TaxTMI 
TaxTMI 
2021 (2) TMI 739
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....mo of appeal filed with Income- Tax Appellate Tribunal, Allahabad (hereinafter called "the tribunal") reads as under:- "1. BECAUSE considering the facts and circumstances of the case contribution of Rs. 72, 00, 000/- made by Nazareth Hospital Society to Roman Catholic Diocese of Allahabad Private Limited (RCD) , both being charitable institutions and registered u/s 12A of the Act , is application of income for charitable purposes as per the provisions of section 11(1)(a) of the Income-tax Act, 1961 . The said contribution is liable to be deduction from the income for the purpose of computation of taxable surplus in the assessment of the appellant institution. 2. BECAUSE considering the facts and the circumstances of the case the CIT(Appeals) has erred in law to hold that the said contribution is not application of income for charitable purpose by the appellant institution on the ground that objects of appellant institution and RCD are not the same. The decision of the authorities below is against the provisions of Section 11(1)(a) as well section 2(15) of the Act. Section 2(15) has defined the CHARITABLE PURPOSE. The CIT(Appeals) has failed to consider that medical relief is ....
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.... 11 and is exempt from income-tax. The AO rejected the contentions of the assessee by holding that object of the donor and the donee society are not same, as can be seen from their Memorandum of Association, and hence said amount cannot be considered as application of income for charitable purposes. The AO observed that main object of the donor viz. assessee society is medical relief and running of hospitals , while main object of the donee society was education. The AO was of the view that when the assessee contributes a fund as donation to the donee society who is engaged in different activities , then assessee society is not fulfilling its objects for which assessee society was established. The AO was of the view that the said amount of donation of Rs. 72, 00, 000/- made by assessee society to 'Roman Catholic Diocese Private Limited' cannot be exempt from income-tax. The AO relied upon judgment of Hon'ble Allahabad High Court in the case of J K Charitable Trust (1992) 196 ITR 31(All. HC) , and brought to tax the said donation of Rs. 72, 00, 000/- as income in the hands of the assessee, vide assessment order dated 30.03.2015 passed u/s 143(3) of the 1961 Act. 4. Aggrieved by ass....
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....ime to time altar, improve, extend, close down. Demolish or dispose off suitable sites, buildings, offices, institutions, model farms, small industries, laboratories, x-rays, amenities and facilities deemed necessary of useful for any purpose or purposes of the society. D. To initiate, encourage, promote, organize, operate, advise, help cooperative societies, credit unions, housing projects, legal aid societies, clubs, community services or other institutions, bodies, persons, as from time to time seem necessary or appropriate for any purpose or purposes of the Society. E. To print, publish, issue and exhibit any films, journals, periodicals, books, papers, pamphlets, advertisements, reports, lecturers and other reading matters for the diffusion of medical, agricultural, technical, moral, philosophical, cultural and other useful knowledge for the promotion benefit and advancement of charitable ideals, institutions, works and activities of the Society. F. To engage, employ and procure the assistance of and to suspend, discharge, and dismiss directors, managers, specialist, assistants, teachers, lawyers, technical advisers, doctors, nurses, clerks, secretaries, accountants, wor....
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.... of the Society as such whensoever derived from the objects of the Society as set forth in the Memorandum of the Association, provided that no portion thereof is distributed among the members by way of profits, dividends, bonuses or by any other form except remuneration for services rendered to the Society. M. To do or to cause to be done any or all such acts or things as shall be in keeping with the objects of the Society, provided such things or acts be not contrary or inconsistence with the spirit and principles of the laws under which this Society has been organized and registered." Thus, the main object for which the appellant society is established as a charitable organization is to establish and run hospital and nursing homes. Infact, the society is running a hospital in the name of Nazareth Hospital. 11. The objects of the M/s Roman Catholic Diocese Pvt. Ltd. are as under - "The Objects for which the Company is founded are Objects (a) To acquire and take over all or any part of the movable and immovable properties now or hereafter vestedin the Roman Catholic Bishop of Allahabad (in which expression is included an Administrator Apostolic for the time being or Vicar-....
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.... by the Company of powers not specifically mentioned in these presents To take gifts and accept trust i.To establish, promote, or assist in establishing or promoting, and to subscribe to or become a member of any other association whose objects are similar, or in part similar, to the objects of the Company, or the establishment or promotion of which may be beneficial to this Company. To promote associations j. To administer or manage local or parochial funds of churches or parishes directly or through Juntas or fabricas or churchwardens, and to administer, manage, or control religious institutions and establishments. k. To invest and deal with the moneys of the Company not immediately required upon such securities and in such manner as may from time to time be determined, and to lend moneys with or without security. To invest funds l.To borrow or raise, and give security for money by the issue of or upon bonds, debentures, bills of exchange, promissorynotes, or other obligations of securities of the Company or by mortgage or charge upon all or any part of the movable and immovable property of or vested in the Company. To borrow money (m) To construct, m....
