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Dr. Hedgewar Smarak Samiti Vs. Inspecting Assistant - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Nagpur
Decided On
Judge
Reported in(1982)1ITD822(Nag.)
AppellantDr. Hedgewar Smarak Samiti
Respondentinspecting Assistant
Excerpt:
.....under the societies registration act, 1860. it is also registered by the charity commissioner as a public-trust under the bombay public trust act, 1950, and by the commissioner under section 12a of the income-tax act, 1961 ("the act").when notice under section 148 of the act was issued to the assessee for subjecting its income to income-tax, it claimed exemption under sections 11,12 and 13(1) of the act on the ground that it was a charitable trust. the iac objected to clause (d) of the objects clause, reproduced above, on the ground that it related specifically to a political purpose. this was not a charitable purpose. he concluded that the society was not for a charitable purpose.3. the iac found that the assessee had two buildings one of which was known as "smruti mandir", which was.....
Judgment:
1. The assessee is a society formed by a memorandum of association dated 11-4-1957 with the following objects : (a) to conduct, promote and patronise through instruction all such nation-building activities for the Hindu Society which the late Dr.

Hedgewar instituted and envisaged ; (b) to conduct activities of literary, scientific, cultural and charitable nature conducive to the above objects ; (c) to establish libraries, medical and other relief centres, schools and colleges ; (d) to diffuse political knowledge consistent with the national heritage and thus conducive to the welfare of humanity as a whole.

(i) to acquire on lease, by purchase, sale or gift, lands and buildings from Governmental or semi-Governmental authorities, trusts and corporations, institutions and societies, as well as from individuals in Nagpur or any other place in Bharat and/or abroad and to sell, manage, transfer, exchange, mortgage, demise, dispose of or otherwise deal with any property whatsoever belonging to the Society ; (ii) to put up suitable memorials, buildings and other constructions, to maintain, alter and equip them suitably and at its discretion to permit their use on license or lease to institutions or organisations which in the opinion of the Society are devoted to same or similar objects ; (iv) to receive donations in cash or kind from individuals or associations in the country or outside for the purpose of carrying out the objects of the Society ; (iv) to do all such things as the society may think proper and necessary for the attainment of the objects with a view to perpetuate the memory of the late Dr. Keshave Baliram Hedgewar, who dedicated his life for the rejuvination of the Hindu Society.

2. It was registered as a society under the Societies Registration Act, 1860. It is also registered by the Charity Commissioner as a public-trust under the Bombay Public Trust Act, 1950, and by the Commissioner under Section 12A of the Income-tax Act, 1961 ("the Act").

When notice under Section 148 of the Act was issued to the assessee for subjecting its income to income-tax, it claimed exemption under Sections 11,12 and 13(1) of the Act on the ground that it was a charitable trust. The IAC objected to Clause (d) of the objects clause, reproduced above, on the ground that it related specifically to a political purpose. This was not a charitable purpose. He concluded that the society was not for a charitable purpose.

3. The IAC found that the assessee had two buildings one of which was known as "Smruti Mandir", which was never let out, and the other was known as "Smruti Bhawan", which was a hostel of students. The IAC estimated the assessee's income under Section 22 of the Act from this later building. He also estimated the assessee's income from donations and interest from bank deposits and subjected the same to tax for the years under consideration. For the first year under consideration, there was no interest on bank deposits.

