CWP No.10141 of 2004(O&M) 1
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
CWP No.10141 of 2004(O&M)
Date of Decision 13.11.2009
S.Tirath Singh Lalvani Educational Foundation, Guru Kirpa Complex, 1,
Jalandhar Road, Kapurthala, through Mr.Sanjiv Bawam Trustee.
...... Petitioner
VERSUS
Commissioner of Income Tax, Jalandhar-II
...... Respondent
CORAM:- HON'BLE MR. JUSTICE M.M.KUMAR
HON'BLE MR. JUSTICE JASWANT SINGH
Present: Mr.A.M.Punchi, Advocate,
for the petitioner.
Mr.Vivek Sethi, Advocate,
for the respondent.
*****
M.M.KUMAR, J.
The instant petition filed under Article 226 of the Constitution
by S. Tirath Singh Lalvani Educational Foundation, Kapurthala (for brevity
“petitioner-Trust”) challenges order dated 30.09.2003 (Annexure P-11),
passed by the Commissioner of Income Tax, Jalandhar-II, declining the
request of the petitioner-Trust for exemption under Section 80-G of the
Income Tax Act, 1961. A further prayer for issuance of direction to the
respondent to allow registration and exemption to the petitioner-Trust under
Section 80-G(5)(vi) of the Income Tax Act has also been made.
Brief facts of the case, which have lead to the file of the instant
petition, are that the petitioner-Trust was duly registered under the Societies
Registration Act, 1860. The certificate of registration dated 28.01.2003 has
been added with the petition (Annexure P-1). The petitioner-Trust applied
CWP No.10141 of 2004(O&M) 2
for exemption under Section 80-G of the Income Tax Act and the
application was rejected vide impugned order dated 30.09.2003 (Annexure
P-11). One Mrs.Mohini Bawa was possessed of huge immovable property
at village Mansoorwal Donna, Jalandhar Road, Kapurthala. Out of her
desire of creating an Educational Trust solely for charitable purposes to
impart and provide facilities for education to the public at large, she
executed an irrevocable deed of Trust on 12.12.2001. She bequeathed all
her rights and interest in the property comprised in the land which is now
known as Guru Kirpa Complex, situated at village Mansoorwal Donna,
Jalandhar Road, Kapurthala. The total area of land is approximately 20
Kanals and 15 Marlas alongwith the structures erected thereupon. It also
includes movable properties including Computers and peripherals etc.
which are fully described in the schedule of property forming part of the
registered Trust Deed (Annexure P-2) executed for setting up the petitioner-
Trust.
The petitioner-Trust has claimed that in pursuance of creation
and acting in tandem with the objectives of the petitioner-Trust, a Day
School with the name of “Bawa Lalvani Public School”, an institute known
as Lalvani Institute of Technology at Kapurthala, were duly established.
The School is likely to be upgraded to Standard XII and in that regard the
petitioner-Trust has already submitted an application to the Central Board of
Secondary Education. The aims and objectives for the creation of the Trust
are discernible from para 4 of the Trust Deed. It is stipulated that the sole
object of the petitioner-Trust is to run educational institution, existing solely
for educational purposes and not for profit motive. In para 7 of the Trust
Deed, it has further been provided that the power of the trustee is to be
CWP No.10141 of 2004(O&M) 3
exercised for the furtherance of the objects of the Trust, which is education.
In para No.9, it has been clarified that the benefits of the petitioner-Trust
were not to be restricted to any particular segment of the population on the
grounds of caste, creed, class or religion.
There are clauses in the Trust Deed which specifically prohibits
the diversion of any part of income or property of the Trust directly or
indirectly by way of dividends, bonus or otherwise by way of profits to the
Trustees or any person claiming through them. In para 26 of the Deed,
everything has been put beyond doubt in the event of dissolution of the
Trust. The assets of the Trust are not to be distributed amongst the Trustees
but the same are required to be handed over to any other Trust, Society or
Institution, professing objects similar to those of the petitioner-Trust and
enjoying exemption under Section 80-G of the Income Tax Act.
The petitioner-Trust in terms of its charitable objects had
submitted application for grant of registration under Section 12-AA of the
1961 Act to the Commissioner of Income Tax, Jalandhar-II. The
Commissioner after considering and satisfying himself that the Trust has
been created and constituted for charitable purpose and that infact the
activities of the Trust were commensurate and in consonance with its
charitable objectives allowed the registration of the petitioner-Trust under
Section 12-AA (1)(b)(i) of the Income Tax Act. The order dated 28.08.2002
registering the petitioner-Trust has been placed on record as Annexure P-3.
Accordingly, the petitioner-Trust has been filing its income tax returns
claiming exemption under Section 10(23C)(iiiad) and Section 11 of the
Income Tax Act, which has never been issued any notice under Section 143
(2) of the Income Tax Act, which in turn implies that the assessment on the
CWP No.10141 of 2004(O&M) 4
basis of return filed has been accepted as complete.
