Vildirect: IncomeTax-caselaws-2015-VIL-1047-ITAT-MUM

2015-VIL-1047-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

ITA No.736/M/2013

Date: 11.03.2015

M/s . CRITICAL ART AND MEDIA PRACTICES

THE DIRECTOR OF INCOME TAX

For the Appellant : Shri Rashmikant D. Kundalia, A.R.

BENCH

Shri R.C. Sharma And Shri Sanjay Garg JJ.

JUDGMENT

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the appellant/applicant trust against the order dated 29.11.2012 of the Director of Income Tax (Exemption) [(hereinafter referred to as DIT(E)] relevant to assessment year 2012-13 agitating the rejection of its application for registration under section 12A of the Income Tax Act (hereinafter referred to as the Act).

2. The Ld. DIT(E) has rejected the application of the appellant trust observing that the trust deed of the appellant trust reveals that the appellant trust has charitable as well as non charitable objects such as hosting of artistsin- residence programmes for international artists and raising funds for organizing trips, seminars and conferences within and outside the country etc. The Ld. DIT(E) has further observed that objects of the applicant trust were not merely confined to the territories comprising in India but also extended to and encompass the whole world. He has therefore observed that any activities carried out by the applicant trust in pursuit of aforesaid objects would involve application of funds of the trust outside India which renders it ineligible for exemption. He has therefore held that the objects of the trust contravene the provisions of section 11 of the Act wherein it has been specifically provided that the application of income of the trust has to be within India, therefore, the applicant trust would not be entitled to registration under section 12AA of the Act. Secondly, he has observed that the applicant trust had made payments of salary to its trustees/persons covered under section 13(3) of the Act. He has noted that salary of Rs. 4,55,496/- had been paid to Mr. Ashok Sukumaran and salary amounting to Rs. 5,24,225/- to Ms. Shaina Anand. He has observed that the applicant trust had not furnished any details of services rendered by these two trustees nor any supporting evidence had been furnished justifying the payment of such a hefty amount. He has therefore held that the provisions of section13(2) and section13(3)(cc) would apply in this case as the trustees have been found to be deriving benefit from the applicant trust. He has therefore concluded that the objects of the trust as well as the genuineness of the charitable activities of the trust have not been established. He, accordingly, has rejected the application of the applicant trust for registration as a charitable institution. Aggrieved by the order of the Ld. DIT(E), the assessee has come in appeal before us.

3. We have heard the rival contentions of the Ld. Representatives of both the parties and have also gone through the records. So far as the first ground for rejection of the applicant trust is concerned, the Ld. A.R. of the assessee has submitted that the main object of the trust as per trust deed is to promote non commercial artistic activity, discussion and education initiatives about the arts and emerging media forms for the benefit of the general public. He has further submitted that the trust has been set up with an objective to promote art and culture of India within India and globally, where Indian art and culture are unknown or little known. He has further submitted that merely because the trust has an object clause that allows it to organize an artist-in-residence programme for national as well as international artists, that does not mean that the trust is engaged or will engage in non charitable activities. He has further contended that working with international artists helps the trust to promote Indian art and culture at an international level, an initiative that promotes the ethos of Indians. He, inviting our attention to section 11(1)(c) of the Act, has contended that the activities of the applicant trust fall within the definition of ‘to promote international welfare in which India is interested’. He has therefore contended that the said provisions do not prohibit the trust from incurring expenditure outside India. It has been further contended that even otherwise the trust till date has not expended any money outside India. The visit at Kassel, Germany for documentary exhibition was funded by the organizer. Ld. A.R. has further contended that even if the trust sometimes participates in international exhibitions, seminars or project etc.; it is for the promotion and benefit of the Indian culture. He has further contended that the applicant trust has been praised for its dissemination of Indian art and aesthetics around the world as well as in India. The trust has received international recognition for its project ‘pad.ma.’ That the activities of the applicant trust fall within the definition of ‘object of general public utility’ as defined under section 2(15) of the Act and further that its activities promote international welfare in which India is interested. He has further invited our attention to para 5 of the trust deed to show that the trust has restricted itself to utilize the funds within India only for charitable activities. The words ‘or outside India’ had been deleted/struck down by the trustees from the trust deed before submission of trust deed with the Charity Commissioner for registration under BPT Act, 1950. The trust has already been granted registration by the Charity Commissioner. He, therefore, has submitted that the activities of the trust cannot be said to be non charitable in any manner. On the other hand, the Ld. D.R. has supported the findings of the Ld. DIT(E).

