Vildirect: IncomeTax-caselaws-2009-VIL-329-ITAT-BLR

2009-VIL-329-ITAT-BLR

Equivalent Citation: [2009] 317 ITR (A. T.) 65

Income Tax Appellate Tribunal BANGALORE

I. T. A. No 1381/Bang/08

Date: 25.03.2009

SUBHARAM TRUST.

DIRECTOR OF INCOME-TAX (EXEMPTIONS).

BENCH

Member(s) : N. L. KALRA., GEORGE GEORGE K.

JUDGMENT

N.L. KALRA (Accountant Member).-The assessee has filed an appeal against the order of the learned DIT (Exemptions), Bangalore dated September 30, 2008.

The grounds of appeal raised by the appellant are as under:

"(i) The order of the learned Director of Income-tax (Exemptions), Bangalore, is against law and facts; the trust was eligible for recognition.

(ii) Objects includes community hall: The learned Director of Income-tax (Exemptions), Bangalore, erred in holding the possession of a convention hall is a pointer to the carrying of trade business or commerce without appreciating that the trust chose to lease it out once for all and therefore such income is the only income from property.

(iii) Benefit to interested person: The learned Director of Income-tax (Exemptions), Bangalore, erred in holding that the lease out of the property to a trustee constituted 'undue benefits' to the specified persons as per section 13(2)(b); he ought to have appreciated that

(i) the land belonged to the said trustee which was valuable and hence there was a contribution.

(ii) the building was constructed by the trust and the rent fixed at Rs. 100,066 and advance paid Rs. 10 lakhs was more than the market value.

(iii) the rent for the land was not being paid by the trust to the lessee; payment had ceased.

(iv) the monthly rent of Rs. 100,066 plus the deposit afforded a recurring reasonable return on the capital invested by the trust.

The assessee-trust filed its application in Form No. 10G on March 27, 2008 for renewal of approval under section 80G. The learned DIT (Exemptions) has mentioned that the trust was created vide trust deed dated October 12, 1979. The authors and the trustees of the trust deed dated October 12, 1979 were Shri S. Ramamurthy, Smt. Subhashini, W/o. S. Ramamurthy and two brothers of Shri S. Ramamurthy. The activities of the trust include running of educational institutions, free medical camps, feeding of poor during festival seasons, teaching of yoga, running of hostel for students, women and senior citizens, free dispensary and community hall.

Shri S. Ramamurthy in his Hindu undivided family capacity leased out the land/site measuring 75 feet x 120 ft at Industrial Town, Rajajinagar, Bangalore on April 1, 2001 for rent of Rs. 54,000 p.m. to the trust. The assessee-trust constructed a community hall on the said site at a cost of Rs. 1,42,30,000 and again leased back to Shri S. Ramamurthy in his Hindu undivided family capacity for a monthly rent of Rs. 1,00,066. The learned DIT (Exemptions) during the course of proceedings for granting of approval under section 80G required the assessee-trust to furnish certain details and on the basis of the details filed, the learned DIT (Exemptions) framed the following five questions, which are to be decided:

(a) Whether the object of the trust as at clause 2(c) being to establish community halls is an activity which is commercial in nature in view of the insertion of the proviso to section 2(15).

(b) Whether any benefits has been provided to the interested persons by the trust which is in violation of section 13 of the Income-tax Act.

(c) Whether the applicant trust was correct in fixing the lease rent for the kalyana mantap on the basis of marketable value of the building.

(d) Whether the trust deed provides for leasing out the trust property to others or to themselves by the trustee.

(e) Whether the activities of the trust, i.e., running of hostel for students, women and senior citizens loses its charitable nature in view of the insertion of the proviso to section 2(15) with effect from April 1, 2008.

(a) Running of community hall whether a commercial activity:

The learned DIT (Exemptions) gave the finding that the construction and maintenance of community hall is a business activity and therefore it is a commercial act. The learned DIT (Exemptions) referred to the decision of the hon'ble Madras High Court in the case of CIT v. Halai Nemon Association [2000] 243 ITR 439, in which, it was held that establishing and maintaining a community hall used for social and public functions is a commercial activity. The learned DIT (Exemptions) further observed that the activities of the trust fall under the limb "other general public utility" as per section 2(15) of the Income-tax Act. In view of insertion of the proviso to section 2(15) of the Act, the trust would lose its character of charitable nature.

