ORDER
S.K. Jain, Judicial Member
1. These seven appeals relating to the same assessee but to the different assessment years, have been heard together for the sake of convenience, since to much extent common issues are involved therein. They are, therefore, proposed to be disposed of by this common order.
I.T.A Nos. 5465 to 54677/Del/1990 :
2.1 Aggrieved by the consolidated order dated 17-5-1990 of the CIT (Appeals), Dehradun, relating to the assessment years 1985-86 to 1987-88, the Department is in appeal.
2.2 The relevant facts are these. The assessee Swami Omkaranand is a Holy Highness and a “person resident outside India” within the meaning of clause (q) of Section 2 of the Foreign Exchange Regulations Act, 1973. He is of Indian origin. He visited Switzerland in 1965 for the first time. He returned to India and remained in India from April to September 1966. Again he went to Switzerland in October 1966, and since then he is in Switzerland and did not visit India. It is said that he had founded an institution known as Divine Life Zentrum on 11-10-1966, at Wintterthur, Switzerland, with the object of carrying on cultural study, philosophical research and services to individuals and the community, primarily in the spiritual field. It is also said that the said institution is working on worldwide synthesis on science, religion, yoga, philosophy, meta-physics, self-realization’, the truth on physical plane between the highest ancient values and fascinating new style between East and West, the North and the South. He has been staying at 41, Anton-Graff-Strasse, Omkaranand Ashram, 8400, Wintterthur, Switzerland. Certain foreign remittances were credited in the Non-Resident (External) Account (for short NRE) opened in his name with the State Bank of India, Rishikesh (U.P.). Undisputedly, the entire deposits were through proper Banking channels. There was accrual of interest on those deposits. Certain deposits were converted into term deposit receipts. But, none-the-less, their character remained as NRE. Interest on those term deposit receipt was also earned.
2.3 The assessee had an intention of founding a formal trust for charitable purposes. Eventually, a former Deed of Trust was drawn up on 31-5-1989. Properties were acquired in India exclusively for charitable purposes. Initially they were acquired in the name of assessee. However, by the deeds dated 31-3-1989. they were all settled with the Trust. Among others, the said Trust was running a Degree College in the name of “Omkaranand Degree College, Deo Prayag”. There were other charitable institutions viz., Swami Omkaranand Charitable Trust, Omkaranand Educational Society and Omkaranand Saraswati Nilayam. For all these Charitable activities, loans were raised from time to time against the NRE account and NRE term deposit receipts, of course, with the permission of the Reserve Bank. All such permissions were subject to the condition that the amount of loan together with interest thereon should be repaid by way of remittances from abroad. A condition of non-repatriation was also attached thereto. There was still a condition that if the properties were being acquired with a view to earn income, the provisions of Section 29(1)(a) of the Foreign Exchange Regulations Act, 1973, would be attracted namely, that no business activity could be carried out without permission of the Reserve Bank. At this juncture, it is also pertinent to note that Omkaranand Educational Society was registered under the relevant Societies Act of U.R with effect from 12-12-1984 to 11-12-1989. Application under Section 12A of the Income-tax Act, 1961 (for short the Act,) was also lodged with the Commissioner of Income-tax, Meerut, in 1985. The CIT had also issued a certificate for exemption under Section 80G of the Act to the donors of the said Society. Similarly, the application under Section 12A of the Act was lodged with CIT, Meerut for Omkaranand Saraswati Nilayam and a certificate of exemption under Section 80G was also issued by the Commissioner in favour of that institution. Omkaranand Saraswati Mahavidyalaya, Deo Prayag, was also a registered Society.
3. The ITO treated the entire deposits and interest accrued thereon in NRI account as income of the assessee. The said deposits were Rs. 90 lakhs In the assessment year 1985-86, Rs. 5p lakhs in the assessment year 1986-87 and Rs. 29 lakhs in the assessment year 1987-88. Interest accrued in the NRE account was Rs. 10,62,296 in the assessment year 1985-86, Rs. 11.51,089 in the assessment year 1986-87 and Rs. 29,85,044 in the assessment year 1987-88. Thus, the assessee went in appeal before the CIT (Appeals), Dehradun. The CIT (Appeals) in his reasoned order considered all the aspects of the issues in the light of the arguments advanced on behalf of the assessee and so also the arguments on behalf of the Department by the two Assistant Commissioners viz., Shri D.L. Khanna and Shri G.K. Maheshwari. He held that the assessee is a “person resident outside India” within the meaning of Section 2(q) of the Foreign Exchange Regulations Act, 1973, and the interest income earned on NRE account was totally exempt from tax under Section 10(4A) of the Act. He found no merit in the insistence of the Assistant Commissioners that Section 10(4B) was applicable to the case of the assessee. He accepted the stand of the department that the assessee was not entitled to benefit under Section 11 of the Act. None-the-less, he reached the finding that the foreign remittances were not the income of the assessee within ambit of Section 5(2) of the Act. He, therefore, deleted all the additions.
