Case Law Details

Case Name : Assistant Director of Income-tax (Exemption), 1(1) Vs Sri Sri Radha Damodar Charitable Trust (ITAT Mumbai)
Appeal Number : IT Appeal No. 5773 (Mum.) of 2011
Date of Judgement/Order : 18/07/2012
Related Assessment Year : 2008-09
Courts : All ITAT (4278) ITAT Mumbai (1426)

IN THE ITAT MUMBAI BENCH ‘E’

Assistant Director of Income-tax (Exemption), 1(1)

V/s.

Sri Sri Radha Damodar Charitable Trust

IT Appeal No. 5773 (Mum.) of 2011

[Assessment year 2008-09]

July 18, 2012

ORDER

Dinesh Kumar Agarwal, Judicial Member

This appeal preferred by the Revenue is directed against the order dated 7-4-2011 passed by the ld. CIT(A)- 1, Mumbai for the assessment year 2008-09.

2. Briefly stated facts of the case are that the assessee trust is a public charitable trust established with the objects for providing relief to the poor, education, medical relief and promotion of vegetarianism, distribution of Prasad, distribution of food to the general public especially to the poor and needy people and advancement of any other objective of general public utility and in furtherance of ethical and philosophical principles of Krishna Consciousness. The assessee filed its return of income on 24-9-2008 along with audit report in Form No. 10B and audited Income and Expenditure Account, Balance Sheet declaring total deficit of Rs. 86,06,051/- after claiming benefit of accumulation of 15% as per section 11(1)(a) of the Income Tax Act, 1961 (the Act). During the course of assessment proceeding, the assessee was asked to show cause as to why claim of exemption u/s 11 Act should not be disallowed and the assessee’s income be not treated as business income. In response, the assessee vide letter dtd. 14-12-2010 submitted a note on the activities of the trust and claimed that the assessee’s activities are commensurate with its objects and donations given. Regarding the business activity carried out by it during the previous year, the assessee submitted that it is in the business of running of an eating house/restaurant. It was further submitted that the Income Tax Act does not prohibit a trust from running a business which is in accordance with its objects and/or incidental to its objects. However, the A.O. after considering the assessee’s submission inter alia observed that assessee is not acting as a charitable organization. The entire character and focus of assessee has become totally commercial. There is generation of huge profits year after year a part of which is diverted to the related concern. According to the A.O. since the activities of the trust are being carried on commercial lines not in conformity with the objects of the assessee society, the assessee is not eligible for exemption u/s 11 of the Act. Therefore, the assessee is required to be taxed as AOP without granting exemption u/s 11 of the Act. He further observed that without prejudice to the treatment of the assessee as business concern as above, it is seen that the assessee has claimed deficit of Rs. 86,06,051/- and depreciation on assets, cost of which has already been claimed to be application towards the object of the trust in earlier years for the purposes of availing exemption under the Act, the said claims of the assessee are not allowable as section 11 of the Act provides for deduction of expenditure incurred for the objects of the trust as application from such income and does not specifically and expressly provide for double deduction on account of expenditure out of exempt income and double deduction on account of depreciation on the same very assets acquired from such capital expenditure amounts to claiming a double deduction which in view of the ratio of judgment of Hon’ble Supreme Court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 43/[1992] 65 Taxman 420 cannot be allowed. He further observed that the assessee has given donation to ISKCON amounting to Rs. 1,85,66,772/- and the same has been debited to the Profit and Loss Account. Since the assessee has not submitted any documentary evidences suggesting that ISKCON has a valid 80G certificate, hence the A.O. also disallowed the deduction u/s 80G of the Act.

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3. On appeal, the ld. CIT(A) held that the appellant trust carrying out the business will get the benefit of exemption of section 11, so as to embargo put by the amendment in section 2(15) of the Act is vis-à-vis the object of general public utility and not vis-à-vis any other object without being hit by the amendment. In view of this, the provisions of section 11(4A) of the Act will be applicable to the appellant. The ld. CIT(A) after relying on the appellate order and the order of the Tribunal in Dy. DIT (E) v. Sri Sri Radha Rasbihariji Prasadam Viniyog Trust [IT Appeal No. 4214/Mum/2002 dtd. 8-5-2003] held that the preparation of vegetarian food items and selling the same mainly for pupularising the vegetarian food habits and in this way the appellant is engaged in promoting the vegetarianism among people, which is undoubtedly a charitable object of the appellant. On the issue of disallowance of deduction u/s 80G of the Act, the ld. CIT(A) observed that the major portion of the income received by the appellant was donated to ISKCON which is a public charitable trust of worldwide recognition and reputation and any donation from one charitable trust to another constitute application of income for the charitable purposes. In this regard, the appellant has also placed 80G certificate received from the ISKCON and accordingly he held that in view of the clear cut provision of section 11(4A), the exemption u/s 11 has to be allowed to the assessee and hence he directed the A.O. to allow the same and to grant other consequential benefits of application and accumulation of income to the assessee trust u/s 11(1) of the Act. The ld. CIT(A) also directed the A.O. to delete the disallowance of donation and give the benefit of donation to the appellant as per provisions of the Act.

4. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us taking the following grounds of appeal:-

“1.  Whether on the facts of the case and in law, the Ld. CIT(A) erred in directing the A.O. to allow the exemption u/s 11 of the I.T. Act, 1961, ignoring the elaborate discussion of the issues and facts and circumstances of the case by the A.O.

2.  The CIT(A) has erred in deleting the disallowance of donation of Rs. 1,85,66,772/- to ISKCON u/s 80G.

3.  The appellant prays that the order of the ld. CIT (Appeals-1), Mumbai be set aside and that of the Assessing Officer be restored.”

5. At the time of hearing the ld. D.R. submits that in view of the finding recorded by the A.O. in the assessment order, the ld. CIT(A) was not justified in allowing the exemption u/s 11 of the Act and has also erred in allowing the donation to ISKCON u/s 80G of the Act.

6. On the other hand, the ld. counsel for the assessee, at the outset, submits that the issue in ground No. 1 stands covered in favour of the assessee by the order of the Tribunal in the case of Sri Sri Radha Rasbihariji Prasadam Viniyog Trust (supra) wherein the Tribunal on identical facts and circumstances of the case allowed the exemption u/s 11 of the Act. He also placed on record a copy of the said order of the Tribunal. He, therefore, submits that in view of the said order of the Tribunal, exemption u/s 11 of the Act be allowed to the assessee. On the disallowance of deduction u/s 80G of the Act, the ld. counsel for the assessee submits that in view of the certificate u/s 80G in the case of ISKCON appearing at page 51-52 whereby the ld. DIT(E), Mumbai has granted the certificate u/s 80G to ISKCON for the period 1-4-08 to 31-3-2011, the assessee is entitled to deduction u/s 80G of the Act. He further submits that the assessee donated its major portion of its income to ISKCON which is a public charitable trust of worldwide recognition and reputation, therefore, any donation from one trust to another trust would constitute application of income for the charitable purposes for allowing exemption u/s 11 of the Act. He, therefore, submits that the order passed by the ld. CIT(A) be upheld.

7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the principal objects of the trust include promotion of vegetarianism and distribution of Prasad. It was submitted by the ld. counsel for the assessee that by not using onion and garlic in the food preparations, the assessee is propagating the Vaishnavi principles, thereby furthering the principles of Krishna consciousness and promoting the vegetarianism. According to the A.O. the assessee is not acting as chartable organization. The entire character and focus of the assessee has become totally commercial. There is generation of huge profits year after year, a part of which is diverted to the related concern. Thus, the activities are being carried on commercial lines and also not in conformity with the objects of the assessee trust. However, we find that since the principal object of the trust includes promotion of vegetarianism, the business of preparing vegetarian food items and selling the same is very much incidental to the object of the assessee trust and such business can be conducted by a charitable trust as per provisions of section 11(4A) of the Act.

8. In the case of Sri Sri Radha Rasbihariji Prasadam Viniyog Trust (supra) on the similar issue the Tribunal has held as under:-

“3. We have considered the arguments advanced by both sides and perused the orders passed by the revenue authorities and the paper book filed by the assessee. We are of the considered opinion that no interference is called for in the impugned order of the CIT(A). The Assessing Officer held in his order that there is no charitable activity done by the trust but the trust is doing a business and the income from the business also was not utilized on any object of the trust and hence exemption under sec. 11 is not allowable in the present case. In his impugned order, the CIT(A) accepted the contention of the assessee holding as under:-