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....zed by the donee society (M/s Roman Catholic Diocese Pvt. Ltd.) in its charitable purposes of running a charitable educational institution and not for running any hospital. 12. In view of the above, it is clear that the charitable activity in which M/s Nazareth Hospital Society is engaged is clearly distinct from the charitable activity in which M/s Roman Catholic Diocese Pvt. Ltd. is engaged and the donation given by M/s Nazareth Hospital Society to M/s Roman Catholic Diocese Pvt. Ltd. has not been utilized for the purposes of objects of M/s Nazareth Hospital Society but has been utilized for the charitable objects of M/s Roman Catholic Diocese Pvt. Ltd. which is maintaining educational institution. Now, corning to the case laws relied on by the appellant, all the rulings of various High Courts and Supreme Court discuss that donation made by one charitable trust to another charitable trust will be treated as application of income in the hands of donor trust. However, in all the cases, the issue before the Hon'ble Courts was whether the donation by one trust to another will be treated as application of income and the Courts have not given any opinion on the issue of allowabil....
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....registration under section 12A, it would be necessary for assesses to comply with conditions of section 11 in order to claim any benefit under provisions of that section and it is necessary for Assessing Officer to examine whether income derived from property held in trust has been applied for object of trust - Held, yes [Paras 26 to 29] [In favour of assessee] Section 2(15), read with section 11, of the income-tax Act, 1961 - Charitable purposes (Medical relief) - Assessment year 2006-07 - Assessee-trust was set up with object of improving auyrvedic system of medicine - In furtherance of its objects, it set up a hospital which provided allopathic as well as ayurvedic treatment and included investigation techniques of modern medicine - It was denied exemption under section 11 on ground that proportion of receipts pertaining to ayurvedic research institute was significantly lower than that pertaining to hospital and, thus, assessee's activities were in excess of its objects - Whether since objects of trust did not prohibit running of an allopathic hospital or drawing from any other system of medicine for improving ayurvedic system of medicine and establishment of an allopathic....
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....J.K. Charitable Trust is binding for lower authorities within the territorial jurisdiction of the Allahabad High Court. There is no doubt that the decision of the jurisdictional High Court is binding upon the lower authority within territorial jurisdiction of that High Court. However, the ratio-decidendi of case law has to be properly understood in the case of J.K. Charitable Trust. The Hon'ble High Court of Allahabad has very clearly mentioned that donation made by donor trust to the donee trust shall be treated as proper application if the donee trust "advances that cause". Thus, it is clear that the decision of the Hon'ble Allahabad High Court in the case of J.K. Charitable Trust is also not in favour of the appellant case. The donation received by donee trust has not been utilized for advancement of cause of donor trust which is running of hospital and medical relief. 17. Further the appellant has relied on the case of ACIT vs. Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC) with respect to interpretation of law. Relevant portion is reproduced as under - "The Court only interprets the law and cannot legislate. To legislate is the prerogative of the Parliament or the....
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....ospital Society has not been utilized for the purposes of appellant trust. 19. In view of the above discussion, I find no fault in the order of the A.O. and the addition made by him of Rs. 72 lacs is confirmed and these grounds of appeal failed." 5. Aggrieved by appellate order dated 27th February 2018 passed by ld.CIT(A), the assessee filed second appeal with tribunal. The appeal is heard by tribunal through video conferencing mode through Virtual Court. The ld. Counsel for the assessee opened arguments before the Bench and submitted that the assessee made contribution(donation) of Rs. 72 lacs to 'Roman Catholic Diocese Private Limited' , during the year under consideration. The ld counsel for the assessee submitted that the said amount is to be considered as application of income towards charitable purposes within the meaning of Section 11(1)(a) of the 1961 Act. It was submitted by ld. Counsel for the assessee that the assessee is running an hospital and school of nursing, while M/s Roman Catholic Diocese Private Limited is running educational institutions and is in the field of education. It was submitted that both the entities viz. assessee as well Roman Catholic Diocese Pri....
