KIRTI CHAND TARAWATI CHARITABLE TRUST VS DIRECTOR OF INCOME-TAX (EXEMPTION)
1999 P T D 3927
[232 I T R 11]
[Delhi High Court (India)]
Before R. C. Lahoti and Dalveer Bhandari, JJ
KIRTI CHAND TARAWATI CHARITABLE TRUST
Versus
DIRECTOR OF INCOME-TAX (EXEMPTION) and others
C. W. P. No.3884 of 1997, decided on 27/03/1998.
Income-tax--
----Charitable trust---Grant of approval by Commissioner---Approval not to be granted merely by looking at the instrument creating trust---Real purpose of trust as distinguished from ostensible purpose to be found---Renewal of recognition---Trust receiving donations for charitable purposes---Donations instead of being spent on charity utilised for investment to earn returns thereon---Returns utilised for religious purposes---Donations received utilised for construction of temple and religious purposes---Commissioner denying renewal of recognition---Justified---Indian Income Tax Act, 1961, S.80G.
The objects of the petitioner-trust as set out in its trust deed were charitable. Construction of a religious temple was not ore of the objects set out in the deed of trust, The Director of Income-tax (Exemption) allowed recognition to the petitioner-trust for the period from April 1, 1993 to March 31, 1996, entitling deduction under section 80G of the Income Tax Act, 1961, in respect of the donations made to the trust. On September 4, 1996, the petitioner applied for renewal of recognition of the trust and by order, dated December 12, 1996, the petitioner was asked to furnish the details of the activities undertaken by the petitioner-trust for the last three years. The petitioner was also asked to show cause why the recognition granted to it be not cancelled on account of the religious activities carried out by it. The petitioner admitted that it was engaged in the construction of a temple completed during the assessment year 1996-97, but, however, contended that the trust was carrying on mixed activities, i.e., running a hospital and temple, that the income of the trust from investment in securities was much more than the amount spent on construction, that the donations received under section 80G were invested in Government securities, post office savings bank and time deposits as also with financial corporations and that the income received from such investments was utilised for the purpose of constructing a temple. On the question whether the petitioner-trust, having enjoyed recognition under section 80G of the Act and utilised the amount of donations enjoying exemption for making investments and having utilised the income from such investments for the purpose of religious activity, such as constructing a temple, could claim entitlement to renewal of such recognition and could be said to be a trust established in India for a "charitable purpose" within the meaning of subsection (5) of section 80G:
Held, (i) that the first and foremost requirement which the institution or the fund has to satisfy is---"if it is established in India for a charitable purpose". The conditions contemplated by clauses (i) to (vi) of subsection (5) are the conditions which the institution or the fund must additionally fulfil so as to be entitled to approval by the Commissioner. The enquiry "if it is established for a charitable purpose" is not confined and limited only to the contents of the instrument constituting the trust.
(ii) Though the objects of the trust as set out in the trust deed were ch4ritable, yet the enquiry conducted by the Director of Income-tax (Exemption) had revealed that the trust was engaged mainly in the construction of a religious temple wherein no charitable activity was being carried on. It was also not disputed that the donations received by the trust and enjoying exemption under section 80G were invested by the petitioner and the income derived therefrom was utilised for a religious purpose.
(iii) That for the purpose of construing the purpose of a trust, one need not remain necessarily confined to the objects of the trust as set out in the deed of declaration. The real purpose of establishment of a trust has to be found out and spelt out. "Purpose' means that which one sets before one to accomplish or attend, an intention or aim, object, plan, project. The term is synonymous with the ends sought and an object to attain, an intention, etc. The purpose must obviously be construed as real purpose and not a purpose as it outwardly appears to be.
(iv) That the authority conferred with power to grant exemption is not debarred from finding out "the real purpose as distinguished from the ostensible purpose" and if it finds that the purpose of the trust was other than charitable then nothing debars the authority from denying the approval, The real purpose of the trust is germane to the enquiry which the Commissioner has to hold while granting approval under section 80G(5)(vi), No interpretation should be placed on the language implied in section 80G so as to uphold an obligation on the part of the Commissioner to grant approval to a trust merely by looking at the instrument creating the trust and shutting his eyes towards the activities actually carried on by it.