(b) Whether any benefits has been provided to the interested persons by the trust:

6 The assessee-trust entered into a lease agreement with Shri S. Ramamurthy in his Hindu undivided family capacity in 2001 for a monthly rent of Rs. 54,000. On this site, the trust has constructed a community hall by investing Rs. 1,42,30,000 and leased it back to Shri S. Ramamurthy, Hindu undivided family for a monthly rent of Rs. 1,00,066. Thus, the trust has enabled Shri S. Ramamurthy to run a business activity in which there is an investment of Rs. 1,42,30,000 by the trust and Shri S. Ramamurthy has not made any investment. Thus, a benefit has been provided to the interested persons by the trust. According to the learned DIT (Exemptions), no scientific approach has been applied to determine the lease rent to be paid. The lease rent has been fixed by the trustees based on the market value of the building ignoring the fact that what is leased out is not only a building but a business undertaking which could earn substantial income. Thus, fixing of lease rent at the market value of the building ignoring the business capacity of the building has given undue benefits to the specified persons as per section 13(2)(b). It was further mentioned that the entire trustees of the trust are members of one family. The trust has entered into a lease deed with Shri S. Ramamurthy, Hindu undivided family to take the land on lease. Copy of such lease deed has not been furnished. In the absence of the lease deed, it is difficult to ascertain the conditions involved between the lessor and the lessee in respect of investment of the trust amounting to Rs. 1.42 crore. Shri S. Ramamurthy has entered into an agreement in dual capacity, i.e., (1) as managing trustee of the trust and (2) as kartha of the Hindu undivided family. The trust produced the unregistered lease deed entered into between the trust and Shri S. Ramamurthy with regard to leasing out of kalyana mantap. The same has not been registered. As per the trust deed, the management of the trust is within the family. Shri S. Ramamurthy is to be the managing trustee for life. Any vacancy arising of the trustee due to termination or resignation or death, it is to be filled in by co-option of the remaining trustees from the trustees' family only.

Clause 14 of the trust deed reveals that two trustees shall form the quorum of the meeting. This clause enables Shri Ramamurthy to take any decision beneficial to him with the help of his wife as another trustee. He does not even need the consent of his brothers to come to a conclusion on any issue.

The trust's methodology is to fix the lease rent based on the market value of the building is not acceptable. In the instant case, the building does not have any capacity of earning income on its own. There is a business set up and such business set up has a capacity of earning business income. According to the learned DIT (Exemptions), a business set up by the trust has been leased and not the building. Therefore, the fixing of lease rent has given undue benefits to the specified persons as per section 13(2)(b).

(d) Whether the trust deed provides for leasing out the trust property to others or to themselves by the trustee

The trust deed does not confer any powers to the trustee to lease out the trust property to others or to themselves. Hence, this activity of the trust to lease out the kalyana mantap to Shri S. Ramamurthy, Hindu undivided family is not an activity in conformity to the trust deed.

(e) Whether the activities of the trust, i.e., running of hostel for students, women and senior citizens loses its charitable nature in view of the insertion of proviso to section 2(15) with effect from April 1, 2009

The accounts furnished by the trust clearly show that the receipts are from the inmates for the lodging facilities provided to them. This activity of the trust will fall under the limb "other general public utility" as per section 2(15). In view of the insertion of the proviso to section 2(15), with effect from April 1, 2009, the said object of the trust becomes an activity, which is commercial in nature. The trust has also not furnished any reasons to substantiate as to how the said activity is charitable in nature though it has been specifically asked for. Accordingly, the learned DIT (Exemptions) did not grant renewal of approval under section 80G of the Income-tax Act.

