ORDER
M. K. CHATURVEDI, J. M. :
This appeal by the assessee is directed against the order of the CIT(A)-XIII, Bombay, and pertains to the asst. yr. 1987-88. Four grounds taken by the assessee in this appeal project the following grievances :
1. The AO and CIT(A) ought to have held that the trust was not established for charitable purposes.
2. Without prejudice to Ground No. 1, the AO and CIT(A) ought to have held that the trust was not established wholly for charitable purposes.
3. It is submitted that Tribunal hold that even though registration under the Bombay Public Trusts Act was given and registration under s. 12A of the IT Act, 1961, was given and exemption under s. 80G was conferred, if the trust was not established wholly or partly for charitable purposes, then the mere fact that such registration was granted would not make the trust a charitable trust.
4. The donations/gifts received by the assessee-trust were not income in the hands of the assessee-trust.
2. Briefly the facts :
The assessee-trust was created by a Deed of Trust executed by and between The Concast (India) Pvt. Ltd., settlor, and Shri N. K. Nayar, R. M. Prabhu and Shri S. Kalyanpur, trustees. This Deed of Trust was sworn, sealed and executed on 25th day of March, 1977. The trust is irrevocable, it was registered with the Charity Commissioner under his No. E-9087 on 23rd Nov., 1982. It was registered with the CIT, Bombay City-IV, Bombay, under his No. IMS/15694, dt. 22nd March, 1983. Certificate under s. 80G was issued to the trust on 19th July, 1983. It was valid upto 31st March, 1985. Again the validity was extended upto 18th March, 1989. This trust was created for providing financial assistance to the dependent children of the employees of the settlor or its associated companies and deserving students from the territory of Maharashtra.
3. Schedule A of the Trust Deed contained the name of initial beneficiaries. Clause 5 of the Trust Deed reads as under :
“The Trustees shall hold the Trust Fund upon Trust at their discretion to pay to the beneficiaries or any one or more of them to the exclusion of others or other in such share and in such manner in all respects as the Trustees in their discretion may think fit provided always that the Trustees may (sic -at) their discretion postpone the application the whole or any part of the Trust Fund and receive at any particular time and apply the same at a later time.”
4. The trust received donations during the year totalling to Rs. 1,85,000 from the following three sources.
(i)
Concast (I) Pvt. Ltd.
Rs. 75,000
(ii)
Conin Engg. Ltd.
Rs. 65,000
(iii)
IRD Mehanalysis (I) Ltd.
Rs. 45,000
Rs. 1,85,000
Certificates under s. 80G were issued to the donors. It was found that such donations were received in the preceding years also. The AO made enquiries, apropos, the user of the trust fund. It revealed from the records that the following expenses were incurred for the benefit of the children of the trustees :
(i)
Master Sarosh Nayar
Rs. 5,518
(ii)
Miss Shireen Nayar
Rs. 1,43,285
(iii)
Miss Aradhana R. Prabhu
Rs. 1,950
(iv)
Master Nihar Kalyanpur
Rs. 699
(v)
Miss Roshna Kalyanpu
Rs. 744
5. Similar expenses were incurred in earlier years also on these persons. The AO examined the following under s. 131 of the IT Act, 1961.
(i) Shri Sarosh Nayar, son of Shri Narinder Nayar
(ii) Miss Shireen Nayar – daughter of Shri Narinder Nayar
(iii) Shri V. K. Kotian – son of Shri K. B. Kotian, trustee. Shri Narindar Nayar was also a director of Concast (I) Pvt. Ltd., Conin Engg. Ltd. and IRD Mechanalysis (India) Ltd. In his statement Shri Sarosh Nayar stated that he was studying in USA and that he got scholarship from Tenner Trust. It was stated that he got assistance from Concast (India) Educational trust, but he was not aware of the mode of payment, amount of payment and the manner in which he received the assistance.
6. Miss Shireen Nayar stated that she received about 500 pounds per quarter from Concast (India) Educational Trust. She could not tell that the amount with exactitude received from the trust. Following beneficiaries were found to be relatives of the trustees of the trust :
Name of the Beneficiaries
Trustees name
Relationship with the trustee
Shri Sarosh Nayar
Shri N. K. Nayar
Son of the trustee
Miss Shireen Nayar
Shri N. K. Nayar
Daughter of the trustee
Miss Aradhana R. Prabhu
Shri R. N. Prabhu
Daughter of the trustee
Shri P. N. Kotian
Shri R. N. Prabhu
Son of employee of IRD
Master Nihar Kalyanpur
Late Shri Kalyanpur
Son of Ex-trustee
Miss Risgaba Kalyanpur
Late Shri Kalyanpur
Daughter of Ex-trustee.
