The judgment of the court was delivered by
1. The petitioner, which is a registered Trust, has filed the instant writ petition for quashing the order dated 3.10.2006 whereby the Commissioner of Income Tax-1, Kanpur has rejected the application for renewal of extension under section 80-G of the Income Tax Act, 1961 (hereinafter referred to as the Act) and a show cause of even date issued by him for cancelling the registration under section 12-A of the Act.
2. The brief facts necessary for the purpose of the instant writ petition are as follows.
3. The petitioner Trust namely, Vishal Khanna Public Charitable Trust is a registered Trust settled by Sri Bishambhar Nath Khanna, S/o Late Kailash Nath Khanna by trust deed dated 24.2.1998. Its trustees are his son Shri Kanchan Khanna , wife Smt. Puspha Khanna and daughter-in-law Smt. Ragini Khanna. The object of the Trust is to construct, establish, maintain and support charitable hospitals, nursing homes and dispensaries.
4. The petitioner-Trust claims to be running a charitable homeopathic clinic from two rooms on the ground floor of the premises No. 33/70-72, Topi Bazar, Chowk, Kanpur. These rooms were made available free of cost to the petitioner-Trust by its owner Shri Shivji Behari Trust.
5. The petitioner-Trust claims that it is providing free medical facilities to the needy patients.
6. It appears that the petitioner-Trust obtained a registered lease deed dated 9.3.1998 from Shri Shivji Behari Trust for raising construction on the roof of property No. 33/70-72, Topi Bazar, Chowk, Kanpur. The purpose for obtaining the lease as mentioned in the lease deed is for raising construction of a public charitable dispensary. It appears that constructions were started in February, 2002 and were completed sometimes in March, 2002, and thereafter the petitioner-Trust obtained another lease dated 9.3.2002 for raising construction over the roof of the first floor of the building constructed by it under the previous lease deed. In the said lease deed, again, it has been specifically mentioned that the lessee will raise construction over the roof of the first floor, in order to enable it to raise a building for running a public charitable dispensary. It appears that in pursuance of the aforesaid lease deed, the petitioner Trust instead of raising construction for charitable Homeopathic clinic and dispensary had constructed 12 shops on the first floor and 2 halls and one store room on the second floor. It also appears to have let out certain shops on the first floor and the hall on the second floor. It is an admitted fact that the constructions made by the petitioner-Trust on the first and second floor were not of such nature as could be utilized for running a public charitable dispensary nor, in fact, any such dispensary was opened nor intended to be opened (admitted to the petitioner in its reply dated 7.9.2000; annexure-9).
7. The petitioner Trust soon after it came into existence get itself registered under section 12-A of the Act. It was also granted exemption under section 80-G of the Act vide certificate dated 15.1.1999 and it was renewed on 7.5.2002 and 3.8.2004. It further appears that the petitioner-Trust filed an application dated 24.7.2006 for renewal of exemption under section 80-G of the Act for further period of 5 years. In the said application, it has been stated that the Trust is running a public Charitable Homeopathic dispensary in the name of Vishal Khanna Public Charitable Dispensary at 33/70-71 Bihariji Gali, Topi Bazar, Kanpur and which is being attended by Dr. SC Gupta and where free medicines are dispensed to patients.
9. On receipt of the said application, the Commissioner of Income Tax-1, Kanpur (hereinafter referred to as the CIT) vide his letter dated 18.8.2006 called for certain other informations and the details regarding the charitable activities carried by the petitioner Trust during last 3 years.
9. In response to it, the petitioner Trust made its submission vide its covering letter dated 18.8.2006, 29.8.2006 and 7.9.2006. Therein, it has been admitted that the petitioner-Trust has constructed 12 shops on the first floor and 2 halls and one small store room on the second floor of the premises No. 33/70-72, Topi Bazar, Chowk, Kanpur. It has been further admitted that 4 shops on first floor and one hall on the second floor were let out by that time. The petitioner-Trust tried to justify its aforesaid activities by stating that construction of shops is not the business of the Trust and the corpus donation received by it were mostly utilized for constructing the building in question. It was further stated that letting out of shops is not the object of the Trust nor its business but it intends to utilize rental income for achieving the object of the Trust. It was further stated that such act is only incidental to its main object of carrying out charity and in such circumstances, it may be granted renewal under section 80-G of the Act.
