CWP No.10141 of 2004(O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CWP No.10141 of 2004(O&M) Date of Decision 13.11.2009 S.Tirath Singh Lalvani Educational Foundation, Guru Kirpa Complex, 1, Jalandhar Road, Kapurthala, through Mr.Sanjiv Bawam Trustee. ...... Petitioner VERSUS Commissioner of Income Tax, Jalandhar-II ...... Respondent CORAM:- HON'BLE MR. JUSTICE M.M.KUMAR HON'BLE MR. JUSTICE JASWANT SINGH Present: Mr.A.M.Punchi, Advocate, for the petitioner. Mr.Vivek Sethi, Advocate, for the respondent. ***** M.M.KUMAR, J. The instant petition filed under Article 226 of the Constitution by S. Tirath Singh Lalvani Educational Foundation, Kapurthala (for brevity “petitioner-Trust”) challenges order dated 30.09.2003 (Annexure P-11), passed by the Commissioner of Income Tax, Jalandhar-II, declining the request of the petitioner-Trust for exemption under Section 80-G of the Income Tax Act, 1961. A further prayer for issuance of direction to the respondent to allow registration and exemption to the petitioner-Trust under Section 80-G(5)(vi) of the Income Tax Act has also been made. Brief facts of the case, which have lead to the file of the instant petition, are that the petitioner-Trust was duly registered under the Societies Registration Act, 1860. The certificate of registration dated 28.01.2003 has been added with the petition (Annexure P-1). The petitioner-Trust applied CWP No.10141 of 2004(O&M) 2 for exemption under Section 80-G of the Income Tax Act and the application was rejected vide impugned order dated 30.09.2003 (Annexure P-11). One Mrs.Mohini Bawa was possessed of huge immovable property at village Mansoorwal Donna, Jalandhar Road, Kapurthala. Out of her desire of creating an Educational Trust solely for charitable purposes to impart and provide facilities for education to the public at large, she executed an irrevocable deed of Trust on 12.12.2001. She bequeathed all her rights and interest in the property comprised in the land which is now known as Guru Kirpa Complex, situated at village Mansoorwal Donna, Jalandhar Road, Kapurthala. The total area of land is approximately 20 Kanals and 15 Marlas alongwith the structures erected thereupon. It also includes movable properties including Computers and peripherals etc. which are fully described in the schedule of property forming part of the registered Trust Deed (Annexure P-2) executed for setting up the petitioner- Trust. The petitioner-Trust has claimed that in pursuance of creation and acting in tandem with the objectives of the petitioner-Trust, a Day School with the name of “Bawa Lalvani Public School”, an institute known as Lalvani Institute of Technology at Kapurthala, were duly established. The School is likely to be upgraded to Standard XII and in that regard the petitioner-Trust has already submitted an application to the Central Board of Secondary Education. The aims and objectives for the creation of the Trust are discernible from para 4 of the Trust Deed. It is stipulated that the sole object of the petitioner-Trust is to run educational institution, existing solely for educational purposes and not for profit motive. In para 7 of the Trust Deed, it has further been provided that the power of the trustee is to be CWP No.10141 of 2004(O&M) 3 exercised for the furtherance of the objects of the Trust, which is education. In para No.9, it has been clarified that the benefits of the petitioner-Trust were not to be restricted to any particular segment of the population on the grounds of caste, creed, class or religion. There are clauses in the Trust Deed which specifically prohibits the diversion of any part of income or property of the Trust directly or indirectly by way of dividends, bonus or otherwise by way of profits to the Trustees or any person claiming through them. In para 26 of the Deed, everything has been put beyond doubt in the event of dissolution of the Trust. The assets of the Trust are not to be distributed amongst the Trustees but the same are required to be handed over to any other Trust, Society or Institution, professing objects similar to those of the petitioner-Trust and enjoying exemption under Section 80-G of the Income Tax Act. The petitioner-Trust in terms of its charitable objects had submitted application for grant of registration under Section 12-AA of the 1961 Act to the Commissioner of Income Tax, Jalandhar-II. The Commissioner after considering and satisfying himself that the Trust has been created and constituted for charitable purpose and that infact the activities of the Trust were commensurate and in consonance with its charitable objectives allowed the registration of the petitioner-Trust under Section 12-AA (1)(b)(i) of the Income Tax Act. The order dated 28.08.2002 registering the petitioner-Trust has been placed on record as Annexure P-3. Accordingly, the petitioner-Trust has been filing its income tax returns claiming exemption under Section 10(23C)(iiiad) and Section 11 of the Income Tax Act, which has never been issued any notice under Section 143 (2) of the Income Tax Act, which in turn implies that the assessment on the CWP No.10141 of 2004(O&M) 4 basis of return filed has been accepted as complete. On 18.03.2003, the petitioner made an application to the respondents for grant of registration under Section 80-G (5)(vi) of the Income Tax Act on the prescribed Form 10-G (Annexure P-4). The respondent sought clarification on certain issue from the petitioner-Trust vide letter dated 23.07.2003 (Annexurpe P-5). The petitioner-Trust sought time to furnish the required documents. On 05.08.2003, the books of accounts of