Sonepat Hindu Educational and Charitable Society Vs. Commissioner of Income Tax and anr. - Court Judgment

D.K. Jain, C.J.

1. Rule DB.

2. With the consent of learned counsel for the parties, we take up the matter for final disposal at this stage itself.

3. The petitioner is aggrieved by order dt. 8th July, 2002, passed by the CIT, Rohtak, whereby its application dt. 16th Jan., 2002, seeking renewal of exemption under Section 80G of the IT Act, 1961 (for short, 'the Act'), has been rejected.

4. The petitioner, a society registered under the Societies Registration Act, 1860, was incorporated on 22nd Feb., 1961, with the avowed objects of establishing educational institutions anywhere in India, to contribute funds to any existing or future educational institutions, universities or gurukuls and to acquire property of every description for any one or some of its objects, etc. However, subsequently in the general body meeting of the society held on 17th Sept., 1989, the memorandum and articles of the society containing the objects, were rearranged with the following new objects :

'(a) To spread the technical and professional education in addition to basic education. To arrange for the higher education without any difference of caste, colour and creed. To start new institution of different types for education in future.

(b) To build hospital and health related institutions where physical and mental patients can be treated, to arrange for housing for patients during illness where doctors, nurses, pharmacists, compounders can be trained, and to provide facilities for the family welfare.

(c) To conduct any type of work which is of charitable and public interest, without any religious, caste and creed, communal or discrimination in regard to male/female.'

5. On deletion of Section 10(22) of the Act, vide its application dt. 16th March, 1999, the petitioner applied for registration under Section 10(23C) of the Act. The registration was granted for the asst. yr. 1999-2000 by the CBDT. Again on 5th Oct., 2000, the petitioner applied for registration under the said section, which is stated to be still pending. Simultaneously, vide its application dt. 16th March, 1999, the petitioner applied for approval under Section 80G of the Act.

6. It is pleaded that the petitioner-society had been filing IT returns regularly for the past 3 years declaring nil taxable income, the excess of income over expenditure being exempt under Section 10(23C)(vi) and (via) of the Act and was also registered under Section 12A of the Act for getting the exemption of its income under Sections 11 and 12 of the Act. The stand of the petitioner is that its income was exempt under Section 10(22A) of the Act because it was running educational institutions as well as a hospital solely for the educational purposes and not for the purposes of profit. However, w.e.f. 1st April, 1999, the new provisions of Section 10(23C)(vi) and (via) read with Rules 2BC and 2CA of the IT Rules, 1962 (for short, 'the Rules'), were introduced, whereunder necessary approval of the educational institution or the institution running a hospital had to be taken from the prescribed authority, namely, the Chief CIT. Since the petitioner was having annual receipt of more than rupees one crore, it applied for registration under Rule 2CA(iii) on 5th Oct., 2000, but the same is still pending. The petitioner also made an application for grant of approval under Section 80G(5)(vi) of the Act, which was inserted in the statute book w.e.f. 1st Oct., 1991. The petitioner was granted the said approval from 1991 to 1994. The approval was again granted from 1st April, 1994 to 31st March, 1999. It is pleaded that even prior to 1st Oct., 1991, the petitioner-society had been regularly allowed exemption under Section 80G of the Act, though the same was not required under the statute. As noted above, vide its application dt. 16th March, 1999, the petitioner again applied for approval, which should have been otherwise valid for 5 years, i.e., 31st March, 2004, but having failed to get any response, the petitioner again applied on 16th Jan., 2002, for further necessary approval, which has since been refused by the impugned order. Hence, this petition. 7. The petition is resisted by the respondents. In the written statement filed on behalf of the CIT, the rejection of petitioner's application is sought to be justified mainly on the grounds that:

(i) The society should have applied for fresh registration under Section 12A(a) of the Act because it had materially changed its objects from being confined to the field of education to wide ranging objects in the field of health and medical education as also all sweeping objects to conduct any type of work which is charitable and in public interest and having failed to apply for fresh registration under the said section, its income would not be exempt under Section 11 of the Act;

(ii) the institution has not been notified under Section 10(23C) of the Act for the asst. yr. 2000-01 onwards and, therefore, the conditions specified in Section 80G(5)(i) and (vi) are not satisfied;

(iii) since the society has acted in the form of a public charitable trust and had claimed exemption under Section 80G of the Act in the past, the correct procedure for amendment in the objects and memorandum of association was to get it amended under Section 92 of the GPC as observed by the Supreme Court in the case of Trustees of H.E.H. The Nizam's Pilgrimage Money Trust v. CIT : [2000]243ITR676(SC) had not been Mowed;

(iv) the society was earning income from purchase and sale of books which had been shown under the head 'income from stores' and, therefore, it should have maintained separate books of account in respect of such business in terms of proviso to Section 80G(5)(i), which was not done;

(v) the society had spent substantial amounts during the period ending 31st March, 2000 under the head 'entertainment expenditure' on visitors and examiners but no evidence in support was submitted.