4. On an appeal by the assessee before the Commissioner (Appeals), the Commissioner (Appeals) agreed with the IAC that the object of the assessee in Clause (d) was not of an educational character. For arriving at this decision, he relied on the Supreme Court decision in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234. On the question whether Clause (d) could be considered to be charitable, the Commissioner (Appeals) was of the view that a clause like Clause (d) could be adopted by any political party and could be used as an instrument for propagating the views and opinions by which the party swears. The party could claim that its programmes are consistent with national heritage and calculated to promote welfare of humanity. Again, who is to decide, what would constitute national heritage and what would be conducive to welfare of humanity So considered, a clause like this could build up confrontations which, if anything, would be only a negation of "charitable purpose". In his opinion, the irresistible conclusion was that Clause (d) was political in its complexion. He, therefore, upheld the assessments made by the IAC.5. On a further appeal by the assessee before the Tribunal, the learned counsel for the assessee has elucidated the objects and the activities of the assessee, stated earlier in this order. It was stated that the department had accepted for the assessment years 1975-76 and 1976-77 that the assessee was a charitable trust whereas for the years under consideration which were before and after these two years, the department was fighting tooth and nail for treating the assessee as a taxable entity. Referring to the decision of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust (supra) relied upon by the Commissioner (Appeals) for upholding the assessments, the learned counsel pointed out that in that case, the Supreme Court held that the activities of that trust of, printing and publishing newspapers may not be eductional in nature but they were of general public ulility. The activities of the assessee in the instant case were, therefore, of a general public utility even according to the definition of the term "charitable purpose" under Section 2(15). Unless the assessee carried on an activity for profit, the assessee was to be held as a charitable trust.

Referring to the registration granted by the Charity Commissioner under the Bombay Public Trust Act, 1950, it was pointed out that this registration was granted after a public hearing and after calling for objections from members of the public. The registration granted by the Charity Commissioner should be taken due note of. Further referring to the objection on the ground that the assessee's object was political, it was admitted that a political purpose may not be charitable but from the objects of the trust as laid out in extenso earlier in this order, it was clear that the assessee had no political motivation whatsoever.

An institution can be said to have political intentions if it aimed at changes in the laws of the country, change in the political set up of the country, changes in the administration of the country, etc. The assessee had neither any such intention nor had it carried on any such activity. In this connection, the learned counsel referred to the Supreme Court decision in the case of Laxman Balwant Bhopatkar v.Charity Commissioner AIR 1963 SC 625.

6. The only activity carried on by the assessee according to the learned counsel, was the maintenance of the "Smruti Bhawan" a hostel, referred to above, since 1957. A school has been started recently and a "Bhasha Pratishthan", i.e., a languages foundation, has been set up where Indian languages were being taught. Even assuming for a while that Clause (d) of the association smacked of political intentions, that clause has not been acted upon. Relying on the Supreme Court decision in the case of CIT v. Dharmodayam Co. [1977] 109 ITR 527 it was argued that merely because a memorandum of association or the trust deed included a clause which was non-charitable in nature, no importance could be attached to such an objectionable clause and the relief admissible to the assessee could not be denied. In this connection further reference is made to the Karnataka High Court decision in the case of CIT v. Bangalore Slock Exchange Ltd. [1978] 115 ITR 493.

7. Finally, the learned counsel relied on the Madhya Pradesh High Court decision dated 21-9-1970 in Civil Revision No. 455 of 1968 in the case of Municipal Corporation of Indore v. Dr. Hedgewar Smarak Samiti, another trust with identical objects. It was stated that the issue before the Madhya Pradesh High Court in that case was the same as was before us in the present appeals, viz., whether the objects of that trust were charitable in nature. The Madhya Pradesh High Court was called upon to interpret the provisions of Section 135 of the M.P.Municipal Corporation Act of 1956, according to which a property exclusively occupied for public worship or for charitable porposes was exempt from municipal taxes. The Madhya Pradesh High Court decided the issue in favour of the trust. On a parity of reasoning, the assessee should be held to be exempt from income-tax under Section 11.

8. On behalf of the revenue, the learned departmental representative has submitted that the fact that the assessee was exempted as a charitable trust for the income-tax assessments for 1975-76 and 1976-77 was no bar for subjecting the assessee to income-tax for the other years, which were before us. It was further stated that under object Clause (d), diffusion of political knowledge was a political purpose.

Mere registration by the Charity Commissioner under the Bombay Public Trust Act was not enough for supporting the assessee's claim that it was a charitable trust.

9. We have carefully considered the facts and circumstances of the case and the submissions on either side. The assessee was a society with the objects as laid out in para 1 of this order. Though the declared objects were diverse, the only activity carried on by the society was running a hostel for students and recently, though not in any of the assessment years under consideration, the assessee has undertaken to run a school and educating the citizens in languages other than their mother tongue.

10. On these limited facts, the question for consideration is whether the assessee was eligible for exemption under Sections 11, 12 and 13.

Such exemption is available if its object was charitable object as defined in Section 2(75). The objection on behalf of the revenue is that Clause (d) offended against the objects being charitable in nature. We may at once state that to our mind "to diffuse political knowledge consistent with our national heritage" was not the same thing as to indulge in politics. Perhaps the maximum it may mean is that the assessee may publish newspapers, journals, magazines and through other media, it may educate the public about the political systems prevailing in the country in the past. Even assuming "diffusion of political knowledge" through newspapers or other similar media was not "education" as explained by the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust (supra), in the same decision the Supreme Court has held that it was an activity of general public utility.

11. In our opinion, however, from what follows it would be clear that it is wholly unnecessary to speculate on the exact nature and scope of the impugned Clause (d). Whether in fact the object of the trust was charitable in nature would be a mere theoretical exercise in the present case because admittedly the assessee had done nothing in pursuance of this clause since 1957 to date. In the case of Sole Trustee, Loka Shikshana Trust (supra), the Supreme Court held that the assessee was liable to tax because it was carrying on an activity of profit. In the instant case, the assessee has not carried on any activity in pursuance of Clause (d). We do not know what form and shape the assessee's activity would take in pursuance of this clause, if ever the the assessee decides to act under this clause. Till then, it would be wrong to condemn it in anticipation. So long as the assessee has not undertaken any objectionable activity under this clause, it has to be treated as an activity of general public utility as explained by the learned Judges of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust (supra). An object of general public utility is a charitable object.

12. As explained by the learned Judges of the Supreme Court in the case of Dharmodayam Co. (supra), if there is any clause in the articles offending against the charitable nature of the trust as in the instant case, one would be guided by the following observations of the Supreme Court in the case of Dharmodayam Co. (supra) : It is undisputed that the respondent-company, which was registered on January 21, 1959, under the Cochin Companies Act, has never engaged itself in any industry or in any other activity of public interest. It is notorious that the memoranda and articles of association of companies usually cover a variety of activities, only a few of which are in fact undertaken or intended to be undertaken.

That obviates the necessity for applying for amendment of the articles from time to time and helps to rule out a possible challenge on the ground that the company has acted beyond its powers in undertaking a particular form of activity. The only activity in which the respondent is engaged over the years is the conduct of kuries. On this aspect of the matter the High Court rightly observed-CIT v. Dharmodayam Co. [1974] 94 ITR 113, 119 (Ker.) : There is no case that Dharmodayam Company ever started any industry ; there is also no ground for saying that the object of the company was to start an industry for the purpose of making profit'. (p. 533) 13. Further, in our opinion, the learned counsel for the assessee has properly relied on the Karnataka High Court decision in the case of Bangalore Stock Exchange Ltd. (supra). If and when the affairs of the assessee took the shape of a profit-making concern, the revenue has ample powers and opportunity to deny the exemption to the assessee. The mere possibility of the happening of such an event should not deter the court from holding that the income of the assessee was not liable to tax on the basis of the existing facts. As long as the activities in which the assessee was engaged were not activities for profit and the income derived by it from them were being applied for charitable purposes, the assessee would be entitled to claim exemption under Section 11 notwithstanding the fact that its memorandum made reference to some objects which might not be charitable in nature.

14. This leaves us with the finding that Clause (d) of the articles is one of general public utility. That is the only clause objected to on behalf of the revenue. Since it has not been established that the assessee was carrying on any activity for profit, in our opinion, the lower authorities have erred in holding that the society was founded for non-charitable purposes and, therefore, liable to tax. The orders of the lower authorities on this issue are reversed.

15. During the course of the hearing, the assessee pointed out to us that the IAC had taxed the contributions in the form of donations. The assessee had objected to the same before the Commissioner (Appeals) in his grounds of appeal. The Commissioner (Appeals) had failed to deal with this ground of appeal. Hence, the assessee had taken this ground before the Tribunal also. On a perusal of the Commissioner (Appeals)'s order we are unable to see why the Commissioner (Appeals) has not dealt with this ground taken before him. The matter is restored to the file of the Commissioner (Appeals). He will hear the assessee afresh on this issue and decide the matter in accordance with law.


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