(vi) That having received donations for charitable purposes, instead of being spent on charity, they were utilised for investment so as to earn returns thereon and utilise the same for purposes other than charitable purposes.
(vii) That, therefore, the order of the Director of Income-tax (Exemption) denying renewal of recognition under section 80G to the petitioner-trust from April 1, 1996, onwards was justified.
Chinn v. Hockstrasser (1981) 2 WLR 14 (HL); Furniss v. Dawson (1984) 1 All ER 530: 2 WLR 226 (HL); IRC v. Burmah Oil Co. Ltd. (1982'! Simon's Tax Cases 30; IRC v. Duke of Westminster (1936) AC 1; (1935) 11) TC 490 (HL); IRC v. Plummer (1980) AC 896 (HL); McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148; (1985) 59 STC 277 (SC); W.T. Ramsay Ltd: v. ITC (1982) AC 300;(1981) 2 WLR 499 (HL); Wood Polymer Ltd.; In re: Sengal Hotels (P.) Ltd., in re: (1977) 109 ITR 177 and (1977) 47 Comp. Cas. 597 (Guj.) ref.
C. S. Aggarwal for Petitioner.
R. D. Jolly, Sanjeev Khanna and Ms. Prem Lata Barisal for Respondents.
JUMMENT
R. C. LAHOTI, J.---The petitioner is aggrieved by order, dated February 20, 1997, Annexure I, passed by the Director of Income-tax (Exemption), New Delhi, whereby the petitioner's application, dated September 16, 1996, seeking renewal of the recognition of the petitioner- trust under section 80G of the Income Tax Act, 1961, for the period commencing from April 1, 1996, has been refused.
Kirti Chand Tarawali Charitable Trust (hereinafter, "the trust" for short) is the trust created and settled by Kirti Chand Aggarwal vide deed of trust, dated October 8, 1981 (Annexure 2). It cannot be denied that the aims and objects of the trust as set out in the deed, dated October 8, 1981, are charitable. Constriction of a religious temple is not one of the objects set out in the deed of trust. Vide order dated July 29, 1993 (Annexure 4), the Director of Income-tax (Exemption) allowed recognition under section 80G of the Act for .the period April 1, 1993, to March 31, 1996, entitling allowability of deduction under section 80G to the donations made to the trust. On September 4, 1996, the petitioner sought for renewal of the recognition. Vide order dated December 12, 1996, the petitioner was asked to furnish the details of the activities undertaken by the trust for the last three years. At the same time, the petitioner was asked to show cause why its recognition be not cancelled on account of religious activities carried out by it.
The petitioner filed a reply setting out the details of its receipts and expenses (gross and net) and the details of the activities carries out by it The petitioner admitted having been engaged in constructing a temple of Lakhshmi Narain Mandir completed during, the assessment year 1996-97, with an investment of Rs.30.34 lakhs. While maintaining that the activities of the trust were charitable only one of the pleas raised by the petitioner in its reply was; "the trust is carrying on mixed activities, i.e., running hospital ,in temple. We are unable to get to the second question or the notice, since recognition under section 8oG of the income Tax ct,, l ^%i0 l , .is not banned for religious trust".
On September 10, 1997, the petitioner sent a letter in continuation of its earlier communication wherein it was stated that the renewal may kindly be granted only in respect of donations to be utilised for charitable purposes only. The petitioner admitted having utilised its income for the purpose of construction activities during the assessment years 1995-96 and 1996-97 though it maintained that the income of the trust from investment to securities was much more than the amount spent on construction. The petitioner maintained--"no donation received on the strength of receipt issued with exemption under section 80G was, therefore, utilised for the religious activities. There . is no bar of application of incomes to the religious activities".
The contents of yet another communication (Annexure 10) made by the petitioner to the respondent go to show that the amounts of donations received by the petitioner-trust on the basis of recognition under section 80G of the Act were invested in Government securities, post office savings bank and deposits, as also with financial corporations. The income received from such investments was utilised for the purpose of constructing the temple.
The question arising for decision is if a trust having enjoyed recognition under section 80G of the Act utilises the amount of donations enjoying exemption for making investments and the income from such investments is utilised for the purpose of religious' activity, such as constructing a temple can it claim entitlement to renewal of such recognition? Can it be said to be a trust established in India for a charitable purpose within the meaning of subsection (5) of section 80G?
