Commissioner of Income Tax vs Sengunthar Thirumana Mandapam

P.D. Dinakaran, J.—As against the order of the Tribunal dated September 27, 2004, made in I.T.A. Nos. 1194, 1195, 1196, 1197 and

1203/ 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 under Sections 11 of the Income Tax Act merely on the ground that the registration under Sections 12AA has been granted

with effect from April 1, 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?

The assessee is a society registered under the Tamil Nadu Societies Registration Act. The relevant assessment years are 1990-91, 1991-92,

1992-93, 1993-94 and 1999-2000, respectively. Admittedly, the society was allotted land by the Collector of Salem District in his proceedings in

R. Dis. No. 274700 of 1983 dated December 23, 1984, on the specific condition that the land should be used for kalyana mandapam. As per the

guidelines given by the Collector, the assessee should build a 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 maintenance, repairs and renovation expenses. Accordingly, the assessee

was running a kalyana mandapam and collecting minimum nominal charges from the users.

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 years 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 escaped assessment on account of the failure on the part of the assessee to file return of income under Sections 139 of the Act,

a notice was issued to the assessee under Sections 148 of the Act for the assessment years 1990-91 to 1997-98, 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 Sections 143(1)(a) of

the Act. Therefore, the Assessing Officer issued notice under Sections 148 of the Act. However, the assessee filed nil returns for all the years on

March 30, 2001.

According to the assessee-society, it is a registered one established for charitable purpose and its income was exempted under Sections 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 does not have any charity involved in the activity and therefore, computed the income for

the said assessment years as follows :

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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 1,53,000

1997-98 4,00,250

1998-99 1,03,360

1999-2000 10,800

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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 Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, 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.

Learned standing counsel appearing for the Revenue, placing strong reliance on the decision of this Court in Commissioner of Income Tax Vs.

Halai Nemon Association, 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 it 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.

We are unable to accept the above contentions of learned standing counsel.

On the 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 a kalyana mandapam on the 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

maintenance, repairs and renovation expenses. It is not in dispute that the assessee used to let out the 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 it 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.

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.

That apart, the assessee had applied for registration as required under Sections 12AA on December 31, 1999, and the registration was given

with retrospective effect from April 1, 1990, by the competent authority by order dated August 2, 2002, placing reliance on the Central Board of

Direct Taxes Circular No. 762 dated February 18, 1998 (see [1998] 230 ITR 12), which came into effect from April 1, 1997, inserted by the

Finance (No. 2) Act 1996, 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 Sections 12AA of the Act. The above facts cannot be lightly disregarded under the

facts and circumstances of the case, inasmuch as the same have got persuasive effect to the case of the assessee.

Therefore, in view of the above concurrent finding of the Commissioner that the construction of the kalyana mandapam and letting out itself is a

charitable activity, the decision rendered by this Court in Commissioner of Income Tax Vs. Halai Nemon Association, has no application to the

facts of the case.

On the other hand, this Court, in Commissioner of Income Tax Vs. Samyuktha Gowda Saraswatha Sabha, , held that letting out of the kalyana

mandapam, even though was not one of the objects of the assessee, but an activity carried on to fulfil the objects 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 Sections 11 of the Act. But the case on hand is stronger than the case in Commissioner of Income Tax Vs. Samyuktha Gowda

Saraswatha Sabha, .

In view of the admitted fact that the main object of the trust itself is to construct a 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 objects of the trust.

As per the ratio laid down in Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, , 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 Sections 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 had wrongly weighed by the Assessing Officer that

the trust had not undertaken any charitable activity since its inception.

We also add that the mere fact that the assessee submitted returns 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, T.C.M.P. Nos. 1277 to 1280 of 2006 are also dismissed.