ORDER
G. Santhanam, Accountant Member
1. The revenue is in appeal while the assessee has filed the Cross Objection.
2. The trust was initially founded by the members of a Nair family claiming royal lineage. The Deity installed is known as ‘Durga Bhagavathy’ and the temple is about 600 years’ old. Though it was originally a private religious trust, the Deity is worshipped by Hindus, Muslims and Christians and thus open to all castes or religions. The temple is considered to be a most important temple by the fishermen living in Quilon coastal area. Thus, the temple is dedicated for public worship. The administration and management of the temple and its properties are now governed by a Scheme pursuant to the orders of the Kerala High Court sometime in 1957 and as revised by the Kerala High Court by its judgment dated 1-7-1968 in SA Nos.767 and 827 of 1964. The Scheme 1979 permitted for running charitable institutions in the name of the Deity. It provided for the management and maintenance of the templeand the institutions attached to it. It also provided for day-to day maintenance of accounts and also filing of an audited report and set out the powers, duties and responsibilities of the manager or deputy manager appointed under the Scheme. Thus, the temple and the institutions attached to it have over the years acquired the characteristics of public religious and charitable purpose.
3. The registration under Section 12A(a) of the trust was granted by the learned Commissioner of Income-tax. The trust has been filing the audlted receipts and payments account and the auditors’ certificate year after year along with the returns of income and the statements were accepted till the asst. year 1980-81. For some years up to 1980-81, ex pane assessments were made under Section 144 treating the trust as a taxable entity but then under Section 146, assessments were re-opened and closed as “N.A”. For the first time in the previous year ending 31-12-1980 relevant to the assessment year 1981-82, the ITO declined to grant exemption to the trust for the reason that the provisions of Section 12A(b) were not satisfied. The ITO proceeded to take the gross income of the assessee, disallowed certain expenses and the amount advanced to the hospital and arrived at a taxable gross income of Rs. 3,24,530 from which he gave a deduction of Rs. 3,000 towards bank interest under Section 80L and finally brought to tax a sum of Rs. 3,21,530. He also initiated penalty proceedings under Sections 271(1)(a) and 273(1)(b) of the IT Act. The assessee was aggrieved.
4. The first appellate authority went into the history of the temple and also dealt with the Scheme as set out by the Court. He also analysed the requirements of Form No. 10B wherein it was stipulated that the accounts of the trust should be audited by a Chartered Accountant and a certificate issued that the balance-sheet is in agreement with the books of accounts and the Chartered Accountant should in the annexure to Form 10B set out the income of the previous year and its application for charitable purposes and the amount set apart and various indicators whether the application or use of income had been for the benefit of persons mentioned in Section 13 and whether the investment of the funds were on specified assets. As against this background, the learned CIT(A) came to the conclusion that the accounts were audited by a duly qualified Chartered Accountant and the statements set out in receipts and payment accounts were duly certified by him and the only deficiency as far as he could see is the absence of a balance sheet and the annexure to Form 10B. However, he came to the conclusion that the information required to be given in Annexure 10B can be gleaned by theassessee’s books themselves and that the absence of a balance-sheet cannot be held against the assessee. In fact, the assessee does not prepare a balance-sheet as it has no idea of the extent or size of its temple assets and no itemisation of the different assets has been made by it and that a petition has been made in the Court seeking permission to have this done. In this view of the matter, he held that a major portion of the requirements of Section 12A(b) was satisfied by the assessee and to view it with this disfavour and not grant the benefit extended to it under Section 11 will, in his view, be a negation of the benefits to which the assessee is entitled. Then he distinguished the charging Section from the machinery Section as scholarly brought out by Justice Shri S. Ranganathan of the Apex Court at page 57 of the book “Iyengar on Income Tax”, 7th Edition and held that Section l2A(b) is only a machinery section and not a charging section and the purpose of that section is to ascertain the amount of taxable income from the report furnished. The trust has also filed a report which is for the same purpose but in a different form. Simply because the report is in a form not commonly used or not prescribed, one cannot deny the assessee the benefit of the provision. Further, he went into the accounts of the trust and found that the amounts had in fact been utilised for the purpose of trust and that there was no warrant for taxing the income of the trust. The revenue is aggrieved.