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....R 698(Guj.HC) The ld. DR on the other hand relied upon appellate order passed by ld. CIT(A) and drew our attention to Section 11(1) , 11(2) read with Explanation, 11(3)(d) and 11(3A) of the 1961 Act. The ld. DR drew our attention to decision in the case of J K charitable Trust(supra), Sarladevi Sarabhai(supra) . It was submitted that the asessee is relying on old decision while the law is amended by Finance Act, 2005. The ld. Counsel for assessee submitted in rejoinder that Section 11(3)(d) and 11(3A) does not speak of donation made by one trust to other. Our attention was drawn to page 29 of the paper book filed by assessee with tribunal , para 20 of the decision of Hon'ble Delhi High Court in the case of Moolchand Kharaiti Ram Trust(supra) . The ld. Counsel for the assessee submitted that the relevant provisions ofthe 1961 Act does not say that the income of the trust is to be applied for the purposes of the trust. The ld. Counsel for the assessee submitted that Hon'ble jurisdictional High Court in the case of J K Charitable Trust has considered both the pre-amended and post amended provisions of the 1961 Act. 6. We have heard both the parties through video conferencing mode thr....
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....donation received by it was applied for its educational activities and for running educational institution. Both the authorities below have concurred that since donation/contribution of Rs. 72 lacs was made by assessee to an charitable entity engaged in different object, it can not be said that the assessee has applied its income for the objects for which it was set up and hence the said amount cannot be treated as application of income within the provisions of Section 11(1)(a) of the 1961 Act and the same was accordingly brought to income-tax. Before we proceed further , it will be profitable to extract and discuss relevant provisions of the 1961 Act as are applicable for relevant period viz. ay: 2012-13, which are reproduced hereunder :- "Definitions. 2. In this Act, unless the context otherwise requires, - *** *** (15) "charitable purpose" includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, ] and the advancement of any other object of general public utility: Provided that the advancement of any other objec....
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....olding fiduciary position as to trust money. Hence, the assessee whose activities are medical relief and running of hospital can make donation to another charitable entity engaged in education , and any diversion of funds to another charitable entity who is engaged in activity of education is an act which is ultra vires to its object clause and is not permitted. If the assessee intends to undertake activities of education in addition to existing activities of medical relief and running of hospitals, it necessarily needs to amend its object clause and then seek approval of authorities such as Charity Commissioner by getting the amended objects registered with Charity Commissioner as is provided under law. The registration of amended objects to carry on new activities in the field of education with Charity Commissioner will act as notice to Public at large that the trust intends to engage in newer activities of education apart from existing activities of medical relief and running of hospitals. The donors while contributing / making donation to the trust will have notice that contributions/donations made by them shall, inter-alia , will be applied for the activities of medical relief....
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.... [(3) Where a trust or an institution has been granted registration under clause (b) of subsection (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]] and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]" Now , proceeding further , It is important at this stage to reproduce provisions of Section 11(1)(a) of the 1961 Act , as it stood at that relevant period: "Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- [(a) income derived from property held under trust wholly for charitable or r....
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....se is ultra-vires to its object clause. It is well established principle of interpretation that every word used by lawmakers in the statute has to be taken into effect while interpreting statute and no word used by lawmaker is surplus. Thus, the use of word 'such purposes' in Section 11(1)(a) of the 1961 Act, in our considered view, narrows the application of income derived from property held under trust wholly for charitable or religious purposes to the purposes as are intra-vires to its object clause and it cannot be stretched to cover each and every object which is charitable or religious in nature , but is otherwise not authorized by its object clause and are found to be ultra vires. Even , referring to provisions of Section 11(2) of the 1961 Act clearly stipulates that in case of voluntary contribution having not been applied to charitable or religious purposes in India during the previous year , but is accumulated or set apart , for application to such purposes in India. Thus, the accumulation of income is also given a restrictive meaning by qualifying to accumulation to such purposes in India , which shall again relate back to the object clause of the charitable entity and h....
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....that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded:] [Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words "ten years" at both the places where they occur, the words "five years" had been substituted.] [Explanation.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in subclause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereaf....
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....), is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which such trust or institution was dissolved.]" *** ***" Now, coming to the case laws cited before us during the course of hearing. The reliance has been placed on decision of Hon'ble Jurisdictional High Court decision in the case of CIT v. J.K.Charitable Trust, 196 ITR 31(Alld.). The year under consideration before Hon'ble High Court was ay: 1972-73 and 1973-74. This was a reference made u/s 256(1) of the 1961 Act and as many as eleven questions were stated before Hon'ble High Court ( eight at the instance of the Revenue and three at the instance of the assessee). The relevant question for us as was referred by Revenue was question number 3 , which is reproduced as hereunder: "3. Whether, on the facts and in the circumstances of the case, the donations made to other charitable trusts would be hit by the provisions of section 11(3) of the Income-tax Act, 1961 ?" The Hon'ble High Court answered the above question in favour of assessee and against the Revenue, by holding as under: "5. We shall now take up question No. 3 re....
