IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 26/06/2006
CORAM
THE HON'BLE MR.JUSTICE P.D.DINAKARAN
and
THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA
T.C. No.1096 of 2006
to
T.C. No.1100 of 2006
Commissioner of Income Tax Appellant in
Salem. .. all appeals
-Vs-
M/s. Sengunthar Thirumana
Mandapam
4th Ward, Tharamangalam
Omalur Taluk Respondent in
Salem District 636 502. .. all appeals
Tax Case appeals filed against the order dated 27.9.2004 made in ITA
Nos.1198, 1199, 1200, 1201 and 1202/Mds/2003 on the file Incometax Appellate
Tribunal, D-Bench, Chennai.
!For Appellant : Mr.N.Murali Kumaran
Sr.S.C.
^For respondent : ....
:JUDGMENT
(Delivered by P.D.DINAKARAN,J.)
As against the order of the Tribunal dated 27.9.2004 made in ITA
Nos.1198, 1199, 1200, 1201 and 1202/Mds/2003, the revenue has preferred these
appeals, raising the following substantial question of law.
“Whether on the facts and in the circumstances of the case, the Income Tax
Appellate Tribunal was right in holding that the assessee society was entitled
to exemption u/s. 11 of the Income Tax Act merely on the ground that the
registration u/s.12AA has been granted with effect from 1.4.1990, without
noticing that no charitable activities have been conducted and the income from
the letting out of Kalyana Mandapam assessable under the head business has not
been applied for any charitable purposes like education or any other object of
general public utility?”
2.1. The assessee is a Society registered under the Tamil Nadu
Societies Registration Act. The relevant assessment years are 1994-9 5, 1
995-96, 1996-97, 1997-98 and 1998-1999 respectively. Admittedly, the Society
was allotted a land by the Collector of Salem District in his proceedings in
R.Dis.No.274700/83 dated 23.12.1984 on specific condition that the land should
be used for Kalyana Mandapam. As per the guidelines given by the Collector,
the assessee should build Kalyana Mandapam and it should function for the
benefit of local people, mainly weavers and agriculturists. Any infringement
of the above condition would enable the Collector to take over the land along
with the building. The grant also provides to charge a very nominal rent for
the building to meet out maintenance, repairs and renovation expenses.
Accordingly, the assessee was running a Kalyana Mandapam and collecting
minimum nominal charges from the users.
2.2. That apart, the assessee also started receiving voluntary
donations from the accounting year 1989-90. Since the assessee did not file
the return for the assessment year 1990-91 to 1999-2000, the assessing officer
had reasonably believed that the income of the assessee was liable to be
taxed. As the same was escaped for assessment on account of the failure on
the part of the assessee to file return of income under Section 139 of the
Act, a notice was issued to the assessee under Section 148 of the Act for the
assessment years 1990-9 1 to 1 997-98, since the assessee itself admitted the
income for the assessment year 1998-99 and 1999-2000, as income from the
business, which was also accepted under Section 143(1)(a) of the Act.
Therefore, the assessing officer issued notice under Section 148 of the Act.
However, the assessee filed nil returns for all the years on 30.3.200 1.
2.3. According to the assessee Society, it is a registered one
established for charitable purpose and its income was exempted under Section
11/12 of the Act. But, the revenue rejected the explanation of the assessee
on the sole ground that the assessee itself had admitted the income for the
assessment years 1998-99 and 1999-2000 as income from business without
claiming any exemption. The assessing officer further found that even though
the object of the association was to construct a Kalyana Mandapam for the
benefit of local people, upliftment of the poor, education and other social
and charitable activities, the assessee had not undertaken any charitable
activity since its inception except constructing and running a marriage hall,
which is purely a commercial activity and do not have any charity involved in
the activity and therefore, computed the income for the said assessment years
as follows:
Assessment Year
Income Assessed
1990-91
59,960
1991-92
1,81,990
1992-93
1,46,430
1993-94
66,810
1994-95
1,01,020
1995-96
56,090
1996-97
1,53,060
1997-98
4,00,250
1998-99
1,03,360
1999-2000
10,800
2.4. Against the order of the assessing officer, the assessee
preferred an appeal before the Commissioner of Income Tax (Appeals). The
Commissioner held that letting out of the marriage hall by the assessee would
not lose the benefit of exemption. That apart, the Commissioner, applying the
ratio laid down in ADDL. CIT v. SURAT ART SILK CLOTH MANUFACTURERS
ASSOCIATION (121 ITR 1) wherein it is held that it is sufficient to take into
consideration the dominant and primary object of the Trust to decide its
character whether it is for charitable purpose or not, allowed the appeals
preferred by the assessee and granted exemption under Sections 11 and 12AA of
the Act, which was confirmed by the Income Tax Appellate Tribunal, on appeal
at the instance of the revenue. Hence, the above appeals.