5. The grounds of appeal taken by the Revenue are a$ follows:-
2. The learned CIT(A) erred in holding that the assessee is entitled to the exemption of its income under Section 11 and the exemption cannot be denied merely on the ground that an audit report under Section l2A(b) had not been filed. The learned CIT(A) failed to appreciate the fact that the assessee had never filed a Balance Sheet and that it had always been avoiding to produce the accounts under one pretext or another and that only a copy of the receipt and payment account was filed along with the return.
3. The learned CIT(A) ought to have noted that the members of the family and their relatives were the persons who gained benefit from the trust, which is fatal to the exemption under Section 11. The CIT(A) has erred in entertaining evidence not produced before the ITO disregarding Rule 46A. The CIT(A) ought to have lifted the veil of the corporate entity of an alleged trust and paid regard to the economic realities behind the legal facade vide Juggilal Kamlapat v. CIT [1969] 73 ITR 702 (SC).
4. The learned CIT(A) failed to note that the alterations in the trust or in the rules governing the institutions were not intimated to the CIT after filing an application in Form No. 10A sometime during 1973-74, that theassessee had not furnished the information regarding the running of a hospital and that the assessee had not also furnished the Audit report in Form No. 10B though mandatory at any time and that the assessee was therefore not entitled to claim exemption.
6. Shri A.D. Menon, the learned Departmental Representative, submitted that the trust has not filed the audited statement of profit and loss account and the balance-sheet as prescribed under Section 12A(b) of the IT Act read with Rule 17A of the IT Rules. Moreover, there is nothing on record to suggest that the trust has obtained registration under Section 12A(a)when it expanded its activities by setting up an hospital. The conditions prescribed under Section 12A are conditions precedent for giving effect to the provisions of Sections 11 and 12. In the case of the assessee as Clause (v) of 12A was not fulfilled, Sections 11 and 12 would not apply and hence the ITO rightly taxed the income in the hands of the trust. The CIT(A) erred in holding that there was a substantial compliance with the provisions of the Act. Moreover, the CIT(A) has gone into the Scheme of the Court under which the trust is governed in violation of Rule 46A of the IT Rules. The assessee had not sought fresh registration from the CIT for running of the hospital nor did it furnish the audited report in Form No. 10B prescribed under Rule 17 A of the IT Rules. Therefore, he pleaded that the order of the CIT(A) should be set aside and the assessment order should be upheld.
7. Shri V. Aiyappan, the learned Chartered Accountant, submitted that the trust had already applied for registration under Section 12A of the IT Act. Ammachiveedu Moohurti Temple has been recognised as a public place of worship of renown throughout the State of Kerala for purposes of Section 80G(2)(b) of the IT Act in the very previous year relevant for assessment year 1981-82. Therefore, the temple as an institution is not a private property of any individual but is dedicated for the public. If the trust carried on any business or trade, certainly it has to prepare profit and loss account and balance-sheet but in the case of a temple there is no need to prepare a profit and loss account and in the absence of a profit and loss account, a balance-sheet cannot be prepared. Therefore, the Rule 17A prescribed under Section 12A(b) should be read down as referring to institutions having business or profit earning activity though held for charitable purposes. It cannot automatically apply to the case of a temple whose accounts are maintained on cash basis and where a statement of all receipts and all payments are prepared and subjected to audit and filed with the District Court. It cannot be said that the temple’s accounts are not audited by a qualified Chartered Accountant within the meaning of Section 288 of the IT Act. Nor can it be said that there was no audited statement of its receipts and expenditure. What was not there was the profit and loss account and the balance-sheet. Such statements are relevant for trading or business organisations only. Even assuming for the sake of argument that a profit and loss account should be prepared, it would be unrealistic to expect a balance-sheet in the case of a temple founded some 600 years before. Firstly, records are not available about the cost of construction or of the several additions made to the properties of the temple in the by-gone days. Rule 17A as it prescribed the preparation of profit and loss account and balance-sheet should not be insisted upon in exceptional cases like this. Of course, the management is taking efforts to have some sort of balance-sheet and profit and loss account to be prepared but that would require the approval of the Court under whose supervision the affairs of the temple are managed. Apart from the venial violation of the non-submission of a profit and loss account and balance-sheet, all other requirements have been satisfied in the case of the assessee.