the petitioner-Trust were produced before the respondent, which were duly inspected. The petitioner-Trust pointed out that its expenditure has been more than 75% of its collections on setting up the School and the Institute of Technology which was in accordance with the objects set out in the Trust Deed. Accordingly, the petitioner-Trust requested for grant of registration vide its application dated 06.08.2003 (Annexure P-6). Some more details were furnished vide letter dated 13.08.2003 (Annexure P-7) to enable the respondent to completely satisfy itself with regard to its activities. It has also been claimed that to answer the queries raised by the respondent, a further communication was sent on 10.09.2003. It has also been disclosed that source of funds provide to the petitioner-Trust was by way of unimpeachable and doubtless bank entries, explaining the source of funds. The petitioner-Trust pointed out that the finances have been provided by the non-resident external account maintained by the Trustees in the banks at New Delhi. The expenses incurred on the Trustees and outside visitors alongwith the relevant bills were also furnished to the respondent. The aforesaid documents reveal that most of the Trustees of the petitioner- Trust reside in United Kingdom and also in Hong Kong, who have supported the Trust by lending the funds to it. The document produced CWP No.10141 of 2004(O&M) 5 included certificates from the bankers of the petitioner-Trust and copies of cheques which were issued to the petitioner -Trust from N.R.E. accounts maintained by the Trustees in India. On that basis, it has been claimed that there was no scope for having doubted the source of funds from the certification of bankers (Annexure P10). The petitioner-Trust has claimed that the respondent has wrongly doubted the genuineness of the funds contributed to the creation of the Trust and on that basis has rejected its application. The operative part of the impugned order dated 30.09.2003 (Annexure P-11) reads as under:- “------- This object is capable of being treated as an independent object and cannot be said to be for charitable purpose. This clause has the effect of permitting the trustees to carry on the activity for profit and give unfettered discretion to the trustees to spend the funds of the trust on the purchase/sale of immovable property, whether they are charitable or non- charitable. The trustees have the discretion to utilize the funds of the trust for any of the objects, including the non-charitable ones. As these objects themselves are an activity for profit, hence the assessee falls outside the scope of Section 2 (15) of the Act and the benefit of the exemption cannot be allowed. Further, as discussed above, the trust has violated the provisions of Section 13 of the I.T. Act by making expenditure on the stay of the trustees and the other guests in Radisson Hotel, Jalandhar. These expenses are not for charitable purposes.” CWP No.10141 of 2004(O&M) 6 A perusal of the aforesaid order discloses the following three grounds for rejection:- Firstly, that the unsecured loans have been received by the petitioner-Trust from the trustees, which are stated to have come from the Bank of America, DCM Building, 16 Barakhamba Road, New Delhi and BNP Paribas, Hansalaya, 2nd Floor, Barakhamba Road, New Delhi. The aforesaid funds have come from outside India and appears to have been contributed by NRI trustees living in U.K. and Hong Kong. The Commissioner, in her orders has noticed that no evidence was furnished to show that these amounts were contributed by NRI trustees from abroad and the money really belonged to them. Secondly, Clause 'c' under the heading other incidental objectives of the Trust Deed (Annexure P-2) is capable of being treated as independent and cannot be said to be for charitable or non-charitable. Thirdly the petitioner-Trust has incurred expenses for the stay of its trustee in a hotel at Jalandhar, which violate Section 13 of the Income Tax Act. In the written statement, filed on behalf of respondent, broad factual averments made by the petitioner-Trust in the petition have been accepted. However, it has been explained that the petitioner-Trust had spent heavy amount of funds for meeting the luxurious needs of its trustee in a luxurious 5 Star Hotel named as Radisson Hotel at Jalandhar which attracts the provisions of Section 13 of the Income Tax Act. It is claimed CWP No.10141 of 2004(O&M) 7 that the maxim charity begins at home. That atmosphere of the trustee should be exemplary for others whereas in the instant case the funds meant for charitable purposes were diverted towards the luxurious stay of the trustees. Therefore, no exemption under Section 80-G could be granted and even consequential action under Section 12-AA of the Income Tax Act has to be initiated. The respondent has also claimed that the sources of funds of Rs.2.62 crores reflected in the books of account, which are allegedly received from four trustees through N.R.E. bank accounts have not been satisfactorily explained. The loan transaction was not free from doubt as the petitioner-Trust failed to substantiate that the said loan was remitted by the N.R.E. Trustees. No proof was furnished that the loan advanced actually belonged to the Trustees of the petitioner-Trust. There are two necessary components in such a transaction which are required to be proved namely the identity of the creditors and the genuineness of the loan transaction and both the components have remained unsubstantiated. It appears that the document dated 24.10.2003 (Annexure P12) issued by the