or earning exempt income, but it would include all other expenses attributable or in relation to exempt income. In other words, it would signify or imply both direct and indirect relationship between expenditure and exempt income. The narrow interpretation to the said expression will really defeat the object behind the provisions of section 14A inasmuch as, in the instant case, the assessee, on the one hand, would get tax incentive given by the Legislature by way of exemptions of income and, on the other hand, would claim deduction of expenses incurred in relation to exempt income against taxable income. This could never be the intention of the Legislature to allow the expenditure incurred in relation to exempt income against taxable income." After considering the meaning of the words "in relation to", the hon'ble Special Bench held that not only the direct but also the indirect expenditure, which has any relation to the exempt income, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... had reproduced section 12(1) in the earlier paragraphs. Section 12(1) clearly says that the provisions of sections 12 and 13 shall apply in respect of voluntary contributions received by the trust. Renewal of approval under section 80G is in respect of voluntary contributions to be received by the trust. Therefore, as per section 12(1) of the Income-tax Act, the concerned authority is empowered to look into the applicability of section 13. The hon'ble Madras High Court in the case of Reliance Motor Company P. Ltd. v. CIT [1995] 213 ITR 733 had an occasion to consider as to whether the donation to a trust whose name indicated that the benefit to a particular religious community is eligible for deduction under section 80G. Actually, the trust was running a school. The hon'ble High Court upheld that the deduction under section 80G is not admissible because it is not the actual use of funds but the likelihood of it being used and the capacity of the trust to do so which is important. Hence, if the part of the objects of the trust is not charitable then the authority concerned can refuse renewal of approval under section 80G. Purpose must obviously be construed as real purpose and not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s legally correct in looking into the provisions of section 13 while considering the application of the trust for renewal of approval under section 80G. The appellant-trust has not filed a copy of the lease deed either before us or before the lower authorities vide which the land belonging to Shri S. Ramamurthy, Hindu undivided family was leased to the trust. Copy of the lease deed vide which the trust gave the kalayana mantapa on lease to S. Ramamurthy, Hindu undivided family has been filed. In this lease deed, it is mentioned that the trust obtained a lease of land belonging to Shri S. Ramamurthy, Hindu undivided family for the purpose of a convention centre. It is not mentioned as to for how many years such lease was given to the trust by Shri S. Ramamurthy, Hindu undivided family. Without having adequate arrangement for keeping the lease of land for sufficiently long time, the appellant trust invested a sum of Rs. 1.42 crore on the construction of the kalyana mantapa. No prudent person would have invested such a huge amount without adequate security that the investment made will yield appropriate income and the investment will remain safe. Shri Ramamurthy, Hindu undivided fami....