- vide Decision of High Court of Madras in Director of Income Tax Exemptions, Chennai v. Shanmuga Arts
Facts of the case: 1. The respondent(assessee) is a Trust registered under section 12AA of the Income-tax Act, 1961. The Trust had filed the return of income for assessment year 2007-2008 on 2-11-2007 for Rs. 60,76,26,276/- and claiming exemption for Rs. 6,65,60,886/- being the amount of donation made by it under section 11 of the Act.
2. The Assessing Officer had issued a notice u/s.143(2) of the Act on 21-8-2008 through which the details of donations made during the period were called for and according to the Assessing Officer, there was no explanation offered for many donations made by the Trust as to whether they were for activities in conformity with the objects of the Trust.
3. Therefore, all the donations were treated as not exempted and a demand was reworked by the Assessing Officer.
4. It was also observed by the Assessing Officer that out of a total amount of Rs. 6,70,21,273/- paid as donations, the assessee had claimed only Rs. 6,65,60,886/- in its return explaining that two items of Rs. 39,613/-and Rs. 5,00,000/- were given to Charities for Tsunami and to political parties, individuals and others, out of which Rs. 5,00,000/- was recovered back during the same financial year from the founder.
5. The Respondent/Trust, aggrieved over this order, approached the Commissioner of Income-tax (Appeals) XII, Chennai. A remand report was called for by the Commissioner of Income-tax (Appeals) from the Assessing Officer and the remand report dated 25-5-2010 was also discussed in his order. The Commissioner of Income-tax (Appeals) concluded that the Trust-deed had empowered the Trustees to apply the trust funds to anyone or more of the specified objects of the Trust and the Assessing Officer cannot interfere in the discretion of the Trustees.
6. The Commissioner of Income-tax (Appeals) concluded that the Trust-deed had empowered the Trustees to apply the trust funds to anyone or more of the specified objects of the Trust and the Assessing Officer cannot interfere in the discretion of the Trustees.
7. Furthermore, it was also held by the Commissioner of Income-tax (Appeals) that the Assessing Officer ought to have referred the matter to Commissioner of Income-tax for withdrawal of the Registration u/s. 12(AA) (3) of the Act and only upon the receipt of the order of the Commissioner, the denial of exemption u/s.11 could have been proceeded with.
8. According to the Commissioner of Income-tax (Appeals), it is immaterial whether the Charitable and religious purposes for which the Trust is created are confined to the objects of the Trust and what is required is that the income must be applied or accumulated for application or set apart for application as per the provisions of the Income-tax Act, 1961.
9. Thus, it was observed that even assuming that the objects of the Trust do not empower the Trustees to spend any part of the income of the Trust property for a particular purpose, still if they do spend any part of the income for charitable or religious purpose in India, it would be entitled for exemption u/s.11 (1) (a) of the Act for that year. The Commissioner of Income-tax (Appeals) gave a verdict in favour of the assessee.
10. The Revenue filed an appeal before the Income-tax Appellate Tribunal, Chennai Bench. The Assessing Officer erred in claiming that the application of funds by the Trust was contrary to the objects of the Trust.
11. The Income-tax Appellate Tribunal has upheld the order of the Commissioner of Income-tax (Appeals).
12. The High court held that on a thorough reading of the Section 11 of the Income-tax Act, it is evident that there is no bar for the charitable or religious trust to claim the exemption as long as it is applied in India for such charitable or religious purposes.
13. The Respondent/Trust is a Public Charitable Trust and doing educational services. It is not the case of the Appellant that the entire amount claimed as donations was liable to be disallowed.
14. The remand report had categorised all the donations made by the Trust into those which were satisfactorily explained and those which were not.
15. The Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal disagreed with the contention of the Assessing Officer that withdrawal of registration u/s.12AA is not a pre-requisite for the denial of exemption under section 11 of the Act.
16. According to Section 2(15), charitable purpose includes relief of the poor, education, yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. Trust/institution covered under advancement of any other object of general public utility can do commercial activities upto 20% of its total receipts.
17. In the instant case, the Assessing Officer had first disallowed the entire exemption and subsequently scaled it down to Rs. 14,94,886/- though reiterating that the Respondent/Trust had acted in violation of its own object set out in the Trust deed. If the Assessing Officer had objection regarding the entire amount of donation, then her remand report should not have accepted any of the donations with valid reasons.
Judgement: The High Court of Madras held the case as follows: i. Charity is clearly defined as relief of the poor, education, yoga, medical relief, preservation of environment, etc.
ii. Thus public charitable trust donating to activities other than education cannot be denied exemption u/s.11 of the Act.
iii. Therefore, the conclusion of the Assessing Officer is totally unwarranted.
The court rejected the grounds appeal taken by the revenue.