IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED 08.10.2010 CORAM THE HONOURABLE MR. JUSTICE F.M.IBRAHIM KALIFULLA AND THE HONOURABLE MR. JUSTICE M.M.SUNDRESH TAX CASE (APPEAL) NOS.2112 TO 2116, 1812 OF 2008 AND 468 OF 2010 Tax Case (Appeal) No.2112/2008 The Director of Income-Tax (Exemptions) Madras. .. Appellant Versus The Willington Charitable Trust 18/D, Rukmani Lakshmipathy Road Chennai 600 008. .. Respondent PRAYER IN W.P.NO.2112 OF 2008 : Tax Case Appeal filed Under Section 260-A of the Income-Tax Act, 1961, against the order of the Income-Tax Appellate Tribunal "B" Bench, Chennai, passed in I.T.A.No.1484/Mds/2000, dated 30.06.2006. For Appellant in all cases : Shri.Patty B.Jeganathan For Respondent in all cases : Shri.V.Ramachandran Senior Counsel for M/s.Dr.Anita Sumanth * * * * * C O M M O N J U D G M E N T M.M.SUNDRESH, J In view of the common issues involved in all these appeals between the same parties, they have been taken up together for passing a common judgment. 2.Challenging the orders of the Tribunal for the assessment years, 1995-96, 1996-97, 1997-98, 1998-99, 2000-01, 2002-03 and 2005-06, respectively, the Revenue has come forward to file these appeals by raising the following substantial questions of law: "(i)When Section 11(1) read with Section 11(4) of the Income Tax Act exempts income from the business undertaking of the Trust to the extent it is applied for charitable or religious purpose, can Section 11(4)(A) of the Income Tax Act can be construed to have been incorporated for the very same purpose or to be construed restricting the scope of Section 11(4) of the Income Tax Act. (ii)When the Tribunal reverses the findings of the lower authorities to hold that a joint reading of Section 11(1), 11(4) and 11(4)(a) would mean to give exemption of the income from the business of the Trust irrespective of the nature of the business, if the income derived from the business is applied to the objects and purposes of the Trust in the light of the fact by the Tribunal holding that there is no finding regarding the application of the income derived from the business can the Tribunal allow the appeal of the assessee instead of remanding the same for want of finding as to the applicability of the income." 3.Facts
in brief:-
3.1.A Trust was started in the year 1924, by name “The Willington”. The said Trust acquired a property bearing Door No.1/4, Marshalls Road, Egmore, Chennai 600 008. Thereafter, a resolution was passed by the Trust on 27.02.1971 to constitute a Charitable Trust in the name of “The Willington Charitable Trust”. The assessee’s Trust Deed mentioned the objects such as, to establish, run or maintain educational, technical or technological institutions of all kinds in India for the benefit of the public, to award scholarshiips and stipends for education, to institute Lectureships and arrange lectures and establish endowments for such purposes and to institute and maintain or support hospitals, dispensaries etc. The Honourable High Court of Madras in C.S.No.76 of 1973 by its order dated 08.03.1973 has confirmed the consideration of the assessee Trust on the acquisition of the property mentioned above as the one vested with it as a Trust property. The assessee Trust is also registered under Section 12A(a) of the Income Tax Act, 1961 (hereinafter referred as “the Act”.
3.2.The property purchased being an old building was demolished and two halls have been constructed by the assessee which have been let out as marriage halls and auditoriums. A part of the building is also used for running a hostel for women and another part of it has been used by letting it out to a bank on a rental basis.
3.3.The assessee filed its return claiming that the Income derived from the property held in Trust by the assessee is eligible for exemption under Section 11 of the Act. However, the assessing officer for the assessment years, 1995-96, 1996-97, 1997-98, 1998-99, 2000-01, 2002-03 and 2005-06, respectively has rejected the exemption sought for by the assessee by holding that in as much as the assessee was carrying on a commercial activity which is not incidental to the object of the Trust as required under Section 11 of the Act, the exemption cannot be granted. It was also held that the assessee has not complied with the provisions contained under Section 11(4)(A) of the Act by not maintaining separate books of accounts in respect of its income assessable under the said business.