10. The CIT after considering the submissions and explanation given by the Petitioner-Trust came to the conclusion that the petitioner Trust had utilized major part of corpus donation received till 31.5.2005 for construction of shopping complex. He also came to the conclusion after examining the balance sheets that only meagre sum has been applied for charitable purpose, while major part of corpus donations have been spent in constructing the commercial complex. He further found that the dispensary being run on the ground floor of the building is not even registered by the CMO and the amount spent in medicines for running so called Homeopathic dispensary is a paltry sum of Rs. 12,325/- during the period 2004-2005 and Rs. 9,490/- during the period 2003-2004. He found that the construction of the shopping complex by the petitioner-Trust under the guise of constricting building for running Homeopathic clinic is against the object of the Trust.
11. He further found that letting out of the shops and the halls is with profit motive. He, therefore, concluded that the aforesaid activities cannot be said to be incidental to the attainment of the object of the Trust and after recording the said findings, it refused to extend exemption under section 80-G of the Act and rejected the application. On the same date, the CIT issued a show cause notice dated 3.10.2006 purporting to be under section 12 AA(3) calling upon the petitioner-Trust to show cause why registration granted to it under section 12-A of the Act may not be cancelled.
12. Aggrieved by the aforesaid order of the CIT and the show cause notice dated 3.10.2006, the present writ petition has been filed.
13. We have heard Sri Ashish Bansal, counsel for the petitioner and Sri Shambhu Chopra, counsel for the Income Tax Department.
14. Sri Ashish Bansal, counsel for the petitioner vehemently contended that the construction of the building from the corpus of the Trust does not ipso facto militate against charitable nature of the trust. He further contended that the conclusion arrived by the CIT that the petitioner-Trust is pre-dominantly engaged in the business of constructing the commercial property, is manifestly incorrect. According to him, the utilization of the corpus of the Trust to generate income to fulfill the object of the Trust cannot be said to be a commercial activity. He vehemently urged that the letting out of some portion of the newly constructed building is to augument the income of the Trust and which will be utilized for charitable purpose. It does not denude the petitioner of it's charitable character.
15. Per contra, Sri Shambhu Chopra, standing counsel for the Income Tax Department placing reliance upon para-10 of the counter affidavit argued that there is no illegality in the impugned order and it deserves to be upheld. For the sake of convenience para-10 of the counter affidavit is reproduced below:-
"That on perusal of details submitted by the petitioner it is noticed that the corpus donations were substantially utilized for commercial activities in the nature of construction of shopping complex as mentioned in para 1.7 above. The petitioner however, used meager amount of fund on its other activities. The details of total expenditure debited in P & L account are as under.
| Financial Year |
Amount |
Spent Remark |
2004-05 |
Rs. 83,276/- |
Out of total receipt Rs. 6,18,378/- including corpus donation of Rs. 5,33,000/- |
2003-04 |
Rs. 53,655/- |
|
2000-01 |
Rs. 64,610/- |
|
Thus, as compared to the income and donation received by the petitioner only a meager amount of money was spent in activities other than the construction of commercial property. The petitioner Trust thus violated provisions of Section 80 G(5) in as much as-
The corpus donation made to the Trust was used for construction of commercial property in violation of provision (b) to section 80-G (5) (i). No separate books of account in respect of said commercial activity of constructing a commercial building were maintained. This is in contravention of proviso (a) to Section 80-G (5)(i).
The petitioner Trust has violated the terms and conditions of trust deed in as much as investment was not made for construction of a charitable dispensary/hospital but the investment was made for construction of commercial building.
