1. The assessee trust e-filed its original return of income for the Asst.
Year 2017-18 on
31-03-2018 declaring NIL income after claiming exemption u/s.11 of the I.T. Act, 1961.The
case has been selected for scrutiny through CASS. Notice u/s 143(2) was issued on
11.09.2018 and the same was duly served on the assessee.
2. Subsequently, a detailed questionnaire along with the notice u/s. 142(1) r.w.s. 129
were issued and the same was duly served on the assessee through ITBA. In response to the
above, the assessee furnished the details called for electronically through E-Proceedings.
Thereafter, assessee has filed revised return of income on 24-10-2018 and as such, Notice u/s.
143(2) of the Act dated: 27-09-2019 was issued and duly served upon the assessee.
3. The Assessee Trust is registered u/s.12A of the Income Tax Act vide certificate issued
by Commissioner of Income Tax (Exemptions), Bangalore in F.No.
ITBA/EXM/S/12AA/2019-20/1021714397(1) dated 05.12.2019.
4. The primary objectives of the assessee-university are as under:
a) To provide for higher education leading to excellence and innovation in such
branches of knowledge as may be deemed fit primarily at post-graduate and research degree
levels fully conforming to the concept of university, namely, University Education Report
( 1948) and the Report of the Committee on Renovation and Rejuvenation of Higher
Education in India (2009) and the Report of the Review Committee for Deemed to be
Universities (2009).
b) To engage in areas of specialization with proven ability to make distinctive
contributions to the objectives of the university education system that is academic
engagement clearly distinguishable from programmes of an ordinary nature that lead to
conventional degrees in arts, science, engineering, medicine, dental, pharmacy, management
etc. routinely offered by conventional institutions.
c) To provide for high quality teaching and research and for the advancement of
knowledge and its dissemination through various research programmes undertaken in-house
by substantial number of full time faculty/research scholars( PhDs and Post-doctoral) in
diverse disciplines.
d) To enable creation of intuitions/centres unique and emerging areas of
knowledge, particularly, in specific areas of study and research preferably sponsored and
regarded as important for strategic needs of the country.
5. Entitlement of exemption u/s 11 with retrospective effect?
5.1 The assessee has been granted registration u/s 12AA on 05.12.2019 based on the
application in Form No. 10A filed on 16.10.2019. In the normal circumstances as per first
proviso to section 12A(2) should come into play and the Registration should possess
retrospective effect.
5.2 But in the case under consideration, as seen from the records of the office of the
CIT(Exemptions), the application in Form No.10A filed on 28.03.2018 was rejected and
registration u/s 12AA(1)(b)(ii) was denied to the assessee. Though the denial was on account
of non-prosecution on part of the assessee, the grant of registration subsequently, on
05.12.2019 was not automatic. The assessee had to undertake amendments to the
memorandum to the association and a deed of amendment was executed on 03.12.2019,
wherein the clauses towards amendments, investments, accounts, dissolution, irrevocability
beneficiary, utilization, and area of operation were inserted. These are essential clauses
which a trust deed should possess and in its absence registration as a charitable trust cannot
be granted. Therefore, till the date of amendment, the trust was not charitable in character
for the purpose of the provisions of Income tax and only the modification undertaken on
03.12.2019 had provided the elated status.
5.3 When the original clauses were not as per the mandate of the Income Tax statute and
when necessary amendments have been carried out, the institution enlivens as charitable in
character only from the date of amendment and not from the date of execution of the original
deed.
5.4 Complete reliance is place on the decision of the Hon’ble Supreme Court in the case of
Commissioner Of Income Tax, vs Kamla Town Trust on 16 November, 1995 reported in
1996 SCC (7) 349 and the judgment of the Delhi High Court in the case of Bhiguraj Charity
Trust, reported in 228 ITR 50 wherein it was held that “an amendment in the trust deed
would not possess retrospective effect”. Therefore, when the clauses in the deed of Jain Trust
became entirely charitable consequent to the amendment which occurred on 03.12.2019
after removing the incompatible clauses, the status as charitable in character should also
follow suit and cannot go back to the years during which the contents of the deed were not
wholly charitable in nature.
5.5 Therefore, it is clear that for the year under consideration i.e. A.Y.2017-18, the
registration u/s 12AA granted on 05.12.2019 does not have any effect. In short, the trust was
unregistered then and hence the provisions of section 11with regard to grant of exemption on
income would not come into force.