3.4.The Commissioner of Income Tax (Appeals) has confirmed the order of the assessing officer for the years, 1995-96 and 2000-01. However for the assessment years, 1996-97, 1997-98, 1998-99, 2002-03 and 2005-06, the appeals filed by the assessee were allowed. Both the assessee as well as the revenue filed further appeals before the Tribunal for the above mentioned years. The appeals ended in favour of the assessee. Challenging the same, the revenue has filed the present appeals.
4.Findings of the Assessing Officer:
4.1.The Assessing Officer while rejecting the exemptions sought for by the assessee under Section 11 of the Act has held that in as much as the income has been derived by commercial activities such as, letting the building as marriage halls and auditoriums, apart from using the same for rental purposes and running a ladies hostel, such commercial activities cannot be termed as incidental to the objects of the Trust. Secondly, the Assessing Officer has held that the second condition required under Section 11(4)(A) of the Act of maintaining separate books of accounts is not satisfied. It was held by the Assessing Officer that the assessee is maintaining the books of accounts relating to the activities of letting out the auditoriums owned by it and it has been crediting the income of rent from Indian Bank and interest on fixed deposits etc., in the said account. The assessee has kept separate accounts only in respect of other activity of running the hostel for ladies and therefore, it has to be held that the second condition that the assessee should maintain separate books of accounts in respect of its income assessable under head “Business” is not satisfied. The Assessing Officer has also found that the assessee has filed an application under Form-10B as required under Section 11 of the Act for accumulating of the income for specified charitable purposes towards the establishment of ladies college and construction of school building.
5.Findings of The Commissioner of Income Tax (Appeals):
5.1.The Commissioner of Income Tax (Appeals) has held that the assessee has been maintaining three sets of accounts such as, one set of books for the income from auditoriums as well as for interest receipts, one set of books for the income of the trust, wherein it accounts donations and interest receipt. The assessee accounted it’s donation receipts from the occupants of the auditoriums in these books only. The assessee finally consolidated both the above accounts and prepared it’s income and expenditure account as well as its Balance Sheet and one set of books for the income from the ladies hostel account and hence there is compliance of the condition stipulated under Section 11(4)(A) of the Act by maintaining separate accounts. The Commissioner of Income Tax (Appeals) has also held that in as much as the income derived by the assessee through its commercial activities is being used towards its object which is a charitable purpose, its activity of indulging in such a business is not a business activity independent of the objects of the Trust and the same has to be considered as incidental activity to the charitable activities. Therefore by holding so the Commissioner of Income Tax (Appeals) allowed the appeals filed by the assessee except for the assessment years 1995-96 and 2000-01. In so far as the assessment years 1995-96 and 2000-01 are concerned, the Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Authority by holding that the construction for the college for women and the construction of school building cannot be said to be charitable objects of the assessee as the same would amount to utilisation of the income. Therefore, the appeals filed by the assessee for the above said years were dismissed against the assessee.
6.Findings of the Tribunal:
6.1.The Tribunal while reversing the orders of the Commissioner of Income Tax (Appeals) for the assessment years 1995-96 and 2000-01 and confirming the orders for the assessment years 1996-97, 1997-98, 1998-99 and 2002-03 as well as 2005-06 has held that the objects of the assessee Trust are charitable in nature, the property has been held in Trust by the assessee, there is sufficient compliance of the books of accounts and the business income derived by the property held in Trust is surely incidental to the objects more so when the same is utilised for the above said purposes. Hence by holding so the Tribunal has allowed all the appeals filed by the assessee and dismissed the appeals filed by the Revenue. The Revenue has filed the present appeals, challenging the said orders of the Tribunal by raising the above referred substantial questions of law.
7.Heard Shri.Patty B.Jeganathan, learned counsel appearing for the appellant/revenue and Shri.V.Ramachandran, learned senior counsel for Mrs.Dr.Anita Sumanth appearing for the respondent/assessee and perused the written arguments filed by the counsels.