4. We have considered the rival submissions. Firstly, we would like to discuss the relevant provisions of the Act. Sections 11 to 13 of the Act deal with the issue under consideration. The relevant part of section 11, for the sake of convenience, is reproduced as under:

“Income from property held for charitable or religious purposes.

11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-

[(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of [fifteen] per cent of the income from such property;

(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of [fifteen] per cent of the income from such property;

(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and

(ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;

[(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.]………….”

5. A perusal of the clause ‘a’ of section 11(1) reveals that:

1) Income is to be derived from property held under trust wholly for charitable or religious purposes.

2) The income to the extent to which such income is applied to such purposes in India is exempt from inclusion into the total income of the assessee trust.

6. Hence, the two conditions are that the property held under trust should be wholly for charitable or religious purposes. Secondly, income to the extent to which such income is applied to such purposes in India is to be excluded from the total income or if such an income is accumulated or set apart for application for such purposes in India subject to condition that the income so accumulated or set apart does not exceed 15% of the total income from such property. A careful reading of the above stated twin conditions reveals that these conditions can be differentiated on the point that the requirement of the first condition is that the property should be held under trust for charitable purposes and whether the property is held in India or outside India is not relevant. As per second condition, it is not restricted that the whole of the income should be applied to charitable purposes in India only. The second condition suggests that ‘the income to the extent to which it is applied in India’ for charitable purposes is not to be included in the total income. The interpretation that can be drawn from the above provision is that even if the income is applied for charitable purposes outside India, even then, it cannot be said that the purpose or activity of the trust is not charitable. However, the exemption from inclusion in the total income will not be given to such an expenditure incurred by the trust. The exemption as per the second condition has been restricted to the extent up to which such income is applied for charitable activities in India. Hence, if a charitable trust applies some of its income for charitable activities outside India and some of its income for charitable activities in India then it will be entitled to exemption up to the extent such an income is applied in India and not otherwise and subject to the other conditions laid down in other provisions of the Act.

7. To get more clarity, now we discuss the definition of charitable purposes as provided under section 2(15) of the Act which, for the sake of convenience, is reproduced as under:

Section 2 (15): "charitable purpose" includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] 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 appli-cation, or retention, of the income from such activity:]

[Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year;]”

8. A careful reading of the main provision reveals that for a purpose or activity to be charitable in nature, there is no condition that such an activity should be performed ‘in India’ only. Such a condition of activities to be performed in India only is missing in the wording of the section 2(15) defining charitable purposes. Hence, the charity as per the provisions of the Act is not confined or limited to the boundaries of India only. If the activities of a trust fall within the domain of above definition e.g. relief to the poor, education, medical relief or advancement of any other object of general public utility etc. as mentioned above, then it is to be treated as a charitable trust.

9. Now reverting to the provisions of section 11 of the Act, a perusal of clause (c) of section 11(1) reveals that even under certain cases the exemption from inclusion in the total income is also granted even in cases of application of such an income outside India for the purposes which ‘tend to promote international welfare in which India is interested’. The condition as laid down by the proviso to the said clause is that in such a case, the Board (CBDT) by general or special order should have directed that it shall not be included in the total income. Hence, subject to the condition of approval by the Board, the income applied outside India for the purpose of promoting the international welfare in which India is interested is also exempt as per the above stated provision of clause (c) of section 11(1).

9.1 Now we take up an example. Suppose, there is an epidemic in any region or country outside the Indian boundaries and an institution based in India extends help and support in providing food, medical and other assistance to the affected people; would it not be called a charitable activity? Now suppose, there is a pandemic involving India and neighbouring countries; an institution based in India, irrespective of the boundries of the country, offers help and support to the people at large without considering whether they belong to India or any of the neighbouring country and in this way contributes for the welfare of the people at large; can it be said that such a trust has done charity up to the extent it offered help and support to the people in India and that its activity will not be charitable in relation to the help and support provided outside the boundaries of India in such an eventuality affecting the people at large? In our view, the definition of charity in no manner can be restricted to the activities done in India only, the ‘charity’ remains the ‘charity,’ whether it is done in India or whether elsewhere in any part of the world irrespective of the territorial boundaries. However, so far as the computation of income or the relief under the Income Tax Act is concerned, the Act has restricted the exemption from inclusion in total income to the extent such an income is applied in India. So in the given example, if an institution offers help and support not only in India but also outside India for charitable purposes, such an institution will get benefit of exemption from tax of the income to the extent it is applied in India and not in relation to the income which is applied outside India. But, the fact remains is that such an institution will be called a charitable institution only and not a commercial institution.

