The Madras High Court recently ruled that a Deemed University deviated from the objects of the Trust deed cannot avail exemptions of Charitable Trust.
The respondent/assessee, M/s.Shanmuga Arts, Science, Technology & Research Academy (SASTRA) is a Trust registered under Section 12AA of the Income Tax Act, 1961. The Trust had filed the return of income and claimed exemption for Rs.6,65,60,886/- being the amount of donation made by it under Section 11 of the Act. The Assessing Officer had issued a notice u/s.143(2) of the Act through which the details of donations made during the period were called for and according to the Assessing Officer, there was no explanation offered for many donations made by the Trust as to whether they were for activities in conformity with the objects of the Trust. Therefore, all the donations were treated as not exempted and demand was reworked by the Assessing Officer.
Consequently, the capital expenditure claimed was not considered as the assessee was being taxed in the status of AOP (Association of persons) whereas an unclaimed depreciation was allowed for the same reason of status of AOP. It was also observed by the Assessing Officer that out of a total amount of Rs.6,70,21,273/- paid as donations, the assessee had claimed only Rs.6,65,60,886/- in its return explaining that two items of Rs.39,613/- and Rs.5,00,000/- were given to Charities for Tsunami and to political parties, individuals and others, out of which Rs.5,00,000/- was recovered back during the same financial year from the founder Mr.S.Ramachandra Iyer. The assessee Trust themselves had removed that amount from the list of donations.
According to the Commissioner of Income Tax (Appeals), it is immaterial whether the Charitable and religious purposes for which the Trust is created are confined to the objects of the Trust and what is required is that the income must be applied or accumulated for application or set apart for application as per the provisions of the Income Tax Act, 1961. Thus it was observed that even assuming that the objects of the Trust do not empower the Trustees to spend any part of the income of the Trust property for a particular purpose, still, if they do spend any part of the income for charitable or religious purposes in India, it would be entitled to exemption u/s.11 (1) (a) of the Act for that year. The Commissioner of Income Tax (Appeals) gave a verdict in favor of the assessee.
Mr. J. Narayaswamy, Senior Standing Counsel for the Appellant/Revenue argued that the Tribunal was wrong in holding that the assessee was entitled to the exemption u/s.11 of the Act. According to him, the Tribunal also erred in interpreting the contents of the Trust-Deed while declaring the Trust as Public Charitable Trust. Therefore, his contention was that the Assessing Officer was right in declaring the donations which were not in conformity with the objects of the Trust as not entitled for exemption u/s.11 of the Act. He also contended that the order of both Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal are perverse and liable to be set aside.
On the other hand, Ms.Pushya Sitaraman, counsel for the respondent/assessee contended that the Assessing Officer through in her original report had declared all the donations to the tune of Rs.6,65,60,886/- as not entitled for exemption took a complete u-turn in her remand report accepting most of the donations as permissible barring a few totaling to Rs.14,94,886/-.
The division bench of Justice M.Duraiswamy and Justice Hemalatha observed that the Assessing Officer had first disallowed the entire exemption and subsequently scaled it down to Rs.14,94,886/- though reiterating that the Respondent/Trust had acted in violation of its own object set out in the Trust deed. If the Assessing Officer had objection regarding the entire amount of donation, then her remand report should not have accepted any of the donations with valid reasons.
“Moreover, Charity is clearly defined as relief of the poor, education, yoga, medical relief, preservation of the environment, etc., Thus public charitable trust donating to activities other than education cannot be denied exemption u/s.11 of the Act. Therefore, the conclusion of the Assessing Officers totally unwarranted,” the court observed while rejecting the appeal of the revenue.
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