During the course of proceedings before us, the learned authorised representative has filed a paper book containing 26 pages. Page Nos. 1 to 10 contains the copy of the trust deed. Page 11 contains the copy of the registration certificate granted under section 12A of the Income-tax Act. Pages 12 to 21 contains the copies of the 80G certificates given to the trust on various dates. Pages 22 to 26 contains the copies of lease deed between the trust and Shri S. Ramamurthy, Hindu undivided family. Besides above, the learned authorised representative has filed copies of the balance-sheet and the income and expenditure account for the financial years 2005-06 to 2007-08. The learned authorised representative during the course of proceedings drew our attention to section 80G(5)(i). To qualify for renewal of approval under section 80G, the trust should not have an income, which is liable to inclusion in its total income under the provisions of sections 11 and 12. The learned authorised representative mentioned that section 13 is not mentioned in section 80G (5) (i). What the learned DIT (Exemptions) was required to see was as to whether the income of the trust is liable to be included in the total income under sections 11 and 12. The learned DIT (Exemptions) has exceeded his jurisdiction by invoking section 13 of the Income-tax Act for not granting renewal of the approval under section 80G. The learned authorised representative further submitted that the trust has leased out the building to Shri S. Ramamurthy, Hindu undivided family. The income arising from leasing such building is taxable under the head "Income from house property" and not under the head "Income from business". Hence, it cannot be said that the trust was engaged in any business activity and on that ground, renewal of approval under section 80G could not have been denied.

The learned authorised representative further submitted that when the trust took the lease of land then it was paying lease rent of the land. After the construction of the building, the trust was not to pay any lease rent in respect of land to Shri Ramamurthy. The rent was fixed at Rs. 1,00,066 and an advance of Rs. 10 lakhs was also received. The fixing of rent at the above amount and receipt of advance was more than the market value and therefore it cannot be said that there was a benefit to the specified persons. The monthly rent of Rs. 1,00,066 plus the deposit afforded a recurring reasonable return on the capital invested by the trust. The trustees have the power to lease the trust property to earn income and therefore, it cannot be said that leasing of trust property by the trustees was beyond the power conferred to the trust as per the trust deed. The hostel was being run for poor students, women and senior citizens and therefore, it cannot be considered as a charitable activity coming under the limb of other general public utility. The trust is engaged in a number of charitable activities and leasing out of property should not be seen in isolation to deny the approval of renewal under section 80G of the Income-tax Act. The trust has been allowed approval under section 80G of the Income-tax Act for so many years and following the rule of consistency, the learned DIT (Exemptions) should have accorded approval for the renewal under section 80G.

The learned authorised representative relied on the decision of the Madras High Court in the case of CIT v. Sengunthar Thirumana Mandapam [2008] 298 ITR 330. In that case, the trust constructed a kalyana mandapam for the benefit of weavers and agriculturists. The learned authorised representative submitted that the hon'ble Madras High Court held that the exemption is not to be denied on the ground that surplus funds of trust were not utilized for other charitable purposes. The learned authorised representative relied on the decision in the case of CIT v. Sri Rao Baghadur ADK Dharmaraja Educational Charity Trust [2008] 300 ITR 365, in which, the hon'ble Madras High Court held that the activity of the assessee in letting out properties and receiving lease rental was an activity carried on only to fulfil the object of the assessee's trust and therefore, income derived by letting out of the properties cannot be treated as business income. The learned authorised representative referred to the decision of the hon'ble Madras High Court in the case of CIT v. Halai Nemon Association [2000] 243 ITR 439. The learned authorised representative submitted that in that case, the building was let out along with chairs, mike etc. for limited period for functions, such as marriages; therefore, such activity of earning an income is business income. The learned authorised representative submitted that in that case, the building remained under the control of the owner. The owner granted only a licence for a prescribed fee for a specified period. However, in the instant case, the trust has given the property on lease and therefore, such income cannot be an income under the head "Business". The learned authorised representative also relied on the decision of the Mumbai Bench in the case of Marwar Textiles (Agency) (P.) Ltd. v. ITO [2008] 307 ITR (AT) 19 where the property, which was equipped with various facilities was given to general public for a specified purpose for a short duration. The hon'ble Tribunal held that the charges so received are to be assessed as income from house property. The learned authorised representative therefore argued that the appellant trust is not engaged in any commercial activity and therefore, it is entitled to renewal of approval under section 80G of the Income-tax Act.