8.Submissions of the Revenue:
8.1.Shri.Patty B.Jeganathan, learned counsel appearing for the revenue submitted that when it is not in dispute that the income of the institutions derived by commercial activities such as running marriage halls, auditoriums and receiving rent is augmented by commercial activities. The said business cannot be held to be incidental to the attainment of the objects of the trust. In other words it is submitted that a business whose income is utilised by the trust for the purpose of achieving its objectives cannot be construed to mean that the same is incidental to the objects. Therefore, in as much as the business carried on by the assessee having no direct relationship to the objectives of the trust the mandate of Section 11(4)(A) of the Act has not been complied with. The learned counsel submitted that the facts involved in the judgment of the Honourable Apex Court in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785] are totally different and therefore the ratio laid down therein by the Honourable Apex Court does not have any application to the present case on hand. The learned counsel strenuously submitted that in the said case one of the objective of the Trust is to run the newspaper which is not the case on hand. Moreover the assessee has demolished the old building and constructed the halls for business purposes and therefore it cannot be construed that the properties are held in trust by the assessee.
8.2.Shri.Patty B.Jeganathan, learned counsel appearing for the revenue further submitted that a combined reading of Section 11(4) and Section 11(4)(A) of the Act would make it clear that even for a property held in trust, the Assessing Officer shall have the power to determine the income in accordance with the provision of the Act and if such income so determined is in excess of the income as shown in the accounts of the assessee such excess shall be deemed to be applied to purposes other than charitable or religious purposes. Therefore, Section 11(4)(A) of the Act should be made applicable only to those activities which are incidental to the attainment of the objects of the Trust. Hence it is submitted by the learned counsel that the business carrying on by the assessee is not one of the objectives mentioned in the Trust deed and hence exemption under Section 11(4)(A) of the Act is not applicable.
8.3.The learned counsel further submitted that the other condition mentioned under Section 11(4)(A) of the Act has also not been complied with by the assessee by maintaining separate books of accounts in relation to the business. The learned counsel submitted that in order to get the exemption under section 11(4)(A) of the Act, the said condition will have to be complied with by the assessee, which the Assessing Officer has rightly found as not complied with. The learned counsel without prejudice to his above submissions has stated that in as much as the Assessing Officer has not gone into the breakup figure of various heads of accounts given by the assessee, considering the scope of Section 11(4)(A) of the Act as well as Section 11(4) of the Act, the appeals will have to be allowed by remanding the cases to the Assessing Officer to decide the eligibility of the assessee to get the actual income exempted under Section 11(4) of the Act. The learned counsel has relied upon the judgment of the Honourable Division Bench in DIRECTOR OF INCOME-TAX (EXEMPTIONS) v. AVM CHARITIES [[2010] 323 ITR 27] in support of the above said contention.
9.Submissions of the assessee:
9.1.Shri.V.Ramachandran, learned senior counsel appearing for the assessee submitted that the property has been held in Trust by the assessee after its purchase and an order to that effect has been passed by this Honourable High Court in C.S.No.76 of 1973 in and by the order dated 08.03.1973. The assessee has been registered as a Charitable Trust under Section 12(A)(a) of the Act. There is no dispute regarding the object of the assessee Trust which pertains to educational institutions, health etc. The income derived from the business of letting out the building has been utilised for the charitable purposes.
9.2.The assessee has also been maintaining three separate accounts. In view of the fact that a portion of building has been let out to M/s.Indian Bank within the auditorium premises, the same has to be necessarily to be included in the books of the said auditoriums. Both the Commissioner of Income Tax (Appeals) and the Tribunal have held on facts that the assessee has been maintaining three separate accounts and they are in compliance of Section 11(4)(A) of the Act. The assessee has complied with Section 11(1) and 11(2) of the Act by utilising the income for the purpose of charity. The assessee has also filed Form-10 towards the accumulation of the income for the purpose of construction of educational institutions.
9.3.Section 2(15) of the Act has been suitably amended by removing the expression “not involving the carrying of any activity for profit with effect from 01.04.1984 while defining charitable purpose”. Further Section 11(4)(A) of the Act has been amended with effect from 01.04.1992 which is more beneficial to the Trust than what was available prior to the said amendment.