8. To the objection of the learned Departmental Representative that the starting of the hospital was not brought to the notice of the CIT, Shri Aiyappan submitted that the trust is being managed under a Scheme of the Court.Every time there isachange, the information is provided in the course of the assessment and it did not occur to the trustees that they should inform the Commissioner of Income-tax. In fact, Section 12A only speaks of an application for registration of the trust to be filed before the Commissioner of Income-tax for the first time and it does not require frequent filing of the application every time there is a change in some of the objects of the trust falling in the realm of charity itself. Therefore, even if the assessee had not informed the Commissioner about the running of a hospital, it cannot be held that the registration can be forfeited. So long as the objects are only charitable it is immaterial whether the assessee pursues one charitable object or all charitable objects or discontinues some of the charitable objects in preference to other charitable purposes. Therefore, there is no substance in the contention of the revenue.
9. As for the objection of the learned Departmental Representative that certain materials were admitted behind the back of the ITO in violation of Rule 46A of the IT Rules, Shri Aiyappan submitted that all the informations were before the ITO and what the assessee did was to file the audited statement of the accounts of the hospital. In fact, the payments made by the Ammachiveedu Moohurti Temple to the hospital are reflected in the accounts of the temple itself which were before the ITO and what was shown before the CIT(A) was only how the money received by the hospital from the temple was reflected in its account and how it was laid out or expended. In fact, even without the production of the hospital accounts, a decision could be taken on the basis of the temple accounts themselves and, therefore, even if there had been any violation under Section 46A, it did not have a bearing on the decision of the CIT(A). Finally, Shri Aiyappan submitted that having regard to the nature of the trust, the manner in which it is administered, the fact that it had obtained the initial registration under Section 12A as also the fact that it had been recognised by the Central Government as temple for public worship throughtout the State and the scrutiny by the District Court of the accounts duly audited and certified by the Chartered Accountant, no interference is called for with the order of the CIT(A) even if there had been any venial violation of the provisions of Section 12A(b) of the IT Act.
10. We have heard rival submissions and perused the records. Though the temple was established by a Nair family of royal lineage, as a private religious institution some 600 years back, the temple stands dedicated for public worship and the Deity is being worshipped by Hindus, Muslims and Christians. The affairs of the trust came up for scrutiny before the Hon’ble Kerala High Court and a Scheme for its administration was framed pursuant to the decision of the Hon’bler High Court in 1957 and the Scheme was further revised with certain cosmetic changes in 1968. Among other things the Scheme provided for (a) proper administration of the temple and its properties and for the conduct of poojas, festivals and other rituals, (b) the manner in which the accounts are to be maintained on day-to-day basis and provision is made for the audit of such accounts and the submission of auditor’s report to the District Court along with the accounts. The Scheme prohibits incurring of any expenditure in favour of the members of ihe founder’s family or their descendants etc. District Court had granted its approval in 1979 to run a hospital from out of the surplus funds of the temple. Thus the temple and its activities would certainly fall under public religious and charitable activities and no more can it be viewed as a private religious trust.
11. Section 12A(a) was introduced for the first time by the Finance Act, 1972, with effect from 1-4-1973 as follows:-
12A. The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:-
(a) the person in respect of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the (Chief Commissioner or Commissioner) before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later:-
Provided that the (Chief Commissioner or Commissioner) may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid.