On the other hand, the learned Departmental representative supported the orders of the authorities below. The learned Departmental representative submitted that the learned DIT (Exemptions) has to see whether the income is includible under section 11 of the Income-tax Act. While seeing such inclusion, the learned DIT (Exemptions) has to see section 13 of the Income-tax Act. The learned Departmental representative relied on the decision of the hon'ble Rajasthan High Court in the case of Ram Bhawan Dharamshala v. CIT [2002] 178 CTR 88 in which it was held that if the first floor of the property of the trust was let out at a meagre rent to a firm in which one of the trustees is a partner, then the assessee is not entitled to exemption under section 11. The learned Departmental representative also relied on the decision of the hon'ble apex court in the case of DIT v. Bharat Diamond Bourse [2003] 259 ITR 280. In that case, the trust advanced Rs. 70 lakhs to a person allegedly for procurement of appropriate premises for the assessee on lease from a builder. There was no written agreement or proper documentation. Money paid to B was neither intended as deposit for lease nor was it intended as deposit to be paid to the builder. Material on record clearly suggests that the money was given to B to enable him to purchase a property in his own name. Amount was lent for substantial period without interest and adequate security. The person concerned to whom the amount was advanced was a subscriber to the memorandum of association and therefore, he can be referred as founder of the institution. The hon'ble apex court held that the assessee will lose the benefit under section 11 by falling within the mischief of section 13(3)(a) read with section 13 (1)(c) (ii).

The learned Departmental representative also relied on the decision of hon'ble Andhra Pradesh High Court in the case of Action for Welfare and Awakening in Rural Environment (AWARE) v. Deputy CIT [2003] 263 ITR 13. In this case, fixed deposits in the name of the society were pledged as security with the bank for providing loan to one of the members of the assessee-society without adequate security and consideration. The society also purchased land through AOP consisting of directors and employees of the assessee and an amount of Rs. 2 lakhs was also advanced by the assessee to the AOP. All such transactions were within the personal knowledge of the trustees. The hon'ble Andhra Pradesh High Court held that there was deliberate misutilisation of the funds of the assessee-society and therefore, denial of exemption under section 11 was justified.

We have heard both the parties. It is not disputed that the trust belongs to one family, which includes brothers of the managing trustee. As per clause 3 of the trust deed dated October 12, 1979, four authors of the trust deed are the first trustees of the trust. The four authors of the trust deed are Mr. S. Ramamurthy, his wife and two brothers of S. Ramamurthy. It is provided that the trustees may co-opt two more trustees making the total number of trustees into 6. It is provided that the trustees shall hold office for life. The trusteeship of person shall terminate on resignation or death. Such vacancies are to be filled by co-option of the remaining trustees preferably from the trustees' family. It is further provided in clause 3 of the trust deed that Shri S. Ramamurthy will be the managing trustee for life. The trust deed was amended on August 14, 1995 and at that time, Shri S.M. Prakash was inducted as a trustee in place of Shri S. Muniraju Setty. Hence, copies of the trust deed clearly show that the trustees are members of one family and there cannot be any objection against the fact that members of a family are the trustees. As per clause 14 of the trust deed, which provided that two trustees shall form the quorum for a meeting of the trustees.

Clause 2 of the trust deed gives the objects of the trust and these are as under:

(a) to provide educational opportunities and purposes and facilities for students of all communities and also for the training of the students in handicrafts and cultural activities;

(b) to provide boarding and lodging facilities for poor and needy students of all communities;

(d) to provide medical facilities to poor and needy citizens irrespective of their caste and creed, religion;

(e) to construct out patient wards, nursing homes in order to provide medical facilities to poor and needy people;

(f) to contribute to charitable institutions having similar objects of the trust;

(g) to undertake and carry out any other activity calculated to promote the above objects.

Charitable purpose has been defined under section 2(15) of the Income-tax Act. This clause has been substituted by the Finance Act, 2008 with effect from April 1, 2009. The clause, which is relevant for the assessment year 2009-2010 and relevant to the financial year 2008-09 onwards, is as under:

"(15) 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity."

In the notes on clauses to the Finance Bill, 2008, it is clearly mentioned that clause 3 of the Finance Bill, which seeks amendment to section 2 of the Income-tax Act relating to the definition of charitable purpose will take effect from April 1, 2009 and will accordingly apply in relation to the assessment year 2009-2010 and subsequent assessment years. In the memorandum explaining the provisions of the Finance Bill, it has been mentioned as under for bringing the amendment to the definition of the charitable purpose ([2008] 298 ITR (St.) 190, 200):

"Section 2(15) of the Act defines 'charitable purpose' to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility.