“I have perused the contention raised by the appellant as well as in the assessment order. The figure of net profit as worked out by the assessing officer is incorrect and the net profit actually comes to Rs. 5.29 lakhs. The amount of Rs. 1.20 lakhs also does not represent sale proceeds as alleged by the assessing officer and is only a donation from one Public Charitable Trust to another. This incorrect fact as mentioned in the assessment order suggests that the accounts were not properly perused by the assessing officer and he was deeply influenced by the bumper profit in arriving at the conclusion that the appellant was conducting the business solely with the profit motive. Besides, the assessing officer has simply ignored the main object of the appellant that is promotion of vegetarianism. The business of preparing vegetarian food items and selling the same was very much incidental to the objects of the appellant and such business can be of section 11(4A). In case the public charitable trust is engaged in a business which is incidental to its object the same will not disqualify the charitable trust from exemption u/s 11. In my opinion the preparation of vegetarian food items and selling the same was mainly for popularizing the vegetarian food habits and in this way the appellant was engaged in promoting the vegetarianism among the people, which is undoubtedly a charitable object of the appellant. The major portion of the income received by the appellant was donated to ISKCON which is a public charitable trust of worldwide recognition and reputation and any donation from one charitable trust to another constitute application of income for the charitable purposes. The ISKCON are also publishing booklets and brochures for the promotion of vegetarianism among the people. Thus the contribution of the appellant to the ISKCON also helps to promote its own object indirectly. In view of the above discussion it is held that the appellant trust is conducting the business which is very much incidental to its charitable objects and the income from such business is applied for the fulfillment of charitable purposes and the appellant is eligible for the benefit of exemption u/s. 11. In view of the clear cut provision of section 11(4A), the exemption u/s 11(1) has to be allowed to the appellant. The Assessing Officer is directed to allow the same and to grant other consequential benefits of application and accumulation of income to the appellant trust u/s 11(1). However, the accumulation u/s 11(1) is hereby restricted to the extent of positive income which remain after allowing the expenses of the appellant trust for the application of income for its object.

On a careful consideration of the matter, we fully agree with the reasoning given by the CIT(A) for coming to the conclusion that the assessee trust is eligible for the benefit of exemption under sec. 11 of the I.T. Act and uphold his order.”

9. In absence of any distinguishing feature brought on record by the Revenue, we respectfully following the order of the Tribunal (supra) hold that the preparation of vegetarian food items and selling the same was mainly for popularising the vegetarian food habits and in this way the assessee is engaged in promoting the vegetarianism among the people so that they can change their living habits and take the necessary steps for the betterment of humanity, which is undoubtedly a charitable object of the assessee. The major portion of the income received by the assessee was donated to ISKCON which is a Public Charitable Trust of worldwide recognition and reputation and any donation from one charitable trust to another charitable trust constitute application of income for the charitable purposes.

10. As regards the A.O.’s objection that the assessee is claiming double deduction on account of depreciation on the same very assets, we are of the view that there was no double deduction claimed by the assessee. Recently the Hon’ble Punjab & Haryana High Court in the case of CIT v. Market Committee [2011] 330 ITR 16/[2012] 20 taxmann.com 559 after considering various decisions while distinguishing the decision in Escorts Ltd. (supra) has held as under (page 20 & 21):-

“In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by learned counsel for the Revenue. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. The judgment of the hon’ble Supreme Court in Escorts Ltd. case [1993] 199 ITR 43 is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the assessee.”

11. For the reasons as discussed above and keeping in view that the assessee is distributing Prasad and doing other charitable activities for the promotion of vegetarian food habits among the people, the assessee is entitled for the benefit of exemption u/s 11 of the Act. The order passed by the ld. CIT(A) in directing the A.O. to allow the exemption u/s 11 of the Act and to grant other consequential benefit of application and accumulation of income to the appellant trust u/s 11(1) of the Act does not call for any interference.

12. As regards the disallowance of deduction u/s 80G of the Act, we find that there is no dispute that the assessee has donated its major portion of its income to ISKCON, a Public Charitable Trust of worldwide recognition and reputation. It is settled law that any donation from one charitable trust to another charitable trust would constitute application of income for the charitable purposes according to the provisions of the Income Tax Act. This being so and keeping in view that the certificate u/s 80G of the Act for the period 1-4-2005 to 31-3-2008 has been granted to the ISKCON by the DIT (Exemption), Mumbai vide certificate dtd. 4-4-2005, we are of the view that the amount of donation to be treated as spent for the charitable purposes of the trust and accordingly we are inclined to uphold the findings of the ld. CIT(A) in allowing both the claim of the assessee. The grounds taken by the Revenue are, therefore, rejected.

13. In the result, appeal filed by the Revenue stands dismissed.

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