It is not in dispute that the Trust was granted registration under Section 12 A of the IT Act. The dispute before us is that the permission of the Court granted in 1979 for running a hospital and a dispensary was not brought to the notice of the learned Commissioner of Income-tax and registration was not obtained for that purpose. There is nothing in Section 12A(a) which provides for renewal of registration every time when there is an addition to the charitable or religious activity. Form 10A enjoins the applicant to give an undertaking to communicate forthwith any alteration in the terms of the Trust or in the rules governing the institution, made anytime after the submission of application for registration. There is nothing in the Act or the Rules for cancellation of registration in case of non-compliance. Therefore, we reject the objection of the Revenue.
12. It is not in dispute that the activities of the trust were avowedly of a public religious nature and with the addition of the object to the Scheme as approved by the District Court for running a hospital and a dispensary, the trust has become a public religious and charitable trust. The only point then in dispute before us is that the assessee had not complied with the provisions of Section l2A(b) read with Rule 17B. Section l2A(b) is as follows:-
12A. The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:-
(a)…
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds twenty-five thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
It must be stated at first that the accounts of the trust are being audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288. To this extent, there is compliance. The assessee had also furnished an audited report in the manner in which it was given by a duly qualified Chartered Accountant and such report was furnished along with the return. To this extent, there is compliance. But the assessee did not furnish the report of such audit in the prescribed form. To this extent only there is technical non-compliance. The prescribed form referred to in Section 12A(b) is Form No. 10B read with Rule 17B of the IT Rules and the same is as follows:-
Form No. 10B
(see Rule 17B)
Audit Report under Section 12A(b) of the Income-tax Act, 1961, in the case of charitable or religious trusts or institutions
I/We have examined the balance sheet of…as at (Name of the trust or institution) …and the profit and loss account for the year ended on that date which are in agreement with the books of account maintained by the said trust or institution.
I/We have obtained all the information and explanations which to the best of my/our knowledge and belief were necessary for the purpose of the audit. In my/our opinion, proper books of account have been kept by the head office and the branches of the abovenamed trust/institution visited by me/us so far as appears from my/our examination of the books and proper returns adequate for the purposes of audit have been received from branches not visited by me/us, subject to the comments given below:
In my/our opinion and to the best of my/our information and according to information given to me/us, the said accounts give a true and fair view-
(i) in the case of the balance sheet, of the state of affairs of the abovenamed trust/ institution as at…, and
(ii) in the case of the profit and loss account, of the profit or loss of its accounting year ending on….
The prescribed particulars are annexed hereto.
Place…
Date…
….
Signed
Accountant
It is the contention of the learned Chartered Accountant that as the temple is 600 years old it was not possible for it to prepare the balance-sheet since the cost of construction of the temple and the additions made thereto over the centuries are not available with it. There is substance in this contention. It is not in dispute that the temple is lost in antiquity and its history is traceable to more than 6 centuries. What was the original cost of construction of the temple and what was the cost of additions and alterations made to it from time immemorial is anybody’s guess and the very basis of a balance-sheet is to start with the historical cost of an asset in existence. In the facts and circumstances of the Case this vital information not being available with the assessee, the assesses could not be faulted for not furnishing a balance-sheet. It is pertinent to remember that this temple had its origin anterior to the levy of income-tax in India and Section 12A(b) prescribing a balance-sheet came into existence for the first time with effect from 1-4-1973 only. Viewed in this context, it would not be practical to expect the trustees to prepare a balance-sheet without knowing accurately the cost of construction of the temple. Such a balance-sheet if prepared on estimate basis may not reflect the “true and fair view” of the assets or the liabilities of the institution and the very purpose of balance-sheet would stand defeated. A statutory provision has to be understood in the manner in which it is workable and if there are inherent difficulties standing in the way of the preparation of the balance-sheet, it cannot be held that the assessee had not wilfully complied with the provisions of Section 12A(b) read with Rule 17B of the IT Rules. Impossibility or near impossibility of performance is a factor to be reckoned with in interpreting any statutory obligation.
