In a recent case, the High Court of Punjab and Haryana has held that granting approval under section 80g(5)(vi) of the Income Tax Act, 1961 merely relying on the instrument creating the trust is not valid. It was viewed that the order is based only on assumptions and there is not supportive evidence.
Tilok Tirath Vidyavati Chhuttani Trust, the petitioner – Trust has been denied the renewal benefit of tax relief under Section 80-G of the Income Tax Act, 1961. By virtue of Trust Deed/Memorandum of Association dated
31.03.1972, Tilok Tirath Vidyavati Chhuttani Charitable Trust (hereafter referred to as ‘petitioner-Trust’) came into being. As per Article 4 of the Trust Deed.
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On 17.08.1973, petitioner-Trust applied for registration under Section 12-A(a) of the Income Tax Act, 1961 (‘the 1961 Act’), which was allowed by the Commissioner of Income-tax, Patiala, vide Certificate dated 12.02.1976 . Thereafter, pursuant to application dated 16.01.1997 made by the petitioner-Trust, another. Certificate dated 19/21.05.1997 , was issued by the Commissioner of Income-tax, Patiala, to the effect that the petitioner-Trust will be eligible for the tax relief under Section 80-G of the 1961 Act, in the hands of the donors subject to the limits and conditions prescribed in the said section. It was further stipulated that the said exemptions will be valid for the period ending 31.03.1993 to 31.03.1997 (relevant to the Assessment Years 1993-94 to 1997-98).
While considering the application for renewal of exemption under Section 80G of the 1961 Act and the income tax returns for the Assessment Year 1996-97, the Commissioner of Income-tax, Chandigarh issued a show cause notice to the petitioner-Trust, inter alia, mentioning therein that it was noticed that the petitioner-Trust was not working for the objects for which it was created, as a hospital was being run on the 4th floor of SCO 52-54, Sector 17, Chandigarh and on the first floor of the said building an organisation by the name of ‘Chandigarh Medical Center’ was being run, wherein a large number of doctors were carrying out their private practices by using the facility, building and manpower of the Trust and in return they used to pay to the Trust either a fix amount per month or fixed percentage of their receipt. The arrangement between the doctors and the petitioner-Trust amounted to take the premises of the Trust on rent and carrying private practice.
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In the said show cause notice, it was further pointed that the petitioner-Trust had donated Rs. 29,00,000/- to a society, namely, Sardarni Uttam Kaur Charitable Society, and its objects (as per Trust Deed of said society) were not in any way connected with the objects of the petitioner-Trust. Apart this, by citing details of other donations made by the petitioner-Trust to other Societies and PGI etc., it was concluded that the petitionerTrust was utilizing the interest income of its corpus fund in making donations to the Trusts/Societies not connected in any way to its objects, and no charitable work was being done and no medical research was undertaken.
The petitioner-Trust filed a detailed reply wherein it has been explained that Chuttani Medical Center was functioning in the basement, 2nd, 3rd and 4th floors of the building, whereas Chandigarh Medical Center, was functioning on the first floor, which was set up by Dr. P.N. Chuttani after his retirement in 1978.
Petitioner-Trust has been providing medical facilities by arranging the consultant doctors under one roof and doing charitable work. Admitted that the consultant charge their fees and pay rent for the accommodation provided to them or permit deduction for certain percentage out of their fees. It was disclosed that a sum of Rs. 15,000/- per month was being paid by them to the Trust for maintenance of the first floor.
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The question before court was not of cancellation of the registration, rather, it is declining the grant of exemption under Section 80-G of the IT Act for the future period also. The impugned action of the respondents is in self contradiction, because on one hand the objects of the petitioner – Trust explained in clause 4, is the part of the registration and based upon the said object, exemption under Section 80-G of the IT Act, was granted for Assessment Year 1998-1999 to 2000-2001.
The Assessing Officer (A.O.) has noticed that object of the Trust do not permit the trustees to apply the income for donations to other trusts and thus, action of the trustees was held to be illegal. Only on this basis, the Assessing Officer drew its’ conclusion that neither any charitable work was done by the Trust nor any medical relief or encroachment of medical research has been provided for the last many years.
A division bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth viewed that the order is based only on assumptions and there is not supportive evidence. There would not be any dispute to the effect that the petitioner – Trust runs only one “Chhuttani Medical Centre”. Therefore, the donations made to it cannot be doubted merely for the reason that the donations in other years are of smaller amount. Respondents have not taken note of the fact that the petitioner – Trust had been making donations to Sardarni Uttam Kaur Charitable Society, which is also registered under Section 12-A of the IT Act and had been granted exemption under Section 80-G of the IT Act. Neither from the record, nor anything pointed out by the respondents that their action is in pursuance to the complaint from any person/organization/society, to which the medical services are being provided by the petitioner – Trust.
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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; Term is synonymous with the ends sought and an object to attain, an intention, etc. 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 the counsel for the petitioner was 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 if it may find that the purpose of the trust was other than charitable then nothing debars the authority from denying the approval.
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Once a trust has approval from the Commissioner, the trust can persuade the donors into making donations. The donors 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 the Parliament has chosen to keep in view while framing Section 80G. 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).
The Bench held that “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 its eyes towards the activities actually carried out by it.”
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