9.4.The issue involved in the appeal that the activity carrying on by the Trust being business in nature is incidental to the objects of the Trust or not has been decided by the Honourable Apex Court in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785]. The said judgment of the Honourable Apex Court was also followed by the Division Bench of this Honourable Court in COMMISSIONER OF INCOME-TAX v. SRI RAO BAGHADUR ADK DHARMARAJA EDUCATIONAL CHARITY TRUST [[2008] 300 ITR 365] and COMMISSIONER OF INCOME-TAX v. JANAKIAMMAL AYYANDAR TRUST [[2005] 277 ITR 274] etc. Therefore it is submitted that it is no longer open to the revenue to re-agitate the said issue which has become final. The learned senior counsel also submitted that this Honourable High Court has already held in COMMISSIONER OF INCOME-TAX v. HALAI NEMON ASSOCIATES [[2000] 243 ITR 439] that income received from a marriage hall is a business income. It is also submitted by the learned senior counsel by applying the doctrine of feeding the charity it has to be held that there is sufficient compliance of section 11(4)(A) of the Act.
9.5.In so far as the non compliance of the conditions stipulated under section 11(4)(A) of the Act by maintaining books of accounts for the income derived from the business is concerned, the learned senior counsel submitted that the Commissioner of Income Tax (Appeals) and the Tribunal have given clear factual findings that the same has been complied with through three separate accounts maintained by the assessee. Similarly, for the contention of the revenue that in as much as the authorities have mainly concentrated on the entitlement of the exemption under Section 11(4)(A) of the Act and consequently the quantum of the exemption has not been gone into, the learned senior counsel submitted that the assessee has produced all those particulars in the written arguments submitted and in support of the same, he has also produced the relevant records before this Court. The learned senior counsel also submitted that the judgment in DIRECTOR OF INCOME-TAX (EXEMPTIONS) v. AVM CHARITIES [[2010] 323 ITR 27] is distinguishable on facts, since there is no finding regarding the compliance of the conditions mentioned under section 11(4)(A) of the Act. The learned senior counsel therefore submitted that the appeals deserve to be dismissed.
10.Whether profit and gains of the business would be incidental to the object of the assessee under Section 11(4)(A) of the Act:-
10.1.It is not in dispute that the assessee Trust holds the property in Trust. It is also not in dispute that the commercial activity is being carried on by the assessee by using the building as marriage halls, auditoriums etc. The assessee has filed its returns claiming that the income derived therein is being used towards its objectives which are charitable in nature.
10.2.In order to appreciate the rival contentions of the learned counsel appearing for both sides, it is useful to extract Section 11(4)(A) of the Income Tax Act, 1961.
“11(4)(A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.”
10.3.Shri.Patty B.Jeganathan, learned counsel appearing for the revenue submitted that considering the scope of Section 11(4) vis-a-vis Section 11(4)(A) of the Act, it has to be held that until and unless the business as such is connected either directly or indirectly to anyone of the objectives of the assessee Trust, the same cannot be declared as incidental to such objectives. The learned counsel further submitted that in as much as the business activities are purely commercial in nature unlike in the case in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785], the assessee is not entitled for exemption under Section 11(4)(A) of the Act. It is his further argument that the old building has been demolished and reconstructed by the assessee and therefore the same has not been held in trust.