On 18.03.2003, the petitioner made an application to the
respondents for grant of registration under Section 80-G (5)(vi) of the
Income Tax Act on the prescribed Form 10-G (Annexure P-4). The
respondent sought clarification on certain issue from the petitioner-Trust
vide letter dated 23.07.2003 (Annexurpe P-5). The petitioner-Trust sought
time to furnish the required documents. On 05.08.2003, the books of
accounts of the petitioner-Trust were produced before the respondent, which
were duly inspected. The petitioner-Trust pointed out that its expenditure
has been more than 75% of its collections on setting up the School and the
Institute of Technology which was in accordance with the objects set out in
the Trust Deed. Accordingly, the petitioner-Trust requested for grant of
registration vide its application dated 06.08.2003 (Annexure P-6). Some
more details were furnished vide letter dated 13.08.2003 (Annexure P-7) to
enable the respondent to completely satisfy itself with regard to its
activities. It has also been claimed that to answer the queries raised by the
respondent, a further communication was sent on 10.09.2003. It has also
been disclosed that source of funds provide to the petitioner-Trust was by
way of unimpeachable and doubtless bank entries, explaining the source of
funds. The petitioner-Trust pointed out that the finances have been
provided by the non-resident external account maintained by the Trustees in
the banks at New Delhi. The expenses incurred on the Trustees and outside
visitors alongwith the relevant bills were also furnished to the respondent.
The aforesaid documents reveal that most of the Trustees of the petitioner-
Trust reside in United Kingdom and also in Hong Kong, who have
supported the Trust by lending the funds to it. The document produced
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included certificates from the bankers of the petitioner-Trust and copies of
cheques which were issued to the petitioner -Trust from N.R.E. accounts
maintained by the Trustees in India. On that basis, it has been claimed that
there was no scope for having doubted the source of funds from the
certification of bankers (Annexure P10). The petitioner-Trust has claimed
that the respondent has wrongly doubted the genuineness of the funds
contributed to the creation of the Trust and on that basis has rejected its
application. The operative part of the impugned order dated 30.09.2003
(Annexure P-11) reads as under:-
“——- This object is capable of being treated as an
independent object and cannot be said to be for charitable
purpose. This clause has the effect of permitting the trustees to
carry on the activity for profit and give unfettered discretion to
the trustees to spend the funds of the trust on the purchase/sale
of immovable property, whether they are charitable or non-
charitable. The trustees have the discretion to utilize the funds
of the trust for any of the objects, including the non-charitable
ones. As these objects themselves are an activity for profit,
hence the assessee falls outside the scope of Section 2 (15) of
the Act and the benefit of the exemption cannot be allowed.
Further, as discussed above, the trust has violated the
provisions of Section 13 of the I.T. Act by making expenditure
on the stay of the trustees and the other guests in Radisson
Hotel, Jalandhar. These expenses are not for charitable
purposes.”
CWP No.10141 of 2004(O&M) 6
A perusal of the aforesaid order discloses the following three
grounds for rejection:-
Firstly, that the unsecured loans have been received by the
petitioner-Trust from the trustees, which are stated to have
come from the Bank of America, DCM Building, 16
Barakhamba Road, New Delhi and BNP Paribas, Hansalaya, 2nd
Floor, Barakhamba Road, New Delhi. The aforesaid funds
have come from outside India and appears to have been
contributed by NRI trustees living in U.K. and Hong Kong.
The Commissioner, in her orders has noticed that no evidence
was furnished to show that these amounts were contributed by
NRI trustees from abroad and the money really belonged to
them.
Secondly, Clause ‘c’ under the heading other incidental
objectives of the Trust Deed (Annexure P-2) is capable of being
treated as independent and cannot be said to be for charitable or
non-charitable.
Thirdly the petitioner-Trust has incurred expenses for the stay
of its trustee in a hotel at Jalandhar, which violate Section 13 of
the Income Tax Act.
In the written statement, filed on behalf of respondent, broad
factual averments made by the petitioner-Trust in the petition have been
accepted. However, it has been explained that the petitioner-Trust had
spent heavy amount of funds for meeting the luxurious needs of its trustee
in a luxurious 5 Star Hotel named as Radisson Hotel at Jalandhar which
attracts the provisions of Section 13 of the Income Tax Act. It is claimed
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that the maxim charity begins at home. That atmosphere of the trustee
should be exemplary for others whereas in the instant case the funds meant
for charitable purposes were diverted towards the luxurious stay of the
trustees. Therefore, no exemption under Section 80-G could be granted and
even consequential action under Section 12-AA of the Income Tax Act has
to be initiated. The respondent has also claimed that the sources of funds of
Rs.2.62 crores reflected in the books of account, which are allegedly
received from four trustees through N.R.E. bank accounts have not been
satisfactorily explained. The loan transaction was not free from doubt as the
petitioner-Trust failed to substantiate that the said loan was remitted by the
N.R.E. Trustees. No proof was furnished that the loan advanced actually
belonged to the Trustees of the petitioner-Trust. There are two necessary
components in such a transaction which are required to be proved namely
the identity of the creditors and the genuineness of the loan transaction and
both the components have remained unsubstantiated.