10. Now coming to the provisions of section12A of the Act. Section 12A of the Act suggests that to get exemption from total income such a trust should make an application for registration as a charitable institution to the respective Commissioner or Principal Commissioner [hereinafter referred to as DIT(E)]. Section 12AA prescribes the procedure to be adopted by such a Principal Commissioner or DIT(E) for registration of such an institution as charitable institution. The requirement of the provisions is that the Commissioner may make necessary enquiries to satisfy himself about the genuineness of the activities of such an institution and if he is so satisfied about the genuineness of the activities, he has to grant the registration and if he is not satisfied, he can reject the registration. Now as discussed above, if the activities of the trust fall in the definition of charitable purposes as defined under section 2(15) of the Act and the property is held under the trust wholly and exclusively for charitable and religious purposes as provided under section 11 of the Act, and the Commissioner is satisfied about the genuineness of such activities, the trust is to be granted registration. For the purpose of grant of registration, the application of income in India is not a pre-condition, if its activities otherwise fall in the definition of charitable activities as observed above. However, so far as the computation of the income is concerned, such an institution will get exemption of income to the extent it is applied in India and not in relation to the income, even if applied for charitable purposes, outside India. Further, as per the provisions of clause (c) of section 11(1), if the activities upon which the income is applied outside India are such that which tend to promote international welfare in which India is interested, such an income is also exempt but subject to approval of the Board.

11. Now coming to the facts of the present case. The objects of the trust suggest that the trust has been formed to promote art and culture of India within India and globally which, in our view, fall in the definition of ‘any other object of general public utility’ and hence included in the definition of charitable purposes. So far as the application of income outside India is concerned, the Ld. A.R. has vehemently stressed that the projects, conferences and seminars had been carried out by the trust to promote Indian culture and art at international level, further that the activities such as to host artists-inresidence programmes for national as well as international artists for the benefit of society are the objects that promote international welfare in which India is interested. He has further stressed that the trust has received permission from the Home Ministry, Government of India, to carry out such activities outside India. Considering the overall discussion as made above, it is to be held that the activities of the trust would fall in the definition of charitable purposes. However, so far as the application of income outside India, as claimed to have been applied to promote international welfare in which India is interested is concerned, it is to be proved with necessary evidences and also subject to approval of the Board for entitlement of exemption from tax on such income. However, the registration cannot be refused on the ground that the income is applied for charitable purposes outside India.

12. So far as the second ground regarding the salary paid to the trustees is concerned, the Ld. A.R. has contended that the Ld. DIT(E) had not raised any question on this issue and thereby had not given any opportunity to the applicant trust to show that the salary paid to the trustees was not in excess of what should be reasonably paid for such services. He has submitted that the applicant trust be given an opportunity to prove that the salary paid to the trustees was not excessive and that the provisions of section 13(2) and 13(3)(cc) had not been violated.

13. Keeping in view of the above submissions, in our view, the second ground on which the registration is rejected needs to be relooked by the Ld. DIT(E). In view of our above observations, we hold that if the activities otherwise are charitable and fall in the definition of charitable purposes as defined under section 2(15) of the Act and further the property is held wholly and exclusively under trust for charitable and religious purposes as provided under section 11 of the Act, then such a trust subject to the fulfilment of other conditions as laid down by the different provisions of the Act, will be entitled to registration and it cannot be denied registration because of the fact that its activities are extended outside India. However, while computing the income as per the provisions of section 11 of the Act, the income which is applied on such an activities in India only, will be eligible for exemption and subject to the provisions of section 11(1)(c) wherein the income applied outside India is also eligible for exemption, if the activities tend to promote the international welfare in which India is interested and the approval has been granted by the Board for such application of income. However, so far as the second ground regarding the salary received by the trustees in excess of what may be reasonably paid for such services is concerned, the matter is restored to the file of the Ld. DIT(E) for decision afresh after granting proper opportunity to the appellant trust to present its case and produce necessary evidences, if any, in this regard.

14. In the result, the appeal of the appellant trust is allowed in terms as discussed above.

Order pronounced in the open court on 11.03.2015.

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