Section 80G of the Act (relevant part thereof) reads as under:
.80G. Deduction in respect of donations to certain-funds, charitable institutions, etc.---(1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section--. . .
(ii) in any other case, an amount equal to fifty per cent, of the aggregate of the sums specified in subsection (2)...
(2) The sums referred to in subsection (1) shall be the following, namely:--
(a) any sums paid by the assessee in the previous year as donation to...
(iv) any other fund; or any institution to which this section applies; or...
(5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of subsection (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely:--- (underlining by us)
(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 .
(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 purpose of such business; and
(c) the institution or fund issues to a 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 or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other 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 Commissioner in aricordance 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 . . . .
Explanation 3.--In this section, "charitable purpose" does not include any purpose the whole or substantially the whole of which is of a religious nature."
Under section 80G, an assessee is entitled to deduction of an amount equal to 50 per cent, of the donations made by him to, certain funds and charitable institutions etc., (over and above the funds or institutions specifically listed in several clauses under section 80G(2)(a)), from the computation of his total taxable income. The donations must be made only to such institutions or funds as satisfy the requirements of subsection (5). As provided by subsection (5) to be eligible under section 80G. The institution or fund must be established in India for a charitable purpose and must fulfil several other conditions set out in subsection (5). One of the conditions is that the institution or fund should have been approved by the Commissioner for the period of time for which the benefit thereunder is claimed.
Learned counsel for the petitioner laid emphasis on the language of clauses (ii) and (iii) of subsection (5) of section 80G an submitted that this provision - is sufficiently suggestive of the legislative intent that the enquiry by the Commissioner touching ,the trust seeking approval by the Commissioner must be confined to the provisions and objects as set out in the instrument which constitutes the trust. If the objects as set out are' charitable and the instrument does riot provide for or empower the trustees to spend the amount for any purpose other than charitable then it is the end of the. matter. In other words, the actual utilisation of the fund or the actual activities of the institution are not germane to the enquiry under section 80G(5)(iv).
The submission of learned counsel for the petitioner noted in the preceding para. cannot be accepted. The submission is founded on the phraseology, of various clauses of subsection (5) but it overlooks the very guiding and governing expression used in the subsection which excels all other clauses therein. The first and foremost requirement which the institution or the fund has to satisfy is---"if it is established in India for a charitable purpose". The conditions contemplated by clauses (i) to (vi) of subsection (5) are the conditions which the institution or the fund must additionally fulfil so as to be entitled to the approval by the Commissioner. The enquiry "if it is established for a charitable purpose" is not confined and limited only to the contents of the instrument constituting the trust.
With advantage we may notice the several observations made by their Lordships of the Supreme Court in Mcdowell & .Co. Ltd. v. C.T.O. (1985) 154 ITR 148. The opinion recorded by Mr. Justice Chinnappa Reddy exclusively deals with the concept of tax avoidance qua tax evasion which opinion has the concurrence of other Judges constituting the Bench.
His Lordship defines "tax avoidance" as ."the art of dodging tax without breaking the law" as the shortest definition. At page 154, their Lordships have quoted from the English decisions, the following excerpts wherefrom, may be made:
"Indeed, I sometimes suspect that our normal meticulous methods of, statutory construction tend to lead us astray by concentrating too much on verbal niceties and paying too little attention to the provisions read as a whole. .
Given that a document or transaction is genuine, the Court cannot go behind it to some supposed underlying substance. This is the well-known principle of IRC v. Duke of Westminster (1936) AC 1. This is a cardinal principle but it must not be overstated or over-extended. While obliging the Court to accept documents or transactions, found to be genuine, as such, it does not compel the Court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded; to do so is not to prefer form to substance, or substance to form. It is the task of the Court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded. For this, there is authority in the law relating to income tax and capital gains tax; See Chinn v. Hochstrasser (1981) 2 WLR 14; IRC v. Plummer (1980) AC 896. "
The latest trends in this direction have been noted by his Lordship as under (page 159):
"The Courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it on fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it .
... the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it." (page 160)
His Lordship has noted a judgment in Wood Polymer Ltd. In re; Bengal Hotels Ltd., In re (1977) 109 ITR 177 ; (1977) 47 ITR Comp. Cas. 597 (Guj . ), wherein the High Court refused to accord sanction to the amalgamation of companies as it would lead to the avoidance of tax, His Lordship has concluded by holding (page 161):
"It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of 'emerging' techniques of interpretation as was done in Ramsay, Burma Oil and Dawson, to expose the 'devices for what they really are and to refuse to give judicial benediction."
Other Lordships, speaking through Mr. Justice Ranganath Misra, held (page 171):
"Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges."
It follows that while dealing with a tax law the realities, and not devices and subterfuges, have to be seen. The vision cannot be permitted to be blurred by the blinkers of colourable devices and dubious methods.
Shri C. S. Aggarwal. learned counsel for the petitioner, that for the purpose of deter tiring the charitable purpose of the respondents should hay a confined their attention and scope of scrutiny onl3 to the purposes as set out to the deed of trust without digressing to actual activities carried on by the trust. It was also submitted that the scheme underlying the relevant provisions of the Income-tax Act shows that the legislative intent is to grant the donations made to a charitable trust exemption from payment of Income-tax and if a donor makes donations to a trust with charitable purpose as spelled out from the objects set out in the deed of trust, then the donations must enjoy exemption though its the event of the donation being misused or rnisu6iised for purposes other than charitable, the trust may be liable to assessment under the appropriate provisions and may also face penal consequences; however, this has nothing to do with the grant of recognition under section 80G of the Act, submitted learned counsel. We are not impressed.
It is not disputed that the objects of tile trust as set out in the deed of declaration, are charitable. However, the on-the-spot enquiry conducted b3 the respondents has revealed the trust being engaged mainly in the construction of a religious temple wherein no charitable activity was being carried on. It is also not disputed that the donations received by the trust and enjoying exemption under section 80G were invested by the petitioner and the income derived therefrom was utilised for a religious purpose.
For the purpose of construing the purpose of a trust, one need not remain necessarily confined to the objects of the trust as set out in the deed of declaration. The real purpose of establishment of a trust has to be found out and spelled out. "Purpose" means that which one sets before him to accomplish or attend, an intention or aim, object, plan, project; the term is synonymous with the ends sought and an object to attain, an intention, etc. (see Black's Law Dictionary, 6th Edn. Page 1236). Purpose must obviously be construed as real purpose and not a purpose as it outwardly appears to be. Any other interpretation would permit a fraud being played on the law permitting exemption from taxation. If the argument of learned counsel for the petitioner were to be accepted then a trust may be established with a purpose as set out in the deed of declaration which appears to be highly charitable but the trust may in fact be engaged in such activities which cannot even remotely be called charitable, and yet the donations made to the trust would enjoy exemption. The authority conferred with power to grant exemption is not debarred from finding out the real purpose as distinguished from the ostensible purpose and it may find that the purpose of the trust was other than charitable then nothing debars the authority from denying the approval.
Once a trust has approval from the Commissioner, the trust can persuade the donors into making donations. The don6rs would be persuaded to make such donations influenced by the approval unmindful of the fact - that their donations were going to be utilised for religious purpose as distinguished from charitable purpose-the distinction which Parliament has chosen to keep in view while framing section 8oG. The purpose of establishment-the real purpose as distinguished from the ostensible purpose-is germane to the enquiry which the Commissioner has to hold while granting approval under section 80G(5)(vi). We are not prepared to place any such interpretation on the language implied in section-80G so as to uphold an obligation on the part of the Commissioner to grant, an approval to a trust merely by looking at the instrument creating the trust and shutting his eyes towards the activities actually carried out by it.
The second contention of learned counsel for the petitioner also deserves to be discarded. Having received donations for charitable purposes, instead of being spent on charity, they are utilised for investing so as to earn returns thereon and utilise the same for purposes other than charitable (religious in the case at hand). Obviously, the donations are being utilised for purposes other than charity though indirectly.
We are, therefore, of the opinion that no fault can be found with the impugned order of the respondent denying renewal of recognition under section 80G of the Income Tax Act, 1961, to the petitioner-trust for the period April 1, 1996, onwards. The petition is devoid of merit and liable to be dismissed. It is dismissed accordingly though without any order as to costs.
M.B.A./4222/FCrder accordingly.