13. The next item in Form No. 10B is the profit and loss account. Profit and loss account is normally prepared only in the case of trading or business establishments. Usually it is based on accrual principles. The concept of profit and loss account is alien to non-trading institutions like temples, unless they themselves are engaged in trading activity or activity of profit. There is no allegation that Ammachiveedu Moohurti Temple is engaged in trading activities. Therefore, the requirement of a profit and loss account as prescribed in Form No. 10B is not applicable to the facts and circumstances of the case. However, in the place of profit and loss account, one can visualise an income and expenditure account for non-trading organisations. In fact, the twin requirements of profit and loss account or income and expenditure account and balance-sheet are rested on the accrual basis but not on cash system of accounting. Unless the accounts are converted from cash basis to accrual basis, neither an Income and Expenditure statement nor a Balance-sheet can be projected so as to reflect the “true and fair view” of the “surplus” or “deficit” in the case of the former or a “true and fair view” of the state of affairs in the case of the latter. Form 10B which speaks of the profit & loss account and balance-sheet and the “true and fair view” thereof thus imposes a new obligation on the assessee in disregard of the provisions of Section 145 which enjoins the computation of income from business or other sources in accordance with the method of accounting regularly employed by the assessee. To this extent, the requirement in Form 10B overrides the provisions of Section 145. The assessee by the orders of the Court has been maintaining only receipts and payments account which would mean the cash system of accounting and the non-filing ofprofit and loss account and balance-sheet as prescribed in Form 10B cannot, therefore, disentitle the assessee to the benefits due to it.
14. The other main requirement in Form No. 10B is the annexure that is to be attached to it. This annexure is also to be certified by the Chartered Accountant. It contains particulars whereby the income is to be computed under Sections 11 and 12 read with Section 13 of the IT Act. As a matter of fact, this is the manner in which the ITO has to look at the accounts of the trust before he decides whether any part or whole of the income of the trust can be brought to tax. It is the contention of the learned Chartered Accountant that inasmuch as the annexure is a part and parcel of Form No. 10B which requires certification of the Profit and Loss account and the balance-sheet, the assessee did not file the particulars contained in the annexure as there was no balance-sheet and profit-loss account to be certified by the chartered accountant. The chartered accountant who certified the annexure de hors the balance-sheet and the profit and loss account can be held liable for professional misconduct. The CIT(A) on going through the receipts and payments account that was furnished before the ITO found, as a matter of fact, that all the information that are to be furnished in the annexure to Form No. 10B can be gathered or gleaned from the accounts themselves – the receipts and payments account duly certified – which were furnished before the ITO and, therefore, there was substantial compliance on the part of the assessee.
15. We have carefully considered the rival submissions on this aspect of the matter. The annexure does not contain any new thing which is not to be considered by the ITO in computing the income of a charitable institution under Sections 1 Ho 13 of the IT Act. While the annexure is in a way designed to ensure the spoon-feeding of the information to the ITO, the ITO himself could gather the relevant information on a scrutiny of the receipts and payments account in the context of the scheme formulated by the Court. In fact, the CIT(A) has meticulously gone into each and every item found in the receipts and payments account and had drawn a conclusion that the information required to be stated in the annexure to Form No. 10B can in fact be culled out from the accounts themselves and thus there has been substantial compliance with the provisions of the Act. No material has been placed before us by the revenue warranting to take a different view.
16. Shri Menon for the Department vehemently contended that the trust was running a hospital and a dispensary and at least mere could be a profit and loss account and balance-sheet for such an institution, those accounts were not produced before the ITO’ but were only produced before the CIT(A) and the CIT(A) accepted the materials without giving an opportunity to the ITO under Rule 46A of the IT Rules.
17. Shri Aiyappan, the learned Chartered Accountant, submitted that the accounts for the hospital and dispensary are kept separately again on cash basis and they are never mixed up with the temple account. Such accounts are also forwarded to the District Court after being duly audited by the Chartered Accountant. In terms of the revised scheme formulated by the District Court, the funds of the hospital cannot be appropriated by any person associated with the trust or, in other words, nothing can enure to the benefit of the founders or the relatives of the trustees. The accounts of the hospital were shown to the CIT(A) only for the purpose of showing that the funds which flowed from the temple to the hospital have been reflected in the accounts of the hospital. To this limited extent only the accounts of the hospital were pressed into service before the CIT(A).