It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the 'advancement of an object of general public utility' as is included in the fourth limb of the current definition of 'charitable purpose'. Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision.

With a view to limiting the scope of the phrase 'advancement of any other object of general public utility', it is proposed to amend section 2(15) 'so as to provide that 'the advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of-

(a) any activity in the nature of trade, commerce or business or,

(b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity.

This amendment will take effect from the 1st day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years."

Section 12(1) of the Income-tax Act is reproduced as under:

"12(1) Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly."

From the above section, it is clear that voluntary contributions received by a trust created only for charitable or religious purposes is to be deemed as income under section 11. In case some of the objects of the trust are charitable and some of the objects can be termed as non charitable, then such a trust will not be covered under section 12 because then it is not a trust created wholly for charitable purpose. The trust is seeking renewal of approval under section 80G with effect from April 1, 2008, i.e., for the previous year relevant to the assessment year 2009-10. Therefore, the amended definition of charitable purpose is applicable. We had reproduced the objects of the trust. Some of the objects of the trust include relief of the poor, education and medical relief. However, all the objects are not covered under the abovereferred three categories. Some of the objects are advancement of any other object of general public utility. One of the objects is to provide facilities for the training of students in cultural activities. Another object, which can be termed as an object of general public utility is to establish community hall open to all communities irrespective of any religion. It is not mentioned that the community hall is to be given on rent to the poor strata of the society. Then there is one another object, i.e., to contribute to charitable institutions relating to the relief of the poor, education and medical relief. Therefore, we have to see whether the trust has been created wholly for charitable purposes after applying the amended definition of the charitable purposes. As per the proviso to section 2(15), an object of general public utility will not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. The Legislature in its wisdom has not mentioned that the activity should be of trade, commerce or business. It is mentioned that any activity in the nature of trade, commerce or business. The construction of kalyana mantapa by the trust is in the nature of activity of trade though it might have been given on lease to the managing trustee. Copy of the lease deed, which is available at pages 20 to 26 of the paper book shows that the lease of Subharam Kalyana Mantapa has been given to Shri S. Ramamurthy, Hindu undivided family for a period of 36 months. In the lease deed it has been mentioned as under:

"Whereas, the trust finds it difficult to administer and look after the day-to-day activities of the convention centre and it wants to ensure a regular monthly income for its activities. And whereas the lessor trust has decided to give the building on lease to the land owner S. Ramamurthy, Hindu undivided family for a monthly rent of Rs. 1,00,066 effective from April, 2006..."

From the above narration in the lease deed, it is clear that the convention centre was constructed for earning income for the trust. Since the trust was finding it difficult to administer and to look after the day-to-day activities, therefore, the same was leased. This shows that the convention centre, i.e., kalyana mantapa was constructed for the purpose of carrying out the business activity. It has not been given on long lease but the lease is only of 36 months though it is renewable for a further period on mutually agreed terms and conditions.

Such an activity of giving the convention centre on lease is part of the nature of activity in the form of trade or commerce. The Board vide Circular No. 11 of 2008 ([2009] 308 ITR (St.) 5) has clarified the definition of charitable purpose as substituted by the Finance Bill, 2008. Paragraph 3, 3.1 and 3.2 of the circular are reproduced as under for ready reference:

"3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility', i.e., the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.

3.1. There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15).

3.2. In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalisation is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business."

Now before us, the learned authorised representative has submitted that the kalyana mantapa has been given on lease and therefore, the income arising from such lease is not taxable under the head "Income from business" but is taxable under the head "Income from other sources". If the contention of the learned authorised representative is accepted, then all such institutions having an activity in the nature of trade or commerce may hire such activity and may say that they are out of the proviso to section 2(15) of the Income-tax Act. Perhaps that is not the intention of the Legislature. The provision is to be interpreted so that the purpose for which the provision is introduced is achieved.

The proviso to section 2(15) also provides that if the object of the trust is advancement of any other object of general public utility, then the activity of rendering any service in relation to trade, commerce or business will make such an object of general public utility as not qualifying for charitable purpose. The words "in relation to" has been used in section 14A of the Income-tax Act. As per section 14A, expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act is not to be allowed as a deduction.