8. It is thus asserted that the CIT was justified in rejecting the application seeking approval under Section 80G of the Act.

9. In the rejoinder-affidavit, it is stated that the Department has not denied that the petitioner has been carrying charitable activities. The main objection is that a fresh application, as required under Section 12A(a) of the Act, had not been made after change in the objects. It is asserted that there is no provision/requirement to apply afresh after the change in the objects of the society, as in substance, the objects of the society continue to be charitable and educational in nature and its income continues to be exempt under Sections 10(23C) and 11 of the Act. It is pointed out that the petitioner's claim for approval under Section 80G of the Act was accepted upto 31st March, 1999 even after the objects were rearranged and therefore, the said objection is meaningless at this stage. As regards notification under Section 10(23C), it is averred that petitioner's application under Section 10(23) of the Act is pending for the last more than three years and in fact, it is deemed to have been granted in terms of Rule 2CA(3) of the Rules and therefore, one of the conditions laid under Section 80G(5)(i) of the Act also stands complied with.

10. We have heard Mr. P.C. Jain, learned counsel appearing for the petitioner-society and Mr. Rajesh Bindal, learned standing counsel for the CIT.

11. Under Section 80G of the Act, a donor can claim deduction in computing his total income in respect of donations made by him to various funds or institutions mentioned in Sub-section (2) of the said section. It is Section 80G, which envisages deduction in respect of the donations made by a person who, but for the provisions, cannot claim any such deduction because the donations are not considered to be expenses incurred for the purpose of earning income. In the list of funds or institutions, donations of which could qualify for deduction from the income of a donor is included a subsidiary clause in the form of Clause (a)(iv) of Sub-section (2) of Section 80G, which talks of 'any other fund or any institution in which Section 80G applies'. At this juncture, it would be apposite to extract the relevant part of Sub-section (5) of Section 80G, which refers to the donations to any institution or fund, referred to in Sub-clause (iv) of Clause (a) of Sub-section (2) :

'(5) This section applies to donations to any institution or fund referred to in Sub-clause (iv) of Clause (a) of Sub-section (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely :

(i) where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of Sections 11 and 12 or Clause (22) or Clause (22A) or Clause (23) or Clause (23AA) or Clause (23C) of Section 10 :

Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of Section 11 shall not apply in relation to such income, if--

(a) the institution or fund maintains separate books of account in respect of such business;

(b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and

(c) the institution or fund issues to the person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;

(ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer of application at any time of the whole or any part of the income or assets of the institution or fund for any purpose than a charitable purpose;

(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;

(iv) the institution or fund maintains regular accounts of its receipts and expenditure;

(v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under Section 25 of the Companies Act, 1956 (1 of 1956), or is a university established by law, or is any other educational institution recognised by the Government or by a university established by law, or affiliated to any university established by law, or is an institution approved by the Central Government for the purposes of Clause (23) of Section 10, or is an institution financed wholly or in part by the Government or a local authority; and

(vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the CIT in accordance with the rules made in this behalf:

Provided that any approval shall have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval.'

12. The afore-extracted Sub-section (5) of Section 80G helps to identify the funds or institutions, donations to which qualify for deductions under that section, provided that the funds or institutions, referred to in Sub-section (2)(a)(iv) are such whose income would not be liable to be included in its total income under the provisions of Sections 11 and 12 or Clause (22) or Clause (22A) or Clause (23) or Clause (23AA) or Clause (23C) of Section 10 of the Act.

13. Clause (vi) of Sub-section (5) of Section 80G, with which we are concerned in the present case, was inserted w.e.f. 1st Oct., 1991 by the Finance (No. 2) Act of 1991. It requires that in relation to donations made after 31st March, 1992, the institution or fund has to be approved by the CIT in accordance with the rules made in this behalf. Simultaneously, Rule 11AA was inserted in the Rules. Under the proviso, approval under the section can be for more than one year at a time, upto 5 years, and can be renewed from time to time.