18. Having heard the rival submissions and the materials on record, we are of the view that the surplus or deficit from running the hospital and dispensary cannot be brought to tax as the hospital and dispensary are for public purpose and not for private profit. The income from the hospital cannot be included in the total income of the assessee under the provisions of Section 10(22A) of the IT Act. Thus, its income is outside the dragnet of taxation. It is only the income of the trust that is subjected to the provisions of Sections 11 to 13 of the IT Act but not the income of an institution falling under Section 10(22A) of the IT Act. Only in the case of the former the provisions of Section 12A(6) would be applicable and not in the case of the latter. Even otherwise, in the petition dt. 18-12-1979, information was given to the CIT. Hence we see no merit in the contention of the learned Departmental Representative. Accordingly, it is rejected.
19. In the result, we hold :
(a) The Trust had applied for registration under Section 12A,
(b) It is also recognised for purposes of Section 80G(2)(6) of the IT Act by no less an authority than the Government of India,
(c) The accounts are audited by a duly qualified Chartered Accountant and are regularly submitted to the District Court under whose scheme the affairs of the temple are being managed,
(d) The said audited statement of receipts and payments together with the certificate issued by the Chartered Accountant were furnished to the ITO for the assessment year 1981-82,
(e) On identical facts the Department has accepted the returns and completed the assessments up to and including the assessment year 1980-81 and it is only for the first time the Department is objecting that the provisions of Section 12A(b) are not complied with. Though the doctrine of res judicata is not applicable to income-tax proceedings, still the Department has taken a consistent view that the trust was entitled to registration notwithstanding the fact that there was no balance-sheet or profit & loss account.
(f) The purpose of prescribing the profit and loss account and balance-sheet and the Annexure in Form 10B is to see whether the income of the institution had been applied for charitable purposes and whether the investments are in approved securities and whether any of the members of the trust or the founders of the trust or their relatives or any person having any substantial interest in the trust are deriving any benefit out of the trust funds or profits. The audited receipts and expenditure statement provide enough information regarding the utilisation of the funds of the trust whether on revenue account or on capital account. The very Scheme under which the trust is managed prohibits any benefit to the founders of the trust or to any person associated with it and, therefore, whatever information is required te be filed up in Annexure 10B prescribed under Rule 17A of the IT Rules are available from the trust Scheme itself as well as from the accounts that were furnished before the ITO. Unfortunately, the ITO did not apply his mind to these aspects of the matter but was hyper-technical in his outlook. On appeal, the CIT(A) analysed the facts of the case at great length and also went into the Receipts and Expenditure statement and had recorded a finding that the trust had applied its funds for charitable or religious purposes and the information that are required to be furnished in Form No. 10B can be gleaned from the statements filed by the assessee and there is no material before us to take a different view.
(g) Lastly, in a petition dt. 18-12-1979 addressed to the Central Board of Direct Taxes, a copy which was marked to the learned Commissioner of Income-tax, Kerala, the trustees have specifically stated that “the District Court, Quilon, has permitted to start a hospital in the name of the Deity utilising the surplus funds of the temple and on 13-5-1979ahospital was started for the benefit of the poor. Thus charitable activities are also started under the management of the temple”. In response to the petition of the assessee, the Board, by its Notification dated 19-6-1980 had notified the temple to be a place of public worship of renown throughout the State of Kerala for purposes of Sub-section 2(h) of Section 80G. This will answer the contention of the learned Departmental Representative that the information about starting of the hospital had not been given to the CIT (pages 5 to 7 of the paper book).
20. In the result, the appeal of the Revenue is dismissed. The Cross Objection is only in support of the order of the first apppellate authority and the same is allowed for statistical purposes.