10.4.Even though the argument of the learned counsel for the revenue is appealing and attractive, we are not able to accept the said contention. The issue raised is no longer available for judicial review and scrutiny by this Court, since the same has already been decided by the Honourable Apex Court in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785]. The judgment of the Honourable Apex Court referred above has also been followed by the Division Bench of this Court in COMMISSIONER OF INCOME-TAX v. SRI RAO BAGHADUR ADK DHARMARAJA EDUCATIONAL CHARITY TRUST [[2008] 300 ITR 365] and COMMISSIONER OF INCOME-TAX v. JANAKIAMMAL AYYANDAR TRUST [[2005] 277 ITR 274] and also by a recent judgment of this Court in COMMISSIONER OF INCOME-TAX v. SRI NARAYANA GURUVIAH CHETTY’S ESTATE and CHARITIES [[2010] 326 ITR 662]. The Honourable Apex Court in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785 ] has observed as follows:
“The substituted sub-section (4A) states that the income derived from a business held under trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the trust or institution if “the business is incidental to the attainment of the objective of the trust or, as the case may be, institution” and separate books of account are maintained in respect of such business. Clearly, the scope of sub-section (4A) is more beneficial to a trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, it seems to us that the substituted sub-section (4A) gives a trust or institution a greater benefit than was given by section 13(1)(bb). If the object of Parliament was to give trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The trust, therefore, it entitled to be benefit of section 11 for the assessment year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of account in respect thereof.” (Emphasis added)
10.5.The Honourable Apex Court in the above said judgment was pleased to hold that what is sufficient is that the income derived from the business from a property held in trust by the assessee is utilised towards the attainment of the objectives. Therefore, it was held that it is irrelevant if the business is run on a commercial expediency with a profit motive. In view of the clear dictum of the Honourable Apex Court it is not open to this Court to go into the said question once again which is impermissible in law. More so, when the other Division Benches of this Court have also dealt with identical cases as the one on hand and taken the view in favour of the assessee. While dealing with an issue in a multi-judge Court, the judges are bound by precedents and procedure. Judicial decorum, discipline and legal propriety demand that the law laid down by the higher forum will have to be followed in letter and spirit. The doctrine of binding precedent brings about an element of uniformity, decisiveness as well as the consistency in judicial decisions.
10.6.The judgment of the Honourable Apex Court is binding on the High Courts as the law laid down under Article 141 of the Constitution of the India. Such a judgment cannot be ignored or bypassed on the ground that relevant provisions have not been brought out or certain issues have not been urged. In a system which has a hierarchy of judicial forums it is incumbent on the lower forums to follow the dictum of the higher forum. In SUNDARJAS KANYALAL BHATHIJA v. COLLECTOR, THANE [AIR 1990 SC 261], the Honourable Supreme Court has observed as follows:
“17.It would be difficult for us to appreciate the judgment of the High Court. One must remember that pursuit of the law, however glamourous it is, has its own limitation on the Bench. In a multi-judge court, the Judges are bound by precedents and procedure. They could use their discretion only when there is no declared principle to be found, no rule and no authority. The judicial decorum and legal propriety demand that where a learned single Judge or a Division bench does not agree with the decision of a Bench of co-ordinate jurisdiction, the matter shall be referred to a larger Bench. It is a subversion of judicial process not to follow this procedure.”
10.7.Similarly in SUGANTHI SURESH KUMAR v. JAGDEESHAN [AIR 2002 SC 681], the Honourable Apex Court has observed as follows:
“9.It is impermissible for the High Court to overrule the decision of the Apex Court on the ground that the Supreme Court laid down the legal position without considering any other point. It is not only a matter of discipline for the High Courts in India, it is the mandate of the Constitution as provided in Article 141 that the law declared by the Supreme Court shall be binding on all courts within the territory of India. It was pointed out by this Court in Anil Kumar Neotia v. Union of India6 that the High Court cannot question the correctness of the decision of the Supreme Court even though the point sought before the High Court was not considered by the Supreme Court.”
10.8.On a consideration of the ratio laid down in the above pronouncements, we are of the view that when a business income is used towards the achievement of the object of the trust it would amount to incidental to the achievement of the object of the trust not withstanding the profit and gain involved therein.
11.Whether Section 11(4)(A) of the Income Tax Act restricts the power under Section 11(4):-
11.1.Section 11(4)(A) of the Tax is an exception to Section 11(1), 11(2), 11(3) and 11(3)(A) of the Act in so far as the business income which is not utilized towards the object of the trust is concerned. It is couched in a negative language. It provides for an exemption from the purview of the Act from the inclusion of the income while computing the income assessable for tax when a business is incidental to the object of the trust. Similarly Section 11(4) of the Act speaks about the property held in trust and it also provides for the Assessing Officer to determine the income of an undertaking and if it is found to be in excess of the income shown in the accounts of the undertaking, such an excess shall be deemed to be applied to purposes other than charitable or religious purposes thereby assessable for tax.