5.6 The claim of charitable status u/s 2(15) by the assessee as thus become questionable
since registration u/s 12AA was not available till AY 2020-21.The Hon’ble Supreme Court in
the case of M/s UP Forest Corporation reported in 297 ITR 001 had held that “A conjoint
reading of Section 11, 12 and 12A makes it clear that registration under Section 12A is a
condition precedent for availing benefit under Section 11 and 12 of the Act. Unless and
until an institution is registered under Section 12A of the Act, it cannot claim the benefit
of Section 11(1)(a) of the Act.”.
5.7 Therefore, the assessee is disentitled from claim of exemption u/s 11 for the year
under consideration.
6. Without prejudice to the finding discussed above that the assessee is not entitled for
exemption u/s 11, the action on part of the assessee discussed hereunder, makes the assessee
ineligible for exemption u/s 11 irrespective of availability of registration u/s 12AA for the
year or otherwise.
6.1 During the AY 2017-18 the assessee donated an amount of Rs. 50,00,00,000/- to Sri
Bhagawan Mahaveer Jain Educational and Cultural Trust(PAN: AABTS1497G). The
assessee university was formed and some of the institutions of Sri Bhagawan Mahaveer Jain
Educational and Cultural Trust were brought under this group with the name and style of
JAIN trust (previously known as Jain University Trust). The assessee received the assets from
Sri Bhagawan Mahaveer Jain Educational and Cultural Trust. The relevant portion of the
schedule to Capital fund of Balance sheet of Sri Bhagawan Mahaveer Jain Educational and
Cultural Trust is placed below for reference,
6.2 The other trust is distinct and possesses PAN: AABTS1497G. The particulars of
payments and receipts of contribution during the year between Jain Trust and Sri Bhagawan
Mahaveer Jain Educational and Cultural Trust is tabulated and provided below:
S.No. Name of the Trust with PAN Contribution Contribution
whom assesse had received paid
transactions
1 Sri Bhagawan Mahaveer AABTS1497G Assets worth 50,00,00,000
Jain Educationaland Cultural Rs.49,32,18,453
Trust
6.3 The assessee was appraised that once a contribution is received in cash or in kind, in
excess of a value of Rs.50,000/-, such contributor gets categorized as a person referred to in
sec. 13(3)(b) to be any person who had made substantial contribution to the trust or
institution, that is to say any person whose total contribution upto the end of the relevant
previous year exceeds Rs.50,000/- (Rupees Fifty Thousand). In the case under consideration
the contribution in kind received by the by the assessee trust from Sri Bhagawan Mahaveer
Jain Educational and Cultural Trust is Rs.49,32,18,543/-, and it is as per the assessee’s own
admission. Therefore, the transaction between the assessee and Sri Bhagawan Mahaveer Jain
Educational and Cultural Trust has to be undertaken in such a manner that the assessee does
not grant any form of benefit in excess of Rs.1000/- (refer sec.13(2)(g)) to the other trust.
6.4 The assessee stated that, the assessee trust wanted to gain the status of deemed
University and as per the conditions laid down by Ministry of Human Resource Development
and University Grants Commission, Sri Bhagawan Mahaveer Jain Educational and Cultural
Trust had to part with few of the institutions which were carved out of the Sri Bhagawan
Mahaveer Jain Educational and Cultural Trust. It is not a case of Voluntary Donation and
hence cannot be brought under the ambit of contribution to another trust.
6.5 The contention of the assessee is not acceptable. If the ‘Voluntary’ character is
missing in the act of transferring of assets for the benefit of the other institution, it would not
partake the character the income u/s 12(1) and thus will have to be brought to tax in the hands
of the recipient. Having failed to do so, it implies that the donation is voluntary and hence the
contribution is hit by the provisions of sec. 13(3)(b).
6.6 Further, the provisions of sec. 13(2)(b) does not distinguish the voluntary or
involuntary characteristics of a contribution made and clearly states that the provisions get
invoked when the total contribution upto the end of the relevant previous year exceeds
Rs.50,0000/- . In the case under consideration, the value of contribution made in kind has
exceeded this threshold value and hence Sri Bhagawan Mahaveer Jain Educational and
Cultural Trust becomes an specified person u/s 13(3) in respect of in respect of the assessee
and any benefit returned back will tantamount to violation u/s 13(1)(c).