The Special Bench, Mumbai in the case of ITO v. Daga Capital Management P. Ltd. [2009] 312 ITR (AT) 1 had an occasion to consider the meaning of the words "in relation to". The hon'ble Special Bench observed vide paragraph 23.4 and 23.5 as under:

"23.4 Here we would like to mention that the meaning of a word or a phrase has to be adopted by considering the context in which such word or phrase has been used. It is equally important to note that the meaning given to a particular expression in one enactment cannot be bodily lifted and fitted into an another altogether different enactment. The hon'ble Supreme Court in the case of CIT v. Venkateswara Hatcheries P. Ltd. [1999] 237 ITR 174 has held that 'the meaning assigned to a particular word in a particular statute cannot be imported to a word used in a different statute... The same word, if read in the context of one provision of the Act, may mean or convey one meaning and another in a different context.' From the above enunciation of the law by the hon'ble apex court, it is patent that while giving meaning to a particular word in one section, there is no authority for importing and adopting the meaning of that word in some other parts of the same Act or in a different enactment.

With this background in mind, we go to the case of Madhav Rao Scindia [1971] 1 SCC 85 relied upon by the learned authorised representative for canvassing his point that the expression 'in relation to' as used in section 14A should be used in a narrow sense. From the narration of the facts of this case, it is observed that the expression 'relating to' discussed in this case has been used by the hon'ble Supreme Court in the context of examining whether it had jurisdiction in a dispute in respect of any right accruing under or any liability or obligation arising out of any of the provisions of this Constitution relating to any such treaty, etc. It was only in this context that the hon'ble Supreme Court held that the jurisdiction vests in it because the expression 'relating to' necessarily means that there should be direct and proximate connection. Thus, it is clear that the context in which the expression 'relating to' was interpreted by the hon'ble Supreme Court did not have any relation, worth the name, in so far as the provisions like section 14A concerning with the disallowance of expenditure relatable to the exempt income, are concerned. What to talk of that Act as homogeneous to the Income-tax Act, it has no matching shades at all. Moreover, in this judgment the hon'ble Supreme Court was dealing with the scope of the expression 'relating to'. However, in the case of Doypack Systems Pvt. Ltd. [1989] 65 Comp Cas 1 (SC); [1988] 2 SCC 299 the question for consideration was to determine whether the shares etc. held by the Swadeshi Cotton Mills would vest in the Central Government or not. The hon'ble Supreme Court observed that in section 3 of the Swadeshi Cotton Mills Co. Ltd. (Acquisition and Transfer of Undertakings) Act, 1986, the phrase used was in 'relation to'. Giving meaning to this expression, it was held as under:

'The expression "in relation to" (so "also pertaining to"), is a very broad expression which presupposes another subject-matter. These are words of comprehensiveness which might have both a direct significance as well as an indirect significance depending on the context... Assuming that the investments in shares and in lands do not form part of the undertakings but are different subject-matters, even then these would be brought within the purview of the vesting by reason of the above expression.'"

The meaning of the words "in relation to" as appearing in section 14A of the Income-tax Act has been considered by the Calcutta Bench in the case of Deputy CIT v. S.G. Investments and Industries Ltd. [2004] 89 ITD 44 (Kolkata). The hon'ble Bench held as under:

"The expression 'in relation to' used by the Legislature in newly inserted section 14A is a broader expression having regard to the object behind the introduction of the provisions of section 14A, which is inserted with an object (i) to disallow expenditure incurred in respect of exempt income against taxable income, (ii) to allow the expenses incurred only to the extent they are relatable to the earning of taxable income, and (iii) to allow the exemption in respect of the net income. The expression 'in relation to' used in section 14A has both direct significance as well as indirect significance having regard to the context in which it is used. It can also be gathered from the memorandum explaining the provisions of section 14A stating that in the absence of any such provision like that of section 14A the expenditure incurred in respect of exempt income was being claimed against taxable income though the Legislature had no such intention since the inception of the Income-tax Act, 1961. The amendment by inserting section 14A was, thus, made retrospective with effect from April 1, 1962, and the Legislature has stepped in and declared that the expenditure incurred in relation to exempt income shall not be allowed for the purpose of computing the total income under Chapter IV. The mandate of the provisions of section 14A is very clear. It desires to curb the practice to claim deduction of the expenses incurred in relation to exempt income against taxable income and at the same time to avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. Viewed in the light of the object behind the introduction of the provisions of section 14A and the scheme of the Act to charge tax on net income and to allow exemption also in respect of net income, the expression 'expenditure incurred by the assessee in relation to income which does not form part of the total income' should be given a wider meaning and it cannot be construed in a narrow or restricted manner.