4. We have heard the learned Representatives of the parties. Learned Departmental Representative has placed reliance upon all those arguments, which were canvassed before the CIT (Appeals) by the Assistant Commissioner. Ld. Counsel for the assessee, on the other hand, placed reliance upon the findings of the CIT (Appeals). In addition, it is contended by him that the CIT (Appeals) should have held that the assessee was entitled to benefit of Section 11 of the Act. According to him, in case any accretion to the NRE account in these years or interest accrued thereon is treated as income of the assessee, it should be held as exempt under Section 11, when in view of the provisions of the Foreign Exchange Regulations Act, coupled with condition imposed by the Reserve Bank, no part of the loan taken against the NRE. account could be utilized for the purposes otherwise than charitable. It is contended by him that formal deed of trust was though executed on 31-3-1989, but all that received in was spent for charitable purpose and nothing else. The institutions run by the assessee, the Id. counsel, contended were already recognized by the concerned authorities inasmuch as that in respect of two institutions, application under Section ,12A of the Act was lodged by the CIT, Meerut. He took us through the various legal propositions concerning Trusts and contended that law does not require any written document for a creation of a Trust. According to him, the assessee was under legal obligation to spend the entire amount for charitable purposes and by his conduct, he proved that, he had successfully discharged the said (sic).
5. No doubt, applications under Section 12A of the Act for Omkaranand Educational Society and for Omkaranand Saraswati Nilayam were lodged before the CIT, Meerut, but that is not the end of the matter, since the entire interest income accrued on the NRE account in these assessment years was not spent on these two institutions. The entire amount treated as income of the assessee by the A.O. for all these three assessment years cannot, therefore, get benefit under Section 11. We, therefore, do not stick over to this line of reasoning of the Id. counsel for the assessee.
6. So far as the interest income accrued on NRE account is concerned, it is certainly exempt under Section 10(4A) of the Act. Attempt of the Department to stretch Section 10(4B) and to bring the assessee within the ambit thereof is patently a mis-adventure. Section 10(4B) is applicable to any income from interest on saving certificates. There was no income to the assessee on saving certificate. It is, therefore, futile to make any exercise on Section 10(4B).
7. Clause (q) of Section 2 of the Foreign Exchange Regulations Act, 1973, defines “person resident outside India” means a person who is not resident in India. Clause (p) of Section 2 of the said Act defines “person resident in India”. The expression means a citizen of India, who has, at any time after 25-3-1947, been staying in India. It specifically excludes a citizen of India, who had gone out of or stays outside India, (a) for or on taking up employment outside India, or (b) for carrying outside India a business or vocation outside India or (c) for any other purpose in such circumstances as would indicate his intention to stay outside India for an uncertain period. The assessee has gone out of India and is staying outside out of India since October 1966 for any purpose whatsoever described in (a), (b) and (c) above. He, therefore, cannot be treated as “person resident in India”. An argument has been raised as to what would happen if the assessee returns to India. Reply thereto finds place in sub-clause (ii) of clause (p) of Section 2 of the Act, namely, that in that event he would become “person resident in India”. However, it is certain that the assessee did not return to India till the period covered by the assessment year 1987-88 and, therefore, it is futile to enter into a hypothetical case. Till the assessment year 1987-88, he was certainly a person resident outside India. In view of Section 10(4A) of the Act, any income from interest on moneys standing to the credit of the assessee in NRE account in State Bank of India in accordance with the Foreign Exchange Regulations Act, 1973, is exempt from tax. We, therefore, endorse the finding of the C1T (Appeals).
8. So far as the accretions to the NRE account are concerned, they cannot be treated as income of the assessee. The assessee is a Non-resident beyond dispute. Sub-section (2) of charging Section 5 of the Act is attracted to his case. It must be borne in mind that all receipts of money from foreign cannot be treated as income of Non-resident; the condition precedent for treating it as income of a Non-resident is that the receipt should be as income. It may be assumed that all the foreign remittances credited to NRE account of the assessee were income of the assessee in foreign, but all having been deposited in NRE account cannot be treated as income. No part of such remittance can be treated as income in the peculiar scheme of the NRE account framed by the Government. The deposits in the NRE account were under the control of the Reserve Bank. They could be utilized only for some specific purposes and that too with the permission of the Reserve Bank. As we have seen in the case of the assessee, he was permitted to take loan or to over-draw money for specific purpose of charity and that too was subject to the condition that all that loan was to be made good out of foreign remittances. There was still a condition that no part of the said loan would be utilised for earning income. We therefore, uphold the order of the CIT (Appeals).