It appears that the document dated 24.10.2003 (Annexure P12)
issued by the bank of America alongwith further detail appended as
Annexure P1 and photo copy of the cheques as well as the document issued
by BNP Paribas tendered explained with regard to the source of funds, the
bank account from which the funds have come from alongwith further
details so these documents were not on record and were duly considered by
the Commissioner of Income Tax then she passed order dated 30.09.2003
(AnnexureP11). It is in the aforesaid facts and circumstances that the
validity of the impugned order dated 30.09.2003 (Annexure P11) is required
to be determined.
Mr.A.M.Punchi has argued that the first ground constituting the
CWP No.10141 of 2004(O&M) 8
basis of the impugned order may require a re-look in view of the details,
which have now been placed on record of this petition in the form of
information by the Bank of America dated 24.10.2003 (Annexure P12) as
well as by the BNP Paribas, Hansalaya, 2nd Floor, Barakhamba Road, New
Delhi (Annexure P12 collectively). According to learned counsel all the
entries and the source of money has been explained by the aforesaid
annexures with the details of cheque number, account number and the name
of the trustee, who is contributing the funds. On the aforesaid basis, learned
counsel has submitted that the matter required re-consideration at the hands
of the Commissioner, who has passed the impugned order.
In respect of the second ground that there is violation of
Section 13 of the Income Tax Act, learned counsel has submitted that the
object given in Clause (c) under the heading either incidental objectives
cannot be torn out of context and read in isolation. Learned counsel has
drawn our attention to Clause 4 (e) and (i) under the heading main objects
and clauses (c), (F) and (1) under the heading other incidental objectives, as
also Clause 8, Clause 25 and 26 of the Trust Deed. He has further
submitted that a conjoint reading of these clauses would show that clause
(c) which is aimed at sale, mortgage, transfer, exchange etc. or to deal with
any property or asset belonging to the Trust is only empowering the trustees
to perform numerous functions for the purposes of advancing the object of
the petitioner-Trust, which is education. He has pointed out that nor a
single penny can be utilized or credited either to the Trust or the trustee.
The assets of the Trust are not to be distributed amongst the trustees but are
to be handed over to mother Trust/Society professing similar objects and
also enjoying exemption under Section 80-G of the Income Tax Act. The
CWP No.10141 of 2004(O&M) 9
submission made by the learned counsel is that there cannot be any
possibility under the Trust Deed to appropriate the asset of the Trust for the
personal use of the trustees and, therefore, the reading of Clause (c) of the
Trust Deed by the Commissioner in isolation has lead to a conclusion which
in fact has has not been contemplated by the Trust Deed. An extreme
situation has been taken care of by Clause 26 of the Trust Deed which
provides that in case of winding up or dissolution of the petitioner-Trust—-
His last submission with regard to violation of Section13 of the Act is that
whenever some trustees who have contributed huge amount of loan visit the
country from abroad then the arrangement of their stay are made in a hotel
befitting to their status and it cannot be said that the expenses have been
made for the benefit of the trustee in the sense that they have been unduly
showered with luxuries or external expenses have been incurred on them for
their private visits. It is only to facilitate their visit to the country so as to
enable them to attend the meeting of the Trust.
Mr.Vivek Sethi, learned counsel for the respondent has made
an attempt to furnish legal justification of the impugned order. However, he
has not been able to propose the primary submission made by learned
counsel for the petitioner-Trust which is to the effect that the matter requires
re-look as the various documents produced by the petitioner-Trust
collectively attached as Annexure P12 after passing of the impugned order
have not been considered by the Commissioner.
Having heard learned counsel for the parties and perusing the
paper book with their able assistance, we are of the view that the prayer
made by the learned counsel for the petitioner deserves to be accepted
which would meet the end of justice if the matter is remitted back on the file
CWP No.10141 of 2004(O&M) 10
of the Commissioner of Income Tax, Jalandhar-II for decision afresh after
taking into account the documents attached as Annexure P12 (collectively).
Accordingly the impugned order dated 30.09.2003 is set aside.
The commission`er, Income Tax, Jalandhar-II is directed to reconsider the
whole issue in the light of the documents placed on record of this petition
alongwith any other document which may be produced by the petitioner-
Trust at the time of hearing. The parties may appear before the
Commissioner, Income Tax, Jalandhar-II within four weeks of the receipt of
copy of this order and the Commissioner may then proceed to determine the
question afresh in accordance with law by passing a speaking order. It shall
be appreciated if all the documents placed on record of this case are taken
into consideration alongwith any other document which may be placed on
record by the petitioner-Trust. Any observation made in this order shall not
be construed as an expression of opinion on the merits of the case and the
Commissioner shall proceed on merit without being influenced by any such
observation.
(M.M.KUMAR)
JUDGE
(JASWANT SINGH)
JUDGE
13.11.2009
mamta-II 7