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Judgment
Alok Singh, J.—By way of the present petition, the Petitioner is challenging the order dated September 9, 2005, passed by the Commissioner of Income Tax, Karnal, thereby refusing to grant renewal of exemption u/s 80G(5) of the Income Tax Act.
The brief facts of the present case are that the Petitioner/society was registered u/s 12AA(1)(b)(i)) of the Income Tax Act, 1961, vide registration No. 227/91-D/97-98, dated June 12, 1998. The Petitioner claims to be a registered charitable and religious trust carrying out charitable activities like that of running a free homeopathy dispensary, free tailoring training school for poor girls and widows, primary school imparting free education to the poor, carrying out daily religious preaching for the moral and ethical upliftment of the society, carrying out daily free meal, langar and shelter provisions for the poor and other such charitable activities since 1910. The Petitioner was granted exemption u/s 80G of the Income Tax Act, 1961, vide order dated October 18, 2000, with effect from February 1, 2000, to March 31, 2005. The Commissioner of Income Tax called for various information and details from the Petitioner and fixed the case from time to time and ultimately passed the impugned order refusing to grant renewal of exemption u/s 80G(5) of the Act.
The Petitioner is assailing the impugned order mainly on the ground that the Commissioner of Income Tax has failed to consider the very important aspect that the entire income derived is being used only for charitable purposes in India. It is a further case of the Petitioner that the learned Commissioner has not recorded even a whisper that income of the trust was being used for other purposes and not for charitable purpose.
The Department has contested the claim of the Petitioner by way of filing the written statement. The main ground of refusal to grant renewal of exemption that the Petitioner-trust was found lending money to some persons and was found having constructed the building out of the funds received in a donation.
We have heard learned Counsel for the parties and perused the record.
Learned Counsel for the Respondents raised preliminary objections about the maintainability of the petition arguing, order passed u/s 80G refusing to grant renewal of exemption is an appealable order u/s 253(1)(c) of the Income Tax Act, hence, the writ petition without exhausting remedy of appeal should not be entertained.
The order impugned was passed by the Commissioner of Income Tax on September 9, 2005, and the present writ petition was filed on January 3, 2006. Appeal, against the order passed u/s 80G, was provided u/s 253(1)(c) for the first time, in the year 2007, with effect from June 1, 2007. Prior to amendment by the Finance Act, 2007, with effect from June 1, 2007, there was no provision to file appeal against the order refusing to grant exemption u/s 80G. Undisputedly, right to file appeal is a statutory right. It is a settled position of law that any amendment made in the Act is always prospective unless it is made retrospective. The present petition was filed prior to the amendment u/s 253(1)(c), hence, the objection raised by learned Counsel for the Respondents is not tenable and is rejected.
Learned Counsel for the Appellant vehemently argued that the impugned order was passed on September 9, 2005, thereafter, the Assessing Officer vide order dated October 23, 2006 has recorded that entire income is being used to charitable purpose. In view of order passed by Assessing Officer, the impugned order requires reconsideration. The order dated October 23, 2006 reads as under:
The Assessee-society is running two dera ashrams : one at Panipat and another at Hardwar and also a primary school (J.S. Model School) in the premises of Panipat ashram. The Assessee-trust is registered u/s 12AA of the Income Tax Act, 1961, and has claimed exemption u/s 11 of the Income Tax Act, 1961, as it has applied all of its income for charitable purpose. On a perusal of the records, the contention of the Assessee that it has applied all of its income for charitable purpose in India, as per the provisions of the Income Tax Act and hence its claim of exemption of Rs. 5,28,344 u/s 11 of the Income Tax Act is justified, is accepted.
According to learned Counsel for the Petitioner, at one place the Assessing Officer is admitting that the Petitioner has applied all of its income for charitable purposes in India and, at other place, the Commissioner without recording the finding on the question, as to whether income is being applied for the charitable purposes in India, passed the impugned order. According to learned Counsel for the Petitioner, finding on the question, as to whether all the income derived is being used for charitable purposes in India is sine qua non, for granting or refusing the renewal of exemption u/s 80G.
Learned Counsel for the Petitioner has placed reliance on the judgment of the Rajasthan High Court in the matter of Shri Sardarmal Sancheti Charitable Trust v. Union of India reported in [2009] 222 CTR 617 : [2009] 20 DTR 203 (Raj) : [2010] 322 ITR 167 (Raj), where the learned single judge in paragraph 5 has observed as under (page 169 of 322 ITR):
...however, it does appear appropriate to observe that mere contribution for the purpose of construction of one room in a hostel that is named Oswal Chhatra was may not by itself be treated to be an act violating the requirements of Section 80G(5B) of the Act. The other aspects particularly those relating to utilisation of the funds of the trust concerned with reference to its aims and objects do require consideration and the application for renewal of exemption cannot be rejected with an abstract reference to the quantum of one particular donation in relation to a particular hostel, even if such a hostel is managed by a particular community.
Learned Counsel for the Petitioner has also placed reliance on the judgment of the hon''ble apex court in the matter of American Hotel and Lodging Association Educational Institute Vs. Central Board of Direct Taxes and Others, . The hon''ble apex court in paragraphs 29 and 30 has held as under (page 105 of 301 ITR):
In Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, it has been held by this Court that the test of predominant object of the activity is to be seen whether it exists solely for education and not to earn profit. However, the purpose would not lose its character merely because some profit arises from the activity. That, it is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realisation but would reflect unsound principles of management. In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established.
In deciding the character of the recipient, it is not necessary to look at the profits of each year, but to consider the nature of the activities undertaken in India. If the Indian activity has no corelation to education, exemption has to be denied [see judgment of this Court in M/s. Oxford University Press etc. Vs. Commissioner of Income Tax, . Therefore, the character of the recipient of income must have character of educational institution in India to be ascertained from the nature of the activities....
Having perused the order impugned, we find that the learned Commissioner has not recorded any finding on the question, as to whether the income derived by the Petitioner-trust is being used for charitable purposes, as per the object of the trust or not. The learned Commissioner refused to grant renewal of exemption only on the ground of the source of income. From the perusal of the judgments cited above by learned Counsel for the Petitioner, we are of the view that it is not the source of income which is to be seen, but investment of the income. If income is being utilised for charitable purposes as per the object of the trust/society, then exemption ordinarily cannot be refused.
Learned Counsel appearing for the Revenue has placed reliance on the judgment of the Uttarakhand High Court in the matter of CIT v. National Institute of Aeronautical Engineering Educational Society reported in [2009] 315 ITR 428 and argued that if imparting education is for the primary purpose of earning profit, then it is not a charitable activity. We are of the opinion that judgment of the Uttarakhand High Court has no application in the present matter. To grant or refuse the exemption u/s 80G, the main criteria which requires consideration is as to whether the income derived, is being used for the charitable purposes, as per the object of the trust/society or not.
In view of the assessment order dated October 23, 2006 and in view of the judgments relied upon by the learned Counsel for the Petitioner, we are of the view that matter requires reconsideration by the learned Commissioner.
Accordingly, the impugned order dated September 9, 2005, is quashed. The matter is remanded back to the learned Commissioner of Income Tax to decide it afresh in accordance with law. The Petitioner is directed to appear before the learned Commissioner on March 23, 2010. No order as to costs.