6.7 Inter charity donations are not prohibited under the law. However, there cannot be
transactions back and forth. When a person receives contribution from a charitable or
religious trust in excess of Rs.50000, the contributor becomes a person defined under section
13(3)(b). Such person is prohibited from deriving benefit from the charitable and religious
trust to which the contribution has been made and if done, it violates the provisions of section
13(1)(c). Accordingly, the applicability of the provision of section 11 granting exemption
becomes questionable.
6.8 The solitary aspect of intrigue in the case under consideration is whether another
Charitable Trust/ Institution can also get into this basket of persons defined u/s 13(3) r.w.s.
2(31). In this regard, reliance is placed on the decision of the Hon’ble Bombay High Court
in the case of Champa Charitable Trust dated 05/12/1994 which disdained claims of
exemption under exactly similar circumstance. For easier comprehension, the conclusion
drawn in the said order is captured and provided below:
“The bracketed part in clause (b) of section 13(3) was inserted by the Taxation
Laws (Amendment) Act, 1975, with effect from April 1, 1977, and hence, applies
to assessments for the assessment year 1977-78 only. This amendment is,
however, not relevant for the purposes of the present case where the contribution
of Shri Laherchand Uttamchand Trust Fund was Rs. 1,00,000, far in excess of
the above amount. It is clear from a reading of section 13, which opens with the
non obstante clause "Nothing contained in section 11 or section 12 shall operate
so as to exclude from the total income of a person" that this section has an
overriding effect over sections 11 and 12 and on contravention of any of the
provisions thereof or on the happening of any of the contingencies specified
therein, the income of the person would not be excluded from the total income of
such person despite fulfilment of the conditions of section 11 or 12 of the Act.
There is no dispute about the fact that Laherchand Uttamchand Trust Fund had
made a substantial contribution to the assessee-trust and the contribution so
made up to the end of the previous years relevant to the assessment years under
consideration being Rs. 1,00,000 far exceed Rs. 5,000. There is also no dispute
about the fact that sums of Rs. 50,000 and Rs. 56,001 were used or applied by
the assessee-trust for the benefit of the said LaherchandUttamchand Trust in the
previous years relevant to the assessment years 1976-77 and 1977-78,
respectively. Apparently, in such a situation, sub-section (3) of section 13 is
attracted. This position is not disputed by counsel for the assessee also. The only
contention of the assessee is that the expression "person" appearing in section
13(1) does not include a "trust" and that the said Laherchand Uttamchand Trust
being a charitable trust, the question of applying the said mounts directly or
indirectly for the benefit of such trust cannot arise. The term "person" has been
defined in clause (31) of section 2 of the Act to include : (i) an individual, (ii) a
Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of
persons or a body of individuals, whether incorporated or not, (vi) a local
authority, and (vii) every artificial juridical person, not falling within any of the
preceding sub-clauses. It is not disputed before us that a "trust" is also a
"person" within the meaning of section 2(31) of the Act. If that is so, we fail to
understand how a different meaning can be ascribed to the same expression
"person" appearing in the various sub-sections and clauses of section 13 of
the Act. That being so, the assessee-trust having applied a substantial part of its
income or property (even more than the total contribution of Laherchand
Uttamchand Trust to it), the provisions of section 13(1)(c)(ii) of the Act are
clearly attracted as the said trust is a "person" falling under clause (b) of section
13(3) of the Act. Any other construction of the expression "person" appearing
in section 13(3) of the Act will defeat the very purpose of section 13(1)(c)(ii) of
the Act, because it would be possible for the assessees in that event to circumvent
the provisions of section 13(1)(c)(ii) by channelising the donations through
trusts.
5. In that view of the matter, we do not find any infirmity in the finding of the
Tribunal. We, therefore, answer the question referred to us in the affirmative and
in favour of the Revenue.”
7. The Hon’ble Supreme Court in the case of Sole Trustee of Lok Shikshana Trust 1976
SCR (1) 461had held that “The action which flows from charitable thinking is not directed
towards benefitting one's self. It is always directed at benefitting others.”, which implied
that charity should be an “one way ticket” with a “non-return Valve” and if the reversal
happens, even if it were a charitable or religious trust which gets benefitted, the provisions of
S.13(1)(c) gets invoked and thus the claim of deduction u/s.11 in the case of the assessee is
denied.
