I-T - Whether a charitable trust would lose exemption if it passes on part of funds to another Trust for charitable purpose - NO: HC
By TIOL News ServiceNEW DELHI, MAY 01, 2013: THE issue before the Bench is - Whether a charitable trust would lose exemption granted if it passes some amount of its funds to another trust to be utilised for charitable purpose. And the HC verdict is NO.
Facts of the case
Assessee is a Trust. It had claimed that it was governed by a Constitution dated 28.8.1948 and was dedicated to business of manufacture of sale of unani medicines for the purpose of charity. It had stated that vide declaration of the founder Wakif Mutawalli dated 10.10.1985, the original deed in respect of “khandani” or family “income” was irrevocably abolished and no “khandani” income had ever been distributed or paid. It was an undisputed position that the assessee was granted registration u/s 10(23C)(iv) w.e.f. AY 1984-1985. Even prior thereto, they had been treated and regarded as a charitable institution. Assessee had filed an application for renewal of approval u/s 10(23C)(iv) for the AY 2004-05, regarding queries were raised and several letters were exchanged and written between the respondent and assessee. By an order dated 28.12.2007, assessee was granted renewal w.e.f. 2004-05. The respondents, however, relied upon certain conditions stipulated in the said order and submitted that there was violation of the same. By that order, the earlier order granting renewal i.e. order dated 28.12.2007 had been rescinded. Accordingly, the assessee was not to be treated as an approved assessee u/s 10(23C)(iv) w.e.f. AY 2004-05. In the order dated 22.02.2012, it was pointed out that the assessee was engaged in business and its primary and main activities were/are manufacture and sale of unani and ayurvedic medicines on commercial lines and not charity or charitable purposes. It was not engaged in any charitable activities set out in Section 2(15) but donates a part of its surplus to Hamdard National Foundation ('HNA' for short). This does not meet the requirements of Section 2(15). It had not maintained proper books of accounts for charitable activities and business activities and therefore, there was violation of Clause (c) of the notification u/s 10(23C)(iv) and Section 11(4A).
Held that,
++ we may note here that the first proviso to sub Section was amended by Finance (No.2) Act, 2009 with retrospective effect from 01.04.2009. The said proviso is applicable in cases where an assessee claims that it is carrying on charitable purpose covered by the residuary clause i.e. “advancement of any other object of public utility”. The proviso is not applicable in case an assessee or institution claims that it is carrying on charitable purpose like relief to poor, education, medical relief etc., i.e. purposes which have been specifically enumerated and stated in the earlier part of Section 2(15). We have gone through the impugned order dated 22.02.2012, but do not find any specific finding or statement in the said order that the charitable activities or purposes in the case of the petitioner No.1 fall under the residuary head and not under the enumerated heads mentioned in Section 2(15). The impugned order in this regard is completely silent. On the said aspect, we may record that the petitioner No.1 has filed before us number of orders passed by CIT(A) relating to AYs 1965-66 onwards upto AY 1994-95 and orders of the Tribunal from 1966-67 upto 1976-77 in which findings have been recorded that the petitioner No.1 was undertaking charitable activities covered under the clauses; relief to poor, education and medical relief. It is, therefore, clear that the impugned order has applied the first proviso to Section 2(15) without elucidating the scope and ambit of the said proviso and whether it would be applicable. The respondents have proceeded on assumption that charitable purpose undertaken by the petitioner is covered by the residuary clause, without recording any such specific finding;
++ on a question whether or not the assessee must himself undertake charitable activities, petitioner No.1 has pointed out that it was running two state of the art dispensaries in Delhi where free medical prescription was provided to the patients; it has also been stated in the impugned order that petitioner No.1 was maintaining two state of the art laboratories for R & D in Ghaziabad and Manesar factories and was providing financial help to Hakims and Vaids by paying monthly allowance to them. It is stated in the impugned order that this financial help was being given to selected Hakims and Vaids of repute. However, no details of Hakims and Vaids and their incomes have stated or mentioned in the impugned order. It was submitted that the decisions relied upon by the assessee have accepted the view that application of income for charitable purposes includes transfer of funds to a third person for the said purposes. Decision in Inland Revenue Commissioner vs. Helen Slater Charitable Trust Ltd., (1980) 83 WLR 157 has been referred to. It is accordingly submitted that application of money for charitable purposes takes place when the petitioner No.1 transfers his surplus or the entire income or substantial portion thereof, i.e. 85% or more, to a third person who is also using the funds for charitable purpose. This is also application of the money for charitable purpose. It is good and valid application of money unless the transferor i.e. the assessee know or ought to have known that the money will be mis-applied by the transferor. At this stage, we record that this contention of the petitioner No.1 has not been dealt with or examined in the impugned order. We record that the petitioner No.1 has relied upon a decision of the Delhi High Court in Shri Ram Memorial Foundation, which is the jurisdictional of High Court. The petitioner has in addition also referred to CBDT instruction, which states that charitable trust will not lose exemption under the Act, if it passes a sum of money to another charitable trust for utilization for charitable purpose. It is submitted that as per the Board this constitutes shall be proper utilization of money by the donor for the charitable purposes;
++ we allow the present writ petition and issue the writ of certiorari quashing the impugned order dated 22.2.2012 passed by the DGIT(E). The DGIT(E) will pass a fresh order dealing with all the contentions and issues raised by the petitioner No.1 keeping in mind the case law on the subject. The reason why we are remitting the matter is that we find that there are several issues and questions, which have been partially adverted to in the impugned order and we cannot in this writ petition form a firm view. We have discussed the legal contentions raised and also referred to the legal position on certain aspects but application of legal ratio is dependent upon the facts. Difference in facts can materially affect the final outcome and the legal position applicable; whether it be books of accounts, question of application of income, quantum of surplus available or the activity undertaken by HNF. For example whether activities of HNF can be treated as charitable activity of the petitioner for the purpose head under Section 2(15) as claimed by the petitioner No.1. We find ourselves handicapped and unable to give any firm/final opinion on issues/contentions, which may have been touched but not elaborated in the impugned order and/or examined without appreciating the correct legal position. The petitioner No.1 has also disputed some factual assertions stated in the impugned order. Fairness and justice demands that the matter should be examined threadbare, first factually and then by applying the applicable legal ratio. We refrain from elucidating and going into the greater details on these aspects, least it causes prejudice to any side, in view of the remand order. In order to curtail delay, it is directed that the petitioner No.1 through his authorized representative will appear before the DG(E) on 2nd May, 2013, when a date of hearing will be fixed;
++ by order dated 01.06.2012, it was directed that the assessment proceedings can continue and even assessment orders can be passed but demands will not be enforced by the Revenue without leave of the Court. The said interim order was applicable to all assessment years except assessment year 2005-06. In another writ petition W.P.(C) No.3599/2012 relating to AY 2005-06, an interim order was passed on the same day that the assessment proceedings can continue but no final assessment order can be passed. The interim order in W.P.(C) 3598/2012 will continue for a period of three months. We hope and expect that the respondent-DGIT(E) will be able to decide and dispose of the remand expeditiously and within the said period. Similarly, it will be open to the CIT(A) to dispose of the appeals within the said time. The assessee is expected to cooperate and in case there is any laxity and failure, it will be open to the authority to take action and decide the matter in accordance with law. We clarify that this decision does not deals with the interim order for the AY 2005-06 passed/operating in W.P.(C) No.3599/2012. The writ petition No.3598/2012 is accordingly disposed of with no order as to costs.
(See 2013-TIOL-341-HC-DEL-IT)