The petitioner Trust has not taken permission from the competent authority for constructing said building for the purpose of opening a homeopathic dispensary or hospital.
The petitioner Trust let out first and second floor of the building to a company which further strengthens the belief that the said building was not acquired for the purpose of opening a dispensary or hospital."
16. We have considered the rival submission of the counsel for the parties. It is not in dispute that the petitioner-Trust was created by trust deed dated 24.2.1998, a copy whereof has been filed as Annexure-1 to the writ petition.
17. The object of the Trust is to construct, establish, maintain and support charitable hospital, nursing home and dispensaries, to provide educational and vocational support to the poor and needy, to give monetary help to the poor, and the blind and crippled persons, to give money to the persons affected by flood and other natural calamity etc. The original corpus at the time of settlement was Rs. 5000/-only and over the years, it had multiplied several times on account of donations received by the Trust. According to the finding recorded in the impugned order, the corpus donation received by the Trust upto 31.5.2005 was Rs. 5,33,000/-. Most of it was utilized in constructing the shopping complex. The balance sheet as on 31.5.2005 further reflects that an amount of Rs. 7,96,821/- has been spent on construction. On the other hand, the petitioner had applied only meager amount of its income for running homeopathic dispensary. Though petitioner is making tall claims of dispensing medicines free of cost, but it had spent small amount of Rs. 12,325/- on medicines in the year 2004-05 and Rs. 9490/- on medicines during the period of 2003-04.
18. The facts which remain undisputed and to which this Court cannot shut its eyes are as follows:-
(a) The petitioner-Trust when it was formed had a corpus of Rs. 5000/- only. It claims to have started a homeopathic clinic from 2 rooms on the ground floor of premises No. 33/70-72, Topi Bazar, Chowk, Kanpur and which was made available to it free of cost by its owner Sri Shivji Behari Trust.
(b) It took at lease roof of the said building by lease deed dated 9.3.1998. The lease deed specifically recites that the demise of the roof to the petitioner-Trust was in order to enable to it to construct or run a public charitable dispensary. However, the roof of the building was not utilized for constructing any dispensary or clinic but a commercial complex having 12 shops.
(c)The petitioner-Trust after constructing first floor entered into another lease agreement dated 9.3.2002 whereby the roof of the first floor of the building was demised in its favour giving right to construct a charitable dispensary. Again, no such constructions were made and, admittedly, on the second floor two halls and one store room were constructed.
(d) Admittedly, till date, the entire so called charitable activities of the petitioner-Trust remained confined to two rooms on the ground floor of premises No 33/70-72, Topi Bazar, Chowk, Kanpur which were admittedly made available to it free of cost since the Trust came into existence. Thus admitted fact of record reveals that there has been no expansion of any charitable activities.
(e) On the other hand, the petitioner-Trust under the guise of constructing a Homeopathic hospital and dispensary has rather constructed shopping complex and major part of it has already been let out.
(f) The petitioner-Trust also does not dispute that its expenditure on medicines during successive years had remained static and also could not place any material to show that the figures mentioned in the impugned order relating to the expenditure made in the name of charity ia in any manner perverse.
19. In view of these facts, the CIT has rightly came to the conclusion that under the guise of carrying out charitable activities after obtaining exemption under section 80-G, the petitioner Trust had, in fact, diverted major part of donation received by it till 31.3.2005 in constructing a shopping complex. In these circumstances, the CIT rightly concluded that the petitioner-Trust has mis-utilized the donation received by it on the strength of exemption under section 80-G. Construction of shopping complex cannot be said to be a business incidental to the attainment of the object of the Trust but is being persued as the main activity, under the cloak of carrying out charity. Funds received in the name of charity have been utilised in attainment of a commercial mission.
20. This court also concurs with the findings recorded in this regard by the CIT, as the petitioner has failed to show that facts and figures mentioned in the impugned order are in any manner against the record or are perverse.