W.T.A. Nos. 1071 & 1072/Del/90, 1048 and 1049/Del/90 :
9. Aggrieved by the consolidated order dated 31-5-1990 of the CWT(Appeals), the Department as well as the assessee are in appeal. The balance to the credit of the assessee in his NRE account was included in the wealth of the assessee by the A.O. for the assessment years 1985-86 & 1986-87. On appeal, the CWT held that it was exempt under clause (ii) of Section 6 of the Wealth-tax Act, 1957 (for brevity the Act). Net income of interest during the assessment years 1985-86 and 1986-87 out of the NRE deposits was also treated as wealth of the assessee by the A.O. On appeal, the CWT(Appeals) held that no amount of the net receipt of interest remained with the assessee on the valuation dates and, therefore, the additions were un-called for. The properties and assets held by the assessee in India were claimed by him as exempt from the Wealth-tax Act by virtue of Section 5(1)(i) of the Act. This claim of the assessee was disallowed concurrently by the A.O. and the CWT(Appeals). The assessee is in appeal on this point. The Department is in appeal on the points that the CWT (Appeals) erred in holding that the balances in the NRE accounts were not includible in the wealth of the assessee and so also the net interest income earned by the assessee in these two assessment years was also not includible in the wealth of the assessee.
10. The answer to the Departmental appeals is very simple and we propose to dispose them of first. The CWT has elaborately dealt with both the objections of the Department. On plain reading of Section 6(ii) of the Act, there is no manner of doubt that the NRE account deposit and interest accrued thereon cannot be included in the total wealth of the assessee. As already held above, the interest income accrued on the NRE deposits is exempt from income under Section 10(4A) of the Act and that is included in the exemption allowed by Section 6(ii) of the Act. Further it is also plain from the said provision that the entire debts owed to the assessee by the Bank in the NRE account is exempt from wealth-tax. The findings of the CWT(Appeals) are, therefore, sustained. The Departmental appeals are without merit.
11. Now we proceed to dispose of the appeal of the assessee. According to Section 5(1)(i) of the Act any property held by the assessee under trust or other legal obligation for any public purposes of a charitable or religious nature in India is exempt from wealth-tax. The proviso thereto is not attracted, since it is not disputed, the assessee did not possess any such property or asset, which form part of any business.
12. No doubt, no formal deed of trust was executed by the assessee. But, none-the-less, as discussed hereinafter the properties were held by him under Trust and alternatively undoubtedly under legal obligation, for charitable purpose. The properties consisted of the following:-
(i) Main Hostel building also known as Durga Mandir.
(ii) Other buildings being used for school purposes and temple.
(iii) Plots of Land : These are open plots of land over which main Hostel building and other buildings have been constructed. The land is hilly.
(iv) Jamuna Hotel Complex ; It was then partly constructed and the construction portion was leased on rent.
13. As stated above Omkaranand Educational Society (Shri Durga Mandir) was registered as a Society under the Societies Act in the State of U.P. since 1984. An application under Section 12A of the Act was also filed with CIT Meerut vide his letter dated 16-4-1985. The Main Hostel Building and the other Buildings belonged to the said Educational Societies and a Higher Secondary School was also being run. Jamuna Hotel Complex was though leased out on rent, but the rental income was being utilized for charitable purpose. The Department has no case contrary to this. This property, therefore, does not fall within the proviso to Section 5(1)(0. Earning rental income was certainly not the business of the assessee. In the case of CIT v. St. George Parana Church [1988] 170 ITR 62 36 Taxman 42 (Ker.). There was an expenditure on account of additions to the buildings with the Intention of letting them out. It has been held that the amount spent for augmentation of income of the Trust for Charitable purposes, was none-the-less an expenditure for charitable purposes, it is not the case of the Department that the investment in the Jamuna Hotel Complex was out of the loan taken from NRE account. It is also not the case of the Department that the Income earned from Jamuna Hotel Complex was applied by the assessee for any purpose other than charitable. Even in the dissenting judgment of Hon’ble Mr. Justice A.P. Sen in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs.’ Association [1980] 121 ITR l 2 Taxman 501 (SC), it was observed (at page 49) :-
In case of a Trust falling under any of the three heads of charity, viz., ‘relief of the poor’, ‘education’ and ‘medical relief, it. may engage in any activity for profit, and the profits would not be taxable if they were utilized for the primary object of the Trust.
14. In the instant case, as observed above, the rental income has not been proved to be utilized otherwise than the primary object of the Trust.