3. The learned Standing Counsel appearing for the revenue, placing
strong reliance on the decision of this Court in CIT v. HALAI NEMON
ASSOCIATION (243 ITR 439) contends that exemption for income of the charitable
trust under Sections 11 and 12AA of the Act cannot be granted automatically
inasmuch as each transaction has to be looked into to decide whether the
income earned was assessable as business income or otherwise. It is his
further contention that the assessing officer had given a clear finding that
the assessee had not undertaken any charitable activity since its inception,
except constructing a marriage hall and letting for rent and that there was no
charity involved in the same, which finding has not been either traversed or
reversed by the Commissioner or by the Tribunal with convincing reasons.
4. We are unable to accept the above contentions of the learned
Standing Counsel.
5. On facts, both the Commissioner as well as the Tribunal have
rendered a clear finding based on the admitted facts of the case that the land
was given by the Collector of Salem District to the assessee to construct
Kalyana Mandapam on specific condition that it should function for the benefit
of local people, mainly weavers and agriculturists. The grant also provides
for collecting nominal rent for the building to meet out maintenance, repairs
and renovation expenses. It is not in dispute that the assessee used to let
out Kalyana Mandapam for social and charitable activities collecting nominal
rent. Based on these undisputed facts, the Commissioner and the Tribunal
rendered a concurrent finding that the very activity of constructing the
Kalyana Mandapam and letting out to the local people, mainly weavers and
agriculturists, satisfied the charitable object, even though the assessee had
not diverted the accumulated fund for any other charitable purpose, viz. for
the upliftment of the poor, education and other social and charitable
activities.
6. In our considered opinion, the failure or non-diversion of the
accumulated funds for any other charitable purpose, as referred to above, by
itself, would not divest the right conferred on the assessee to claim
exemption under Sections 11 and 12AA of the Act, for the simple reason that
the activity of constructing Kalyana Mandapam and letting out the same after
collecting nominal rent to meet maintenance, repairs and renovation expenses,
sufficiently satisfies the object, viz. the benefit of local people, mainly
weavers and agriculturists, which is a condition under the grant given by the
Collector and failure to comply with the said condition would enable the
Collector to take over the building along with the land.
7. That apart, the assessee had applied for registration as required
under Section 12AA on 31.12.1999 and the registration was given with
retrospective effect from 1.4.1990 by the competent authority by order dated
2.8.2002, placing reliance on the CBDT circular 762 dated 1 8.2.1998 which
came into effect from 1.4.1997 inserted by Finance Act 2/96, enabling the
Chief Commissioner or Commissioner to satisfy himself about the genuineness of
the Trust or Institution and to grant registration, by exercising such power
conferred under Section 12AA of the Act. The above fact cannot be lightly
disregarded under the facts and circumstances of the case, inasmuch as the
same has got persuasive effect to the case of the assessee.
8. Therefore, in view of the above concurrent finding of the
Commissioner that the construction of Kalyana Mandapam and letting out itself
is a charitable activity, the decision rendered by this Court in CIT v. HALAI
NEMON ASSOCIATION (243 ITR 439) has no application to the facts of the case.
9. On the other hand, this Court, in CIT v. SAMYUKTHA GOWDA
SARASWATHA SABHA (245 ITR 242), held that letting out of the Kalyana Mandapam,
even though was not one of the object of the assessee, but an activity carried
on to fulfil the object of the Trust and the income earned by the Trust by
such activity cannot be construed as its business income, but its property
income and therefore, the same is entitled to be exempted under Section 11 of
the Act. But the case on hand is more stronger than the case in CIT v.
SAMYUKTHA GOWDA SARASWATHA SABHA (245 ITR 242).
10. This Court in the assessee’s own case decided the similar issue
in favour of the assessee vide order dated 28.02.2006 in T.C.Nos.252 to 256 of
2006, reported in 283 ITR 355.
11. In view of the admitted fact that the main object of the Trust
itself is to construct Kalyana Mandapam for the benefit of the local people,
mainly weavers and agriculturists, the land was also granted by the District
Collector, Salem, to achieve the said object, viz. for the benefit of local
people, upliftment of the poor, education and other social and charitable
activities, which is one of the dominant and primary object of the Trust. As
per the ratio laid down in ADDL. CIT v. SURAT ART SILK CLOTH MANUFACTURERS
ASSOCIATION (121 ITR 1), the assessee satisfies the dominant and primary
object of the Trust by putting up construction and letting the same by
collecting nominal rent, which would not defeat the right of exemption under
Section 11 of the Act, merely on account of the fact that the accumulated
funds had not been spent for other charitable activities, viz. for upliftment
of the poor, education and other social activities, which was wrongly weighed
by the assessing officer that the Trust had not undertaken any charitable
activity since its inception.
12. We also add that the mere fact that the assessee submitted return
for the assessment years 1998-99 and 1999-2000 admitting the income as
business income will not take away the rights of the assessee to claim the
benefit of exemption, as there cannot be any estoppel against Section 11 of
the Act, for the simple reason that the revenue has not raised any question of
law in that regard.
For all these reasons, we do not find any substantial question of law
arising for consideration and accordingly, the appeals are dismissed.
Consequently, TCMP Nos.1568 to 1572 of 2006 are also dismissed.
ATR