21. The counsel for the petitioner during course of his argument has placed reliance on the decision of the Apex Court in CIT Vs. Thanthi Trust (2001) 247 ITR 785 wherein the Apex Court has held that in case the business income is utilized by the Trust for achieving the genuine objects of the Trust, it is covered under section 11 (4A) of the Act. He also relied on the decision in Commissioner of Income Tax v. Janakiammal Ayyandar Trust, reported in (2005) 277 ITR 274, wherein it has been held that a business whose income is utilized by the Trust or the institution for achieving the objectives of the Trust, is exempted if such business is incidental to the attainment of the objectives of the Trust or institution. On the other hand, Sri Tripathi has placed reliance on the judgement reported in (2003) 264 ITR 357 (Patna) Vishwa Buddha Parishad Vs. CIT, in which in similar circumstances, the writ court has declined to interfere with the order refusing renewal of exemption under section 80-G on the ground that the institution has made very low expenses out of total donation received by it. He also placed reliance on (2003) 264 ITR 481 (Patna) Madani Musafir Khana Welfare Society v. CIT in which the application for renewal of exemption under section 80-G was rejected on the ground that the institution has constructed a shopping complex and had not carried other charitable work.
22. There can be no dispute to the broad proposition of law that construction of a commercial building by itself cannot be a factor to refuse renewal under section 80-G of the Act. However, it depends upon the facts and circumstances of each case. In the instant case, a cogent and categorical finding has been recorded in the impugned order that although huge amount has been received as donation by the Trust during the previous years, but amount spent for the charitable purposes is merely an eye wash.
23. The explanation given by the petitioner-Trust in para 23 of the writ petition that it had to confine its charitable activities to the ground floor of the building on account of compulsion, is not worthy of credence. The petitioner had stated that it is unable shift to the first and second floor of the accommodation constructed by it on account of the fact that the patients visiting are old and feeble and it will be difficult for them to climb the stairs for consulting the doctor. No such explanation was given by the petitioner before the CIT and it is on the face of it, after thought. Further, it is apparently false, as in the two lease deeds, the petitioner had repeatedly mentioned that the lease is being obtained for construction of a homeopathic hospital and clinic. The first lease is of the year 1998 and the other one of the year 2002 i.e. after a gap of four years. In case it was so , as is being claimed by the petitioner, there was no occasion for the petitioner to obtain another lease after 4 years of the execution of the first lease deed, with the specific recital that the construction thereunder will be of a charitable hospital. It is thus evident on the face of record that the petitioner has only indulged in completing paper work for the purpose of obtaining exemption under section 80-G of the Act so that it may continue to obtain donations under the guise of charity and utilize the same for commercial ventures. It is in these facts and circumstances, that the CIT was fully justified in holding that the activities being carried on by the petitioner-Trust cannot be said to be for charitable purpose and had rightly withdrawn the exemption granted under section 80-G of the Act.
24. In so far as the challenge the notice under section 12A (3) of the Act is concerned, suffice it to say that it is merely a show cause notice and challenge to it at this stage is premature. It is open to the petitioner to file its reply to the show cause notice against purposed action before the CIT and in such proceedings it is open to the petitioner to produce all such evidence which may justify its claim for continuation of its registration as a charitable institution. In similar circumstances, challenge to such notice has been held to be premature in the judgement reported in (2002) 256 ITR 277 Madhya Pradesh Madhyan Vs. CIT.
25. In view of the discussion made above, the instant writ petition is dismissed with liberty to the petitioner to file its reply to the show cause notice dated 4.10.2006 for cancelling registration certificate under section 12-A of the Act and which shall be decided by the CIT in accordance with law taking into consideration the objections and the evidence, if any, led by the petitioner in this regard, without being influenced by either the finding recorded in the order dated 4.10.2006 refusing to grant exemption under section 80-G of the Act or the findings recorded in the present judgement.
26. Subject to above, the writ petition is dismissed.