7. On this factual backdrop, the AO held that the trust was not eligible for exemption under s. 11 of the Act. It fell within the ken of s. 13(3) of the Act. In coming to this conclusion, the following facts were also considered :
“(a) that the trust is a sham trust, which is merely a medium to divert the funds of the respective companies expended in reality as perquisites in the hands of the respective employees/directors for meeting the expenses of the children of the employees/directors which would otherwise have been taxable perquisites in their respective hands as such.
(b) that the analysis of the total amount disbursed every year by the trust shows that the main beneficiaries are the children of the donor companies (sic), the amounts donated by debiting welfare expenses account which is contrary to the provisions of s. 40A(9), to (ii) (sic) allocating the amounts of the trust except the relationship of the beneficiaries to the important directors of the companies in whose case it is obvious that if such perquisites had been added they would have paid substantially higher taxes.
(c) that the assessee-trust has clearly violated the provisions of s. 13(1)(c)(ii), 13(2)(g) and 13(3)(cc), (d) and (e) by giving the benefits to the interested persons of the trustees.
(d) Further, it is seen that the assessee-trust is not filing the audit report as required under s. 12A of the IT Act, 1961, in Form No. 10B. The assessee-trust was asked to file audit report vide this office letter of even number dt. 23rd Nov., 1989 which was served on them on 24th Jan., 1989, giving a days time to comply. Again summon under s. 131 was issued and duly served on the assessee on 3rd Feb., 1989, fixing attendance on 10th Feb., 1989, inter alia, to file Form No. 10B. The assessee again avoided to attend by sending a letter dt. 9th Feb., 1989 in tapal.”
8. The CIT(A) found that the trust funds were utilised for the limited benefit of the trustees and other connected persons. Funds were received from the associated companies. Coming to the tax treatment of donation, it was argued before the CIT(A) that as the AO did not allow the benefit of s. 11, the donation received by the trust would cease to be the income. According to the CIT(A) withdrawal of exemption under s. 11 did not take away the character of income. What the assessee lost was the benefit under s. 11. The assessment procedure in the case of the assessee cannot be different from that which is prescribed under the Act for giving tax treatment to the charitable trust.
9. Shri A. V. Sonde, the learned counsel for the assessee, appeared before us. Our attention was invited on para 10 of the assessment order which reads as under :
“10. In the circumstances, the only conclusion is to hold that the trust is not really a charitable trust and benefit is not to the general public but only to a select few persons who happened to be closely connected with the employees/directors of the companies.”
It was stated that AO has given a categorical finding that assessee-trust is not a charitable trust. Therefore, law applicable to the charitable trust cannot be invoked.
10. Our attention was invited on the prescription of s. 2(24)(iia) of the Act. It reads as under :
“2(24) “Income” includes –
(i) profits and gains;
(ii) dividend;
(iia) Voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in cl. (21) or cl. (23), or by a fund or trust or institution referred to sub-cl. (iv) or sub-cl. (v) of cl. (23C) to s. 10.
Explanation : For the purpose of this sub-clause “trust” includes any other legal obligation.”
He further referred to s. 12, which is reproduced here as under :
“12. Any voluntary contribution received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of s. 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and s. 13 shall apply accordingly.”
It was contended that prescription of the aforesaid sections cannot be applied in the case of the assessee-trust as it was held to be not really charitable trust vide para 10 of the assessment order.
11. It was further submitted that the trust cannot be treated as a charitable trust for giving tax treatment just because registration as contemplated under s. 12A was given or that Charity Commissioner conferred the status of charitable-trust and the continuance of s. 80G benefit was extended to the assessee trust.
The language of s. 2(24)(iia) is abundantly clear. There is no ambiguity in s. 12. These sections are not relevant in the present case because the trust was found not to be a public charitable trust.
12. In order to buttress the argument put forward, learned counsel relied on the following :
1. Mercantile Bank of India (Agency) Ltd., In re (1942) 10 ITR 512;
2. J. K. Hosiery Factory v. CIT ;
3. Trustees of Gordhandas Govindram Family Charity Trust v. CIT .
13. Coming to the second ground, the learned counsel for the assessee submitted that the AO, ought to have held that the trust was not established wholly for charitable purposes. It was argued that where the trustees had discretion under the Trust Deed to use the income of trust on object other than charitable, the trust property cannot be construed to be held wholly for religious or charitable purposes. For this proposition learned counsel relied on the following :
(1) Yogiraj Charity Trust v. CIT (1977) 108 ITR 777 (SC)
(2) CIT v. Shri Agastyar Trust
(3) Madras Kirana Merchants Association v. CIT
14. Shri Sonde further contended that s. 12A does not contemplate the requirement of passing an order. It only prescribes for making an application for registration before the Commissioner. Inasmuch as the CIT does not pass the order for registration, it is open for the AO to examine the nature of the trust. It is well within his power to say that whether the trust is a charitable trust or not. Once the decision is taken that the trust is not charitable the assessment procedure should follow the consequences. Assessment should not be done in accordance with the rules set out for making the assessment of a charitable trust. Accordingly, the donation received by the trust cannot be treated as income for the year under consideration.