11.2.Section 11(4)(A) of the Act does not exclude Section 11(4). Exemption under section 11(4)(A) would be available only when the business is incidental to the attainment of object of the trust. Hence when it is not the case then such an income cannot be exempted. Therefore only such income which is used towards the object of the trust is exempted. In other words, Section 11(4)(A) of the Act mandates that when an income from a business which can be by way of utilization of a property held in trust is not used towards the object of the trust then no exemption can be sought for such income.
11.3.It is a well established principle of law that provisions contained in enactment should be read together by making an harmonious construction. Therefore, we are of the view that section 11(4) and 11(4)(A) of the Income Tax Act will have to be read together. Further by holding that section 11(4)(A) would over ride section 11(4) would make the very provision contained under section 11(4) otiose and redundant. While making a construction, the Court will have to see the intention behind the provision and should avoid an interpretation which would defeat the very provision itself.
11.4.JUSTICE G.P.SINGH IN PRINCIPLES OF STATUTORY INTERPRETATION, 12th EDITION AT P.298 SAYS THUS:
“… a statute must be read as a whole as words are to be understood in their context. Extension of this rule of context permits reference to other statues in pari materia i.e. statutes dealing with the same subject-matter or forming part of the same system.”
11.5.The said observations of the Justice G.P.Singh was quoted with approval by a recent judgment of the Apex Court in S.NAGARAJ v. B.R.VASUDEVA MURTHY [(2010) 3 SCC 353] while construing the principle of harmonious construction. 11.6.The Honourable Supreme Court in UNION OF INDIA v. ALOK KUMAR [(2010) 5 SCC 349] has held as follows:-
“61.It will be useful to apply the rule of contextual interpretation to the provisions of Rule 9. It would not be permissible to import any meaning or make additions to the plain and simple language of Rule 9(2) in relation to “other authority”. The rule of contextual interpretation requires that the court should examine every word of the statute in its context, while keeping in mind the Preamble of the statute, other provisions thereof, pari materia statutes, if any, and the mischief intended to be remedied. Context often provides a key to the meaning of the word and the sense it carries.
62.It is also a well established and cardinal principle of construction that when the rules and regulations have been framed dealing with different aspects of the service of the employees, the courts would attempt to make a harmonious construction and try to save the provision, not strike it down rendering the provision ineffective. The court would normally adopt an interpretation which is in line with the purpose of such regulations. The rule of contextual interpretation can be purposely applied to the language of Rule 9(2), particularly to examine the merit in the contentions raised by the respondent before us. The legislative background and the object of both the Rules and the Act is not indicative of any implied bar in appointment of former employees as enquiry officers. These principles are well established and have been reiterated with approval by the courts, reference can usefully be made to the judgments of this Court in Gudur Kishan Rao v. Sutirtha Bhattachaarya, Nirmal Chandra Bhattacharjee v. Union of India, Central Bank of India v. State of Kerala, Housing Board of Haryana v. Employees’ Union.”
11.7.The Honourable Apex Court in AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE v. CENTRAL BOARD OF DIRECT TAXES AND OTHERS [(2008) 301 ITR 86] while construing the provisos to Section 10(23C)(vi) has adopted the principle of harmonious construction for coming to its conclusion.
11.8.The Honourable Supreme Court in a recent judgment rendered in VIJAYA BANK v. SHYAMAL KUMAR LODH [(2010) 7 SCC 635] has observed as follows:
“19.But this does not end the controversy. The power to adjudicate money claim is to the Labour Court “as may be specified in this behalf by the appropriate Government”. Every word used by the legislature carries meaning and therefore effort has to be made to give meaning to each and every word used by it. A construction brushing aside words in a statute is not a sound principle of construction. The court avoids a construction, if reasonably permissible on the language, which renders an expression or part of the statute devoid of any meaning or application.
20.The legislature never wastes its words or says anything in vain and a construction rejecting the words of a statute is not resorted to, excepting for compelling reasons. There does not exist any reason, much less compelling reason to adopt a construction, which renders the words “as may be specified in this behalf” used in Section 33-C(2) of the Act as redundant. These words have to be given full meaning. These words in no uncertain terms indicate that there has to be specification by the appropriate Government that a particular court shall have jurisdiction to decide money claim under Section 33-C(2) of the Act and it is that court alone which shall have the jurisdiction. The appropriate Government can specify the court or courts by general or special order in its discretion.”