14. From the afore-extracted provisions, it is evident that the first and foremost requirement which the institution or fund has to satisfy is that it is established in India for a charitable purpose. The conditions contemplated by Clauses (i) to (vi) of Section 80G(5) are the conditions which the institution or the fund must additionally fulfil so as to be entitled to the approval of the CIT. It is well-settled that for the purpose of construing the purpose of a trust, it is not necessary that one remains confined to the objects of the society or the trust, as set out in the memorandum of association or the trust deed, as the case may be. What is required to be found is the real purpose of establishment of the trust. There can be no quarrel with the proposition that the CIT, conferred with the power to grant exemption, is fully competent to find out the real purpose, as distinguished from, the ostensible purpose of establishment of the society or the trust. If the CIT is convinced that the purpose of the society or the trust is not charitable, nothing debars him from denying the approval but, at the same time, if he is satisfied that the objects of the trust, as set out in the deed of declaration, were charitable, then having regard to the object of the provision, the approval should not be denied on mere technicalities. As a matter of fact, the power to grant or negative the claim for approval is coupled with a duty.

15. We may now examine the case in hand on the touchstone of the aforenoted broad principles. In the instant case, the CIT has not found that the objects of the petitioner-society, established in India, as set out in its memorandum of association, are not for a charitable purpose or that the society is not carrying on its activities in furtherance of its objects. As a matter of fact, registration of an institution under Section 12A(a) of the Act by itself is a sufficient proof of the fact that the trust or the institution concerned is created or established for charitable or religious purposes. Furthermore, as noted above, the grounds which have weighed with the CIT to negative petitioner's claim is that it should have applied for fresh registration under Section 12A(a) of the Act because of change in its objects on 17th Sept., 1989; its memorandum should have been got amended as per the procedure prescribed in Section 92 of the CPC; petitioner's institution has not been notified under Section 10(23C) of the Act for the asst. yr. 2000-01; separate books of account should have been maintained for purchase and sale of books and it had spent substantial amounts as entertainment expenditure on visitors and examiners, but no supporting evidence had been produced.

16. We are of the opinion that, in view of the fact that the petitioner had enjoyed approval under Section 80G of the Act from the year 1991 to 31st March, 1999, i.e., even after the amendment of its objects on 17th Sept., 1999 and after the insertion of Clause (vi) w.e.f. 1st Oct., 1991, the CIT was not justified in holding that either fresh registration under Section 12A(a) of the Act was required or the memorandum should have been amended as per the procedure laid down in Section 92 of the CPC. In Radhasoami Satsang v. CIT : [1992]193ITR321(SC) , their Lordships of the Supreme Court, inter alia, observed that though strictly speaking, res judicata does not apply to income-tax proceedings, but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be, at all, appropriate to allow the position to be changed in a subsequent year. We feel that these observations are quite apposite in the present case. The ratio of the decision of the apex Court in Nizam's case (supra) is not attracted in this case.

17. As regards the question whether petitioner's income would be liable to be included in its total income under the provisions of Sections 11 and 12 of the Act, a bare perusal of the said provisions would show that there are various factors, like the nature of contributions; the quantum of income set apart and accumulated for application in future for specified purposes would require consideration to determine whether the income derived by such trust or society would be liable to be included in the total income. It will thus be not possible to determine on the date when a donation is made for deduction under Section 80G, as to what will be the position as on the end of the relevant previous year of the society or the trust, who had sought approval under Section 80G of the Act. We have no hesitation in holding that the scope of enquiry by the CIT, while dealing with the application under Section 80G(5)(vi) of the Act, extends to eligibility to exemption under various provisions of the Act, referred to in that subsection, but not to actual computation of income under the Act, particularly when a society or a trust is claiming exemptions under Sections 11 and 12 and not under Section 10 of the Act. It needs little emphasis that the enquiry for the said purpose relates to whether the applicant is registered under Section 12A; whether it is a trust wholly for charitable purposes and whether the income received by it is liable to be considered under Section 11 of the Act. The enquiry whether at the end of the previous year, the donor will be able to sustain a claim because of non-fulfilment of some conditions by him would depend at the close of the relevant previous year, as it is not possible to predicate these conditions in praesenti when the donation is made.

18. Insofar as exemption under Section 10(23C) of the Act is concerned, for the view we have taken above on the application of Sections 11 and 12 of the Act, exemption under the said provision would not be necessary to make the petitioner eligible for approval under Section 80G. Nonetheless, it is stated that the application for claiming exemption under the said provision is also pending for the past few years.

19. For the foregoing reasons, we are of the view that the impugned order of the CIT refusing approval to the petitioner-society under Section 80G of the Act is founded on irrelevant considerations and, therefore, cannot be sustained. Consequently, we allow the writ petition, make the rule absolute, quash the impugned order and direct the CIT to take a fresh decision on petitioner's application in accordance with law. There will, however, be no order as to costs.