If a wider meaning is given, the expression 'expenditure incurred by the assessee in relation to income which does not form part of the total income' would encompass not only the direct or proximate expenditure incurred for the purpose of making or earning exempt income, but it would include all other expenses attributable or in relation to exempt income. In other words, it would signify or imply both direct and indirect relationship between expenditure and exempt income. The narrow interpretation to the said expression will really defeat the object behind the provisions of section 14A inasmuch as, in the instant case, the assessee, on the one hand, would get tax incentive given by the Legislature by way of exemptions of income and, on the other hand, would claim deduction of expenses incurred in relation to exempt income against taxable income. This could never be the intention of the Legislature to allow the expenditure incurred in relation to exempt income against taxable income."

After considering the meaning of the words "in relation to", the hon'ble Special Bench held that not only the direct but also the indirect expenditure, which has any relation to the exempt income, is not to be allowed as a deduction. It is therefore clear that any activity, which directly or indirectly facilitates the rendering of any service in relation to any trade, commerce or business, then such an activity will be covered under the proviso to section 2(15) of the Income-tax Act. For carrying out the business of hiring kalyana mantapa by the lessee, the building is an essential asset and without the building, such business cannot be carried out.

We therefore hold that the construction of kalyana mantapa and giving the same on lease in the case of the trust where all the objects are not in respect of relief of poor, education and medical is covered by the proviso to section 2(15) and the trust cannot be said to be created wholly for charitable purpose. In the case of Sengunthar Thirumana Mandapam [2008] 298 ITR 330 (Mad) on which the assessee has placed reliance, in that case, the kalyana mandapam was to be allowed to be used for nominal rent by weavers and agriculturists. In the instant case, the facts are different and therefore, that judgment is not applicable. The decision in the case of Ram Bhawan Dharamshala [2002] 178 CTR (Raj) 88 is also not applicable in view of the amended definition of charitable purpose and in that case, the hon'ble Madras High Court was concerned with the issue as to whether the letting out of the property is an activity of business. Now in the amended definition, the words used are "that the activity may be in the nature of trade, commerce or business". In the case of Halai Nemon Association [2000] 243 ITR 439 the hon'ble Madras High Court has held that the building, which was being let out for functions and therefore, the receipts were taxable under the head "Business". Therefore, in the instant case, it cannot be said that the said trust existed wholly for the charitable purposes in view of the amended definition of charitable purpose.

The learned authorised representative during the course of proceedings before us contended that the learned DIT (Exemptions) should have refrained from considering section 13 of the Income-tax Act in not granting the renewal of approval under section 80G. As per section 80G(5), the concerned authority can give renewal of approval under section 80G in case he is satisfied that the trust income is not liable to be included in total income under the provisions of sections 11 and 12. We had reproduced section 12(1) in the earlier paragraphs. Section 12(1) clearly says that the provisions of sections 12 and 13 shall apply in respect of voluntary contributions received by the trust. Renewal of approval under section 80G is in respect of voluntary contributions to be received by the trust. Therefore, as per section 12(1) of the Income-tax Act, the concerned authority is empowered to look into the applicability of section 13.

The hon'ble Madras High Court in the case of Reliance Motor Company P. Ltd. v. CIT [1995] 213 ITR 733 had an occasion to consider as to whether the donation to a trust whose name indicated that the benefit to a particular religious community is eligible for deduction under section 80G. Actually, the trust was running a school. The hon'ble High Court upheld that the deduction under section 80G is not admissible because it is not the actual use of funds but the likelihood of it being used and the capacity of the trust to do so which is important. Hence, if the part of the objects of the trust is not charitable then the authority concerned can refuse renewal of approval under section 80G. Purpose must obviously be construed as real purpose and not a purpose as it outwardly appears to be. The authority conferred with power to give approval under section 80G is not debarred by finding out the real purpose as distinguished from the ostensible purpose and if it is found that the purpose of the trust was other than charitable then nothing debars the authority from denying the approval. In the case of Kirti Chand Tarawati Charitable Trust v. DIT (Exemption) [199S] 232 ITR 11 (Delhi), it was found from on the spot enquiry conducted by the DIT (Exemptions) that the trust was mainly engaged in the construction of a religious temple wherein no charitable activity was being carried on and therefore, on that basis, the hon'ble Delhi High Court upheld that the trust is not eligible for approval under section 80G though the objects of the trust were charitable.