11.9.Considering the above said position of law, we are of the opinion that in the absence of any specific bar under section 11(4)(A) of the Act prohibiting the application of section 11(4) it cannot be construed that the same is independent of section 11(4) of the Act.
11.10.Hence, we hold that section 11(4)(A) and section 11(4) of the Act are complementary to each other and section 11(4)(A) does not restrict the power under section 11(4) of the Act. We answer the substantial question of law No.1 in favour of the revenue.
12.Compliance of maintenance of books of accounts:-
12.1.In so far as the compliance of the maintenance of separate books of accounts as required under Section 11(4)(A) of the Act is concerned, a reading of the above said provisions would make it clear that it is mandatory and a condition precedent for the assessee to maintain the same while seeking exemption. However it is not in dispute in the present case on hand that the assessee has maintained three sets of accounts, namely:
“(i)One set of books for the income from auditoriums including the interest receipt,
(ii)One set of books for the income of the Trust wherein the assessee accounts donations receipt, dividend, lease rent, amenities account, and interest receipt. It is to be noted here that the assessee accounts its donation receipt from the occupants of the auditoriums in this book only. This compulsive donation amount is pre-determined by the assessee as per it’s resolution. The assessee finally consolidates both the above accounts and prepares its Income & Expenditure account as well as its Balance Sheet, and
(iii)One set of books for the income from the Ladies hostel account. It is to be noted here that the profit arising out of this activity is never spent but taken to balance sheet u/h Excess of Income Over Expenditure in this book itself.”
12.2.Considering the above said facts, both the Commissioner of Income Tax (Appeals) and the Tribunal have held that the assessee has complied with the condition of maintaining the accounts. The said findings being the findings of fact, we are of the opinion that the contention of the revenue that there is no separate books of accounts maintained by the assessee in respect of his income assessable under the said business cannot be countenanced. Hence, the same is also rejected.
13.Whether orders of Remand are required:-
13.1.However, substantial arguments have been made by the learned counsel appearing for the revenue as well as the assessee regarding the entitlement of the assessee’s actual income towards exemptions. The learned counsel for the revenue submitted that in as much as the Assessing Officer and the other authorities have not gone into and made any break up of the separate heads of accounts maintained and utilised towards the objectives of the Trust, the matter will have to be remanded to the Assessing Officer to decide the same. Per contra, the learned senior counsel appearing for the assessee submitted that the records produced would show that the assessee has placed the entire material before the authorities which were found to be satisfactory and therefore no order of remand is required.
13.2.We find considerable force in the submissions made by the learned counsel appearing for the revenue that the authorities have substantially dealt with the issue of exemption sought for by the assessee under Section 11(4)(A) of the Act. The factual question of the actual income that is to be exempted has not been gone into by taking into consideration of the separate heads of accounts. A perusal of Section 11(4)(A) of the Act would clearly show that the said provision is an exception to Section 11(1), 11(2), 11(3) and 11(3)(A) of the Act. Therefore, the assessee will have to satisfy the authorities that such an exemption is to be granted by providing substantial materials to show that income derived from the business has been utilised towards the fulfillment of the objectives of the trust. Equally a duty is cast upon the Assessing Officer concerned to look into the records and give a factual finding, determining the actual income available for exemption.
13.3.Section 11(4) of the Act specifically speaks about the power of the Assessing Officer to deal with a property held in trust. The condition stipulated under Section 11(4)(A) of the Act that the assessee should maintain separate books of accounts for the business income has been introduced with a specific purpose and object behind it. The reason for introducing such a condition is to make sure that the assessee shall not claim and get exemption for the business income which is not used for charitable purposes. Therefore, such a condition is mandatory. In other words, a failure to comply with the condition would make the assessee concerned from claiming exemption. Such a compliance on behalf of the assessee while seeking exemption also consequently mandates, the Assessing Officer to verify the accounts under different heads with its break-ups of figures by applying his mind while doing a thorough verification. In the case on hand, we find that all the authorities have mainly dealt with eligibility of the assessee to seek exemption under Section 11 of the Act.