15. Main bone of contention of the Department is that till before execution of the formal deed of trust, the properties stood in the name of the assessee and, there was no formal formation of the Trust. In this connection, it is advantageous to refer the following observations in the case of CWT v. Sardar Surjit Singh [1982] 138 ITR 186 11 Taxman 159 (Cal.) :–
Section 5 of the Indian Trusts Act lays down that no trust in relation to immovable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee. This Act is applicable to the Hindus, but Section 1 of the Act expressly saves from its operation all religious and charitable endowments either public or private. The operation of Section 5 of the Act, therefore is specifically excluded for all religious and charitable endowments of public or private nature. It was, therefore, held by the Tribunal that it was not necessary to enter into the controversy whether it was a public or private trust. We are of the opinion that the Tribunal was right in this approach. The Tribunal found that it was a charitable endowment and, hence, Section 5 of the Indian Trusts Act did not apply to it. In our opinion the Tribunal was right on this aspect. No writing, therefore, was necessary to create such an endowment. The Tribunal referred to Mulla’s Hindu Law, para. 407, at p. 438, of the said edition, where the learned editor has stated that a Hindu who wished to establish a religious or charitable institution, might, according to law, express his purpose and endowment. A trust deed was not required for that purpose. In this connection, reference may be made to the Hindu Law of religious and Charitable Trusts, 2nd edn. at p. 90 by Dr. B. K. Mukherjee, which was as follows :-
No express words of gift either directly or indirectly in the shape of a trust are required to create a valid dedication; all that is necessary is that the religious purpose or object of the donor shall be clearly specified and that the property intended for endowment should be set apart and dedicated to those purposes.
In the case of S. Devarqj v. CWT [1973] 90 ITR 400 (Mad.), the facts of the case were that a building was constructed out of joint family properties, which had been set apart, for the use of pilgrims visiting the town, where the building was situated and was not used for any private purpose of the family. It was held that it was trust property, though no deed of trust was executed. These observations at 405 are pertinent:-
It is well established that no express words of gift either directly or indirectly in the shape of a trust are required to create a dedication. All that is necessary is that the religious purpose or object of the donor shall be clearly specified and that the property intended for the endowment should be set apart and dedicated to those purposes. There are a large number of decided cases where it has been held that to constitute a valid dedication of property by a Hindu for religious and charitable purposes, no document in writing or registered is necessary….
It is also well established that the existence of a trust can be established even by the conduct of parties. Though normally a Hindu while dedicating property to a deity or any other religious or charitable object ordinarily goes through the ceremonies of Sankalpa and samarpan, it cannot be said that those ceremonies are essential to the creation of an endowment. The performance of these ceremonies is only relevant to show the intention of the grantor, and if there is clear and unequivocal manifestation of intention to create a trust and there is formal divestiture of the ownership in the property on the part of the donor with the intention to devote it to religious and charitable purpose the dedication must be deemed to be complete. The dedication of property is not a sacrament but a secular act; but the mere renunciation of ownership by the donor with a particular object is sufficient to create an endowment.
16. Now coming to the facts of this case, it is crystal clear that the immovable properties viz., Main Hostel Building and the other buildings and the land surrounding them was dedicated by the assessee to charitable purpose. Jamuna Hotel Complex was equally dedicated to the said purpose, which is further reinforced by the deed of trust dated 31-3-1989. The said property was purchased from Jamuna Hotel Enterprises vide Sale Deed dated 8-1-1985. The Deed of Trust mentioned that the partly constructed building was purchased and later named as Omkaranand Bhawan and the un-finished construction was undertaken. By raising funds and declaring the same for charitable purposes and applying the rental income arising out therefrom for charitable purposes. The Trust Deed further declared that the said property had always been vested with the character of the property held under the Trust.
17. There is another aspect of the matter viz., that the assessee was under legal obligation to hold the main Hostel Building and the other buildings and the land appurtenant thereto for public purpose of charitable nature, in view of the conditions laid down by the Reserve Bank for raising loan from his NRE account. It may be observed here that it is not the case of the Department that the assessee had committed a breach of that condition and even otherwise the condition being under Section 29 of the Foreign Exchange Regulations Act, 1973, the breach thereof is culpable and is punishable under Section 56 of the said Act. Thus, the condition placed by the Reserve Bank was not a hollow formality, but the assessee was obliged to obey it in the strict sense of the terms, falling which he was liable to be convicted and sentenced to imprisonment and fine. Such being the legal obligation for holding the property for charitable purpose, the assessee is entitled to exemption under Section 5(1)(i) of the Wealth-tax Act.
18. In view of the foregoing discussions, the wealth of Rs. 44 lakhs in the assessment year 1985-86 and of Rs. 61.67 lakhs in the assessment year 1986-87 is deleted from being taxed.
19. In the result, all the appeals of the assessee are allowed and those of the Department are dismissed.