8.1 The next issue which requires to be addressed is whether the income that requires to
be brought to tax by denial of exemption u/s 11, would be the surplus or the value being the
excess of income over the expenditure of the society or restricted to the extent of quantum
involved in the violations u/s 13(1)(c) being the undue benefit passed on to the persons
referred to in sec. 13(3). The assessee may rely on the decision of CIT Vs. Fr. Mullers
Charitable Institutions (2014) 51 Taxmann.com 378 (SC), to impress that exemption u/s 11
can be denied only to the confines of the quantum that is covered under violation and not
beyond and also decision of the Bombay High Court in the case of CIT(Exemptions), Pune
Vs. Audyogik Shikshan Mandal (2019) 101 Taxmann.com 247 (Bombay).
8.2 The case Fr. Muller (supra) is not applicable to the fact situation in the case under
consideration since, the same, had adjudicated the violation u/s 13(1)(d) and not 13(1)(c).
Even the decision relied upon in it being DIT v. Agrim Charan Foundation [2002] 253 ITR
593 is also on the issue of violation u/s 13(1)(d) only. Therefore, the decision of the
jurisdictional High Court is not applicable since the facts and the provisions enforced are
different.
8.3 Even in the case of Audyogik Shikshan Mandal (supra), cannot set as precedent since
it has been rendered on inappropriate appreciation of facts. It had relied on the case of
Fr.Mullers which applies to 13(1)(d) to give relief u/s 13(1)(c), and hence, cannot be
considered as a standard to give relief to the assessee.
8.4 On the contrary, the provisions of the act are abundantly clear that when 13(1)(c) gets
invoked nothing contained in sec. 11 shall operate so as to exclude from the total income of
the previous year. A careful reading of sec. 13(7) in comparison to 13(1) will signify that if
the intention were to restrict to the extent of violations, the wording in the form of special
restriction confined to anonymous donations appearing in sec. 13(7) r.w.s. 115BBC, would
have been incorporated in sec. 13(1) by the legislature.
8.5 Further, as different from that of 13(1)(d), the provisions of sec. 13(1)(c) have a rider
in the form of 12(2). For easier comprehension the provisions of sec. 12(2) is capture and
provided below:
“(2) The value of any services, being medical or educational services, made available
by any charitable or religious trust running a hospital or medical institution or an
educational institution, to any person referred to in clause (a) or clause (b) or clause
(c) or clause (cc) or clause (d) of sub-section (3) of section 13, shall be deemed to be
income of such trust or institution derived from property held under trust wholly for
charitable or religious purposes during the previous year in which such services are
so provided and shall be chargeable to income-tax notwithstanding the provisions of
sub-section (1) of section 11.”
This provision envisages a situation that even if a person referred to in sec. 13(3), takes
benefit from an hospital or an educational institution in the form of any services, free of cost
then, only such benefit is to be brought to tax. For example, if the son of the trustee is
admitted in a hospital and is provide free medical treatment, such benefit, though it may
exceed Rs. 1000/-, will not result in invoking provisions of sec. 13(1)(c), and the income
which would be disentitled for exemption u/s 11 would be the maximum of the benefit passed
on to such person defined u/s 13(3).
8.6 If the contention that the value of benefit passed on as a result of violations u/s 13(1)
(c) should alone be brought to tax, then the provisions of sec. 12(2) becomes superfluous. The
legislature has intended to incorporate two different sections implies that the arithmetic of
taxation should be different. Therefore, when taxation resorts to denial of sec. 11 by
virtue of enforcement of provisions of sec. 13(1)(c) limiting the income to be taxed as per
the calculation provided u/s 12(2) is incongruous and hence untenable.