13.4.A perusal of the provisions contained in section 11(4)(A) of the Act would make it clear that it contains two separate elements. The 1st one being if the Assessing Officer is convinced on enquiry about the genuineness of the trust on a consideration of the relevant materials then he can decide and declare the eligibility of exemption. The second one being the entitlement of the income as eligible for exemption. In order to satisfy himself the Assessing Officer has to necessarily go through the relevant records like the application, accumulation, deployment of income in specified assets, utilization of income etc. Therefore it is the duty of the Assessing Officer to find out that the income is wholly and exclusively applied to the object of the trust. In other words if the Assessing Officer finds that the income as shown in the return is not actually utilized for a charitable purpose as claimed by the assessee then the exemption claimed for the said income goes. It would also mean that in such a case the profit making is the real object and therefore the doctrine of “feeding the charity” would have no application what so ever.
13.5.In SOLE TRUSTEE, LOKA SHIKSHANA TRUST’s case [1975] 101 ITR 234, 256 (SC), the Honourable Apex Court has held as follows:
“If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity.
The learned judge also added that the restrictive condition ‘that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object'(emphasis supplied). We wholly endorse these observations.”
13.6.Similarly, in AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE v. CENTRAL BOARD OF DIRECT TAXES AND OTHERS [(2008) 301 ITR 86], the Honourable Apex Court observed as follows:
“28.In Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), it has been held by this court that the test of predominant object of the activity is to be seen whether it exists solely for education and not to earn profit. However, the purpose would not lose its character merely because some profit arises from the activity. That, it is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realization but would reflect unsound principles of management. In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established.”(emphasis added)
13.7.In a recent pronouncement, the Honourable Apex Court was placed to hold that when a person claims exception from the operation of a statute then he has to establish the same. Further an exception provision will have to befriend main statute. Thus in PROJECT OFFICER, IRDP AND OTHERS v. P.D.CHACKO [(2010) 6 SCC 637] it has been held as follows:
“14.An exception clause is normally part of the enacting section, unlike a proviso which follows an enacting part. Crawford’s Interpretation of Laws (1989), p.128, speaks of exception as follows:
“91.Exceptions and provisos.-… The exception, however, operates to affirm the operation of the statute to all cases not excepted and excludes all other exceptions; that is, it exempts something which would otherwise fall within the general words of the statute.”
15.It is trite law that an exception clause has to be strictly interpreted and cannot be assumed but be proved. An exception clause is always subject to the rule of construction and in case of doubt, it must befriend the general provision and disfavour the exception. If any category of person claims exception from the operation of the statute it must establish that it comes within the exception.”
13.8.We are also of the opinion that even though the assessee has produced the relevant records before us, we cannot embark upon the jurisdiction and role of the Assessing Officer by considering the same while exercising the power under Section 260(A) of the Income Tax Act. Further, we are of the opinion that no prejudice would be caused to the assessee by remanding the matter to the Assessing Officer to find out the actual entitlement of exemption by considering the materials placed before him. Therefore, we deem it fit to remand all the matters to the file of the Assessing Officer to go through the returns filed by the assessee for the relevant years and then consider the question of exemption under Section 11 of the Act, in the light of the observations made above.
14.Accordingly, the substantial questions of law raised are answered in favour of the revenue. However in view of our reasoning that a business income if utilized towards the achievement of the object of the assesse trust the same would be incidental to the achievement of the object, we deem it fit to remand the assessment files to the Assessing Officer to decide as to whether such business income is used for the attainment of the object and thereafter proceed in accordance with law. The entire exercise is to be done by the Assessing Officer within a period of three months from the date of receipt of a copy of this order.
15.In fine, the orders passed by the Tribunal are hereby set aside and these appeals are allowed to the extent indicated above.
(F.M.I.K.,J.) (M.M.S.,J.) 08.10.2010 Index : Yes Internet : Yes sri F.M.IBRAHIM KALIFULLA, J. AND M.M.SUNDRESH, J. sri To The Director of Income-Tax (Exemptions) Madras. PRE-DELIVERY JUDGMENT IN TAX CASE (APPEAL) NOS.2112 TO 2116, 1812 OF 2008 AND 468 OF 2010 08.10.2010