bank of America alongwith further detail appended as Annexure P1 and photo copy of the cheques as well as the document issued by BNP Paribas tendered explained with regard to the source of funds, the bank account from which the funds have come from alongwith further details so these documents were not on record and were duly considered by the Commissioner of Income Tax then she passed order dated 30.09.2003 (AnnexureP11). It is in the aforesaid facts and circumstances that the validity of the impugned order dated 30.09.2003 (Annexure P11) is required to be determined. Mr.A.M.Punchi has argued that the first ground constituting the CWP No.10141 of 2004(O&M) 8 basis of the impugned order may require a re-look in view of the details, which have now been placed on record of this petition in the form of information by the Bank of America dated 24.10.2003 (Annexure P12) as well as by the BNP Paribas, Hansalaya, 2nd Floor, Barakhamba Road, New Delhi (Annexure P12 collectively). According to learned counsel all the entries and the source of money has been explained by the aforesaid annexures with the details of cheque number, account number and the name of the trustee, who is contributing the funds. On the aforesaid basis, learned counsel has submitted that the matter required re-consideration at the hands of the Commissioner, who has passed the impugned order. In respect of the second ground that there is violation of Section 13 of the Income Tax Act, learned counsel has submitted that the object given in Clause (c) under the heading either incidental objectives cannot be torn out of context and read in isolation. Learned counsel has drawn our attention to Clause 4 (e) and (i) under the heading main objects and clauses (c), (F) and (1) under the heading other incidental objectives, as also Clause 8, Clause 25 and 26 of the Trust Deed. He has further submitted that a conjoint reading of these clauses would show that clause (c) which is aimed at sale, mortgage, transfer, exchange etc. or to deal with any property or asset belonging to the Trust is only empowering the trustees to perform numerous functions for the purposes of advancing the object of the petitioner-Trust, which is education. He has pointed out that nor a single penny can be utilized or credited either to the Trust or the trustee. The assets of the Trust are not to be distributed amongst the trustees but are to be handed over to mother Trust/Society professing similar objects and also enjoying exemption under Section 80-G of the Income Tax Act. The CWP No.10141 of 2004(O&M) 9 submission made by the learned counsel is that there cannot be any possibility under the Trust Deed to appropriate the asset of the Trust for the personal use of the trustees and, therefore, the reading of Clause (c) of the Trust Deed by the Commissioner in isolation has lead to a conclusion which in fact has has not been contemplated by the Trust Deed. An extreme situation has been taken care of by Clause 26 of the Trust Deed which provides that in case of winding up or dissolution of the petitioner-Trust---- His last submission with regard to violation of Section13 of the Act is that whenever some trustees who have contributed huge amount of loan visit the country from abroad then the arrangement of their stay are made in a hotel befitting to their status and it cannot be said that the expenses have been made for the benefit of the trustee in the sense that they have been unduly showered with luxuries or external expenses have been incurred on them for their private visits. It is only to facilitate their visit to the country so as to enable them to attend the meeting of the Trust. Mr.Vivek Sethi, learned counsel for the respondent has made an attempt to furnish legal justification of the impugned order. However, he has not been able to propose the primary submission made by learned counsel for the petitioner-Trust which is to the effect that the matter requires re-look as the various documents produced by the petitioner-Trust collectively attached as Annexure P12 after passing of the impugned order have not been considered by the Commissioner. Having heard learned counsel for the parties and perusing the paper book with their able assistance, we are of the view that the prayer made by the learned counsel for the petitioner deserves to be accepted which would meet the end of justice if the matter is remitted back on the file CWP No.10141 of 2004(O&M) 10 of the Commissioner of Income Tax, Jalandhar-II for decision afresh after taking into account the documents attached as Annexure P12 (collectively). Accordingly the impugned order dated 30.09.2003 is set aside. The commission`er, Income Tax, Jalandhar-II is directed to reconsider the whole issue in the light of the documents placed on record of this petition alongwith any other document which may be produced by the petitioner- Trust at the time of hearing. The parties may appear before the Commissioner, Income Tax, Jalandhar-II within four weeks of the receipt of copy of this order and the Commissioner may then proceed to determine the question afresh in accordance with law by passing a speaking order. It shall be appreciated if all the documents placed on record of this case are taken into consideration alongwith any other document which may be placed on record by the petitioner-Trust. Any observation made in this order shall not be construed as an expression of opinion on the merits of the case and the Commissioner shall proceed on merit without being influenced by any such observation. (M.M.KUMAR) JUDGE (JASWANT SINGH) JUDGE 13.11.2009 mamta-II 7