8.7 This contention gets strengthened by the following decisions which are exactly on the
intriguing subject:
i) Delhi High Court in the case of Pt. Kanahya Lal Punj Charitable Trust vs
DIT(E) reported in 297 ITR 66
ii) Chairman, Andhra Pradesh Welfare Fund V. Commissioner of Income-tax
[1983]12Taxman242 (AP)
iii) Sardarni Uttam Kaur Educational Society v. Income-tax Officer [2009] 27
SOT 13 (ASR.)(URO)
8.8 The Delhi High Court in the case of Pt. Kanahya Lal Punj Charitable Trust vs DIT(E)
reported in 297 ITR 66 has held that :
“once the exemption under Section 11 and 12 is denied, the Assessee would not
get any protection from Section 11 and 12 and the voluntary contribution
would be treated as income, as per definition of income give in Section 2(24) of
the Act, according to which income includes the voluntary contribution receipts
by a trust credited wholly or partly for charitable or religious purposes or by
an institution established wholly or partly for such purposes meaning thereby
once the exemption under Section 11 and 12 of the Act is withdrawn all the
receipts of the trust either by voluntary contribution or income derived from its
property would be an income of the trust in a normal course and is chargeable
to tax.”
8.9 The Amritsar Bench of ITAT in the case of Sardarni Uttam Kaur Educational Society
(supra) had held that:
“if any income or property of a trust or an institution is used directly or
indirectly for benefit of any person referred to in section 13(3), said
trust/institution would not be entitled to exemption in respect of voluntary
contributions or income received under section 11(1)(d)”.
8.10 The contents of the decision of the A.P. High Court in the case of Chairman, Andhra
Pradesh Welfare Fund(supra) is more thought provoking and can be categorized as a
paramount case law on this subject since, the facts of the case are squarely on the issue of
quantification of income as a consequence of invoking the provisions of sec. 13(1)(c). It held
in the concluding para of the illustrious order that:
“7. This is an unfortunate case where a Public Welfare Fund, which has been
constituted for the purpose of utilising the funds collected for the welfare of the
people in different spheres, has been made to pay tax on the voluntary
contributions received by it because the persons concerned with the
administering of the fund utilised a small part of the fund for extraneous
purposes not connected with the objects and purposes of the fund. The result is
that not only that small portion of the fund which was utilised for such
purposes out of the contributions but the entire contributions received by the
fund became taxable in the hands of the fund and the fund has been assessed
to tax on an income of Rs. 5,03,380 for the assessment year 1971-72 and on Rs.
7,91,770 for the assessment year 1972-73. If only the voluntary contributions
had been utilised strictly for charitable purposes for which they were intended,
the Welfare Fund would not have been liable to pay any tax. By reason of the
misapplication of a portion of the fund, a heavy tax liability has been imposed
upon the fund. We hope and trust that, in future at least, care is taken to see
that the contributions to the fund are strictly applied for the purposes for which
they are intended and the fund is not put to the necessity of paying any tax on
such contributions.
8.11 Following the rationale expressed by the decisions which are directly applicable, the
surplus derived by the Society is entirely brought to taxation. The amount spent towards
charitable purposes were not incurred to earn the income brought to tax and hence not
allowable as expenditure. In the absence of exemption u/s 11 & 12, the same is not treated as
application as well.
8.12 The assessee is treated as an AOP for the purpose of taxation. Accordingly, in the
absence of eligibility u/s 11 & 12, the provision of section 14 comes into play. Therefore, in
respect of properties, which fetch business income, depreciation in respect of fixed assets
added during the year is allowed.
9. Since the assessed income is higher than the returned income, penal consequences u/s
270A gets attracted and the same is initiated separately by issue of notice u/s 274(1).
10 Based on the discussion made above, the computation of total income is redrawn as
under:
Particulars Amount in Rs.
Total income as per Revised Return of Income 170,82,08,443/-
Total Expenditure (Excluding donations to other Trusts) 109,95,13,814/-
Capital Expenditure (Not allowed) 0
Permissible accumulation u/s.11(1)(a) (Not allowed) 0
Assessed income 60,86,94,629/-
Demand Notice u/s.156 is enclosed herewith.
Computation Sheet is enclosed herewith.
The assessed income is higher than the returned income, initiation of the penal proceedings
under section 270A is warranted and the same is undertaken separately by issue of Notice u/s.
274(1) Income Tax Act, 1961 for under reporting of income.
The assessee has not furnished the return of income within the due dates prescribed by the
Income Tax Act, 1961. Hence, proceedings will be referred to the Addl. Commissioner of
Income-tax, Exemptions Range, Bengaluru to levy penalty u/s. 272A(2)(e) of the Income Tax
Act.