15. Shri K. Balakrishnan, learned Departmental Representative, appeared before us. Our attention was invited on the various provisions of the Trust Deed. It was vehemently contended that the amount of donation received is clearly exigible to tax. The mere fact that in the particular assessment year, the benefit of s. 11 was not given to the assessee is not enough to ignore the status and as such, to provide a different tax treatment. It only shows that in that particular year, assessee came within the sweep of s. 13 which in effect, debars the assessee from taking advantage to s. 11.
The remark of the AO that assessee is not a charitable trust was in that context only. Its meaning cannot be elongated any further. Reading the order as a whole transpires that this remark was rendered in the context of the allowability of benefit under s. 11. In the eventuality of infringement of the set norms, the availability of benefit under s. 11 may be denied. Conditions contained under s. 13 purport to restrict the benefit. The status and character do not get altered.
16. In order to get registration assessee is required to make application under s. 12A(a) of the Act. On the basis of such application, registration is granted. Once the registration is granted, it is a sufficient proof of the fact that the trust is created or established for charitable or religious purposes. In such a case, AO is not empowered to come to a different finding. The AO is entitled only to forfeit the exemption available to the trust for non-fulfilment of any statutory requirement and/or contravention of any other provisions of the law.
17. The definition of income in s. 2(24) of the IT Act provide that voluntary contribution received by charitable or religious trust regardless of whether such trust or institution has been created or established wholly or partly for the charitable or religious purposes will be regarded as income for the purposes of IT Act. The income from voluntary contributions may or may not enjoy the exemption. Conditions of exemption depends on the term set out in ss. 11, 12, 12A and 13. The mere fact that in any particular year, case of a trust falls within the mischief of s. 13, is not a condition aliunde to which it can be said that the income of the trust shall not be computed in accordance with the procedure applicable for charitable trust.
18. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. Charity Commissioner accorded the status of charitable trust to the assessee. The CIT granted s. 12A registration. Not only that the benefit of s. 80G was also extended to the assessee-trust. The application was made to the CIT in consonance with the requirement of s. 12A r/w r. 17A. Form 10A was filed. On the basis of application, registration was granted. The AO is required to examine that whether the trust carried out the objects in proper manner or not. It was found that the objects which were activated fell within the mischief of s. 13. The AO, therefore, declined to give the benefit of s. 11 to the assessee and the assessment was completed by following the procedure set out for giving tax treatment to the charitable trust.
19. From times immemorial, private philanthrophy in our country, has been playing a very special and prominent role in enriching our cultural heritage and in catering to the educational, medical socio-economic and religious needs of our countrymen. In so doing, it has supplemented the work of a welfare state; in turn the State has on its part recognised this contribution by giving generous tax concessions to the charitable institutions.
The liberal tax concessions provided by the State for the cause of charity have, however, been found at times to be abused with impunity and utilised for fulfilling personal ends. The profile of fiscal jurisprudence tempted the human ingenuity to defile the cause of charity.
Now, since the tax concessions afforded to these institutions involve a sacrifice of public revenue, it becomes imperative to ensure that tax concessions are not abused, and that they are enjoyed only by those charitable institutions which actually deserve them. The subject of charity requires vigilance of law which, while allowing liberal interpretation, watches to see that the object of charity is not defeated and the perpetual spring of nectar is not, because of the too strict laws or their too rigid interpretation, dried up into empty sands.
20. In cases of non-fulfilment and/or breach of any of the exemption conferring conditions, s. 11(3) broadly makes the income exigible to tax, deeming it to be the income of the year in which the non-fulfilment occurs or breach made.
The overriding provisions of s. 13 totally eclipse the exemption otherwise available under s. 11. The circumstances entailing forfeiture have been listed in s. 13 as a result of experience or apprehension so that the provisions of s. 11 may not be used as a smoke-screen to evade proper taxation. Let charity be not used as a device to filter money.
21. The case of the assessee fell within the mischief of s. 13. Exemption under s. 11 was, therefore, denied. Precedents relied upon deal with a different type of situation. These are not of much help in the matter. For enjoying tax concessions assessee accepted the status of charitable trust. In the eventuality of breach, assessee cannot take a different stand. Tax treatment is to be given as per the prescription of law applicable to charitable trust. We, therefore, looking to this and to other aspects mentioned in the impugned order, find no warrant or justification for interference with the order of the CIT(A). Accordingly, we uphold the same.
22. In the result, appeal of the assessee stands dismissed.