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....ny such contributions as are referred to in sub-section (1) are made to a trust or a charitable or religious institution by a trust or a charitable or religious institution to which the provisions of section 11 apply, such contributions shall, in the hands of the trust or institution receiving the contributions, be deemed to be income derived from property for the purposes of that section and the provisions of that section shall apply accordingly." Section 12 was substituted in its entirety by the Finance Act, 1972 with effect from 1-4-1973. The substituted section 12 reads as follows: "Income of trusts or institutions from contributions.-Any voluntary contributions received by a trust created 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." Section 13 provided situations where the exem....
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....t. We have already set out section 12 as it obtained prior to 1-4-1973 and also as it obtains with effect from the said date. Out of the two assessment years, the assessment year 1972- 73 is governed by the un- amended section 12, whereas, the assessment year 1973-74 is governed by the amended section 12. The change in section 12, however, makes no difference insofar as the facts of the present case are concerned. Under section 12(1) as it stood prior to 1-4-1973, the income of a charitable/ religious trust, derived from voluntary contributions and applicable solely to charitable/religious purposes, was not liable to be included in the total income of the trust or the trustees, as the case may be. It is not the case of the revenue that contributions were made to the assessee-trust with a direction to apply them to purposes other than charitable or religious; evidently, the persons/organisations contributing the amounts to the assessee-trust intended them to be applied to charitable or religious purposes. Once we hold that contribution to another charitable trust is an application for charitable purposes, no further question arises. In other words, such contribution to another chari....
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....omotion of that cause ; the other is to contribute money to other charitable organization, which advances that cause. Thus, it was in contemplation of Hon'ble High Court that contributing money to other charitable organization which advances that cause, while granting exemption to the tax-payer The Hon'ble High Court held that in the absence of allegation of device and or mala fides, the amount contributed to other charitable institutions out of income accumulated under Section 11(2) was held to be outside the mischief of provisions of Section 11(3). Thus, it was held that such contribution does not amount to application of the income for purposes other than charitable or religious purposes. Thus, the act of contributing to other charitable entity was held to be entitled for exemption keeping in view that the same was found to be intra-vires keeping in view wide scope of clause 2(k) in the trust deed, while in the instant case before us, we do not find that any clause in the object clause of Memorandum of Association of the assessee was wide enough to cover the activities in the field of education , as all the clauses are towards incidental and attainment of main object of the asse....
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....ed for such purposes in India. Income from the property, which is set apart for application for such purposes, is also exempted to the extent that it is not in excess of 15% of the income from such property. 21. The expression "such purposes" clearly refers to the purposes for which the property is held in Trust. Both the conditions i.e. the income should be derived from the property held in Trust for charitable or religious purposes and the condition that the income is applied for such purposes, are cumulative. 22. We are unable to accept the contention that the expression "such purposes" would mean any charitable or religious purpose, even if the said purpose is not the purpose for which the property is held in Trust. The contention that as long as the Assessee applies the income from a property held in Trust for charitable or religious purpose, to any charitable or religious purpose, the exemption under Section 11(1)(a) of the Act would be available, notwithstanding that the purpose for which the income is applied is not the purpose for which the property is held in Trust, cannot be sustained as the same would be contrary to the plain language of Section 11(1)(a) of the Ac....
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....for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:- (a) such person specifies, by notice in writing given to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5):" 25. The expression "such purposes", obviously, has the same meaning as used in Section 11(1)(a) of the Act. Section 11(2) of the Act has to be read in conjunction with Section 11(1) of the Act. While Section 11(1)(a) of the Act provides for exemption for income applied during the relevant previous year, Section 11(2) of the Act provides for conditions subject to which such income could be accumulated for use in later years. 26. In the aforesaid circumstances, the Assessee would be entitled to the exemption under Section 11(1)(a) of th....
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....ble or religious purposes , has to be applied for such purposes as are specified in object clause and are not ultra vires to the object clause. It is true that the assessee can either itself carry out charitable activities or it can contribute to other trust or institution who is carrying on the activities which are also the same/similar as per assessee's object clause in Memorandum of Association. The assessee's Memorandum of Association permit carrying on activities to establish and run hospitals , nursing homes, welfare homes , rest houses for the good and benefit of the people and the assessee infact is engaged in running hospital and school of nursing at Allahabad, while the donee entity namely Roman Catholic Diocese Private Limited is engaged in the activities in the field of education.. Although , the object clause of Roman Catholic Diocese Private Limited refers to hospitals , but what transpires from enquiries conducted by lower authorities that during the year under consideration admittedly the said donee entity was never engaged in the activities of medical relief and running of hospitals , and in fact it utilized the donation of Rs. 72 lacs received from assessee for th....