Renewal of the approval under section 80G is applied in advance, i.e., before the start of the previous year. The trust or institution will have to file the return for that particular previous year after the end of the previous year while approval under section 80G is sought before the start of the previous year. In case the trust is found to be violating the provisions of section 13, then the authority concerned is required to deny exemption under section 80G because once exemption is allowed, then deduction under section 80G to the donors cannot be denied on the ground that subsequently the income of the trust has become taxable under section 11. The concerned authority has to be satisfied that the income of the trust will not be liable to inclusion in the total income under the provisions of sections 11 and 12. The words "liable to inclusion" means that the authority concerned has to take a decision on the basis of the facts available at the time of application. The authority concerned cannot shut its eyes in case the provisions of section 13 ate applicable on the basis of the facts on record, though the actual assessment of that previous year may be made by the Assessing Officer subsequently, but the authority concerned has to take a decision on the basis of the facts as available on the date of application, which is before the start of the previous year while the Assessing Officer has to decide the issue on the basis of the facts of that particular previous year after the end of the previous year. Hence, it is held that the learned DIT (Exemptions) was legally correct in looking into the provisions of section 13 while considering the application of the trust for renewal of approval under section 80G.

The appellant-trust has not filed a copy of the lease deed either before us or before the lower authorities vide which the land belonging to Shri S. Ramamurthy, Hindu undivided family was leased to the trust. Copy of the lease deed vide which the trust gave the kalayana mantapa on lease to S. Ramamurthy, Hindu undivided family has been filed. In this lease deed, it is mentioned that the trust obtained a lease of land belonging to Shri S. Ramamurthy, Hindu undivided family for the purpose of a convention centre. It is not mentioned as to for how many years such lease was given to the trust by Shri S. Ramamurthy, Hindu undivided family. Without having adequate arrangement for keeping the lease of land for sufficiently long time, the appellant trust invested a sum of Rs. 1.42 crore on the construction of the kalyana mantapa. No prudent person would have invested such a huge amount without adequate security that the investment made will yield appropriate income and the investment will remain safe. Shri Ramamurthy, Hindu undivided family is a person covered under section 13(3) of the Income-tax Act. As per section 13(1)(c), it is mentioned that if any part of income or property of the trust is used or applied directly or indirectly for the benefit of any person referred to in section 13(3), then nothing contained in sections 11 and 12 shall operate to exclude from the total income of the previous year of the person in receipt of the income. Thus, investing such a huge amount in the construction of a kalyana mantapa without having adequate arrangement for retaining the land for a sufficient long period, resulted in a benefit to Shri Ramamurthy, Hindu undivided family, who is a person covered under section 13(3) of the Income-tax Act.

The word "benefit" has not been defined in the Act and therefore, its ordinary meaning will have to be applied that it means, advantage and such advantage may be either monetary or non monetary. In view of the fact that the benefit is available to a person specified in section 13(3) of the Income-tax Act, therefore, the income of the trust is not exempt under sections 11 and 12 and therefore, the learned DIT (Exemptions) was right in not allowing renewal of approval under section 80G. Moreover, no basis has been provided for fixing the monthly rent of Rs. 1,00,066 to satisfy that the lease rent adequately compensates the trust, who has constructed the kalyana mantapa on the land leased out to it. The onus was on the appellant trust to have provided the basis that the agreed lease rent was adequate. If the appellant trust was having lease right over the land for a long period then the adequate compensation should have been considered that aspect as to what the assessee was leasing to Shri S. Ramamurthy was kalyana mantapa along with the land. In case only the building was being leased as the land belongs to Shri Ramamurthy, Hindu undivided family, then the appellant trust has not taken adequate steps to protect its investment. Hence, the learned DIT (Exemptions) was justified in not giving renewal of the approval under section 80G.

In the result, the appeal of the assessee is dismissed.

Pronounced in the open court on 25th March, 2009.

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