Summary: The main object should be charitable activity and not maintenance of accounts in the way the authorities want. Books of account are maintained substantially as required under law and as long as money is not spent for any other purpose other than charitable purpose, they should be granted the benefit. The authorities keeping in mind the object with which these provisions are made should act in aid of the intention of the legislature and not to frustrate the law
IN THE HIGH COURT OF KARNATAKA
Karunya Rural Health Care Society
Director of Income-tax (Exemptions), Trust Circle*
N. KUMAR AND RAVI MALIMATH, JJ.
IT APPEAL NO. 77 OF 2011
OCTOBER 19, 2011
N. Kumar, J. - The assessee has preferred this appeal challenging the order passed by the Tribunal, which has held that the order passed by the commissioner of Income Tax who has refused to extend/continuance of Certificate of Registration under Section 80G of the Income Tax Act, 1961 (for short hereinafter referred to as 'Act').
2. The assessee M/s. Karunya Rural Health Care Society, is a trust which is constituted and registered under the Societies Registration Act in the year 1999. The assessee was granted exemption under Section 12 of the Act and recognition under Section 80G for the financial years 2001-02 and 2003-04 to 2008-09. On expiry of recognition under Section 80G of the Act, the assessee applied for grant of renewal of registration under section 80G and filed an application on 13-5-2009. the Director of Income-tax Appeals (Exemption) was of the view that for recognition of exemption under section 80G of the Act requires that the applicability of section to be examined not only with reference to charitable purpose but also fulfilment of conditions laid down in the said section. On verification of the books of account, bills and vouchers produced, the following discrepancies were noticed:-
(1) The bills are issued in the name of Pamadurthi Byappa Reddy Foundation' and pamphlets about eye camp are also in the name of the same Foundation and the camp was held at Bukka Pattanam Constituency in the guidance of Shri Shyamprasad Reddy who is a Congress leader and brother of Dr. R. Chaya Nair, President of the assessee-trust.
(2) Applications for issue of scholarships by students of various schools and colleges are addressed to 'Pamadurthi Byappa Reddy Foudnation' and 'P', thirdly.
(3) Though the payment for purchase of computers is made through account payee cheques, no proper evidences from the social authorities is made available as proof of receiving the computers.
3. As the explanation offered by the assessee was not satisfactory, the Director of Income Tax proceeded to hold that he is not satisfied and therefore declined renewal of registration. Aggrieved by the said order the assessee preferred an appeal to the Tribunal. The Tribunal did not agree with the findings recorded by the Director to the effect that the benefit is going to Sri R. Shyamprasad Reddy, who is the brother of President of trustee. They categorically held that the assessee had to prove that it is carrying on charitable activity is immaterial so long as the general public is benefited by the charitable activity. Therefore, the first discrepancy set out above is not found to be proper even by the Tribunal, but they upheld the order on the ground that the assessee is not carrying on any charitable activity.
4. From the evidence of the assessee, it is clear that the activity is being carried out by Pamadurthi Byappa Reddy Foundation, which is another registered society and the president of the said foundation is the brother of the president of the assessee and the activity had been carried out by the said foundation. Therefore, it is clear that the assessee has failed to produce the evidence to show that it is in fact carrying on charitable activity. From the said finding it is clear that there is no dispute that the assessee was carrying on charitable activity through another trust. Once the evidence produced disclose that the funds of the trust is applied for carrying on charitable activities, the purpose of establishing the trust is fully satisfied.
5. Insofar as maintenance of books of account is concerned, that is not the ground on which the Director refused registration. The reasoning given by the Director was "though the payment for purchase of computers is made through account payee cheques, no proper evidence from the school authorities is made available as proof of receiving the computers". In fact from the material on record it is found that the entire accounts are produced. Initially they were maintaining the accounts in the computer 'tally system'. It got crashed. Therefore, they have to rewrite the accounts and produce the same. That apart along with the appeal memo they have produced the statement of accounts issued by the Bank through which they are carrying on their activities. Firstly, it shows all the payments which are made by them through cheque. It shows the payment are made directly to various colleges. It is not the case of anyone the assessee has siphoned out money in the name of others or has drawn money by himself as withdrawal. It is also not pointed out the persons to whom these cheques are issued, have enchased same and who have paid said money for any other purposes other than charitable purposes.
6. The order of the Director given us an impression that be was not worried about the charitable activity carried on by the trust as such. He had no doubt in his mind that they were carrying on charitable activity. Therefore, he wanted to examine their case not with reference to charitable activity but fulfilment of conditions laid down in the said Section. The findings recorded by the Tribunal on the face of it is inconsistent and contrary to material on record. In the absence of any evidence on record to show that the assessee has misused the exemption granted and siphoned out the money belonging to the trust for their personal requirement and for any other purpose other than charitable purpose. In fact the finding recorded by the Tribunal is that they have not maintained books of account but they have produced the account statement issued by the Banks which records of payment and the persons to whom said payments are made, is not disputed by the authorities. Both the Director as well as the Tribunal has missed the object with which the parliament has enacted these provisions to offer an incentive to persons who are well-placed in life to take up charitable activities. The main object should be charitable activity and not maintenance of accounts in the way the authorities want. Books of account are maintained substantially as required under law and as long as money is not spent for any other purpose other than charitable purpose, they should be granted the benefit. The authorities keeping in mind the object with which these provisions are made should act in aid of the intention of the legislature and not to frustrate the law. Unnecessarily the assessee is made to find litigation before this Court. He would have spent that time in conducting charitable activities.
7. In that view of the matter, the orders passed by the lower authorities are unsustainable and are liable to be set aside. Hence, we pass the following order:
(i) The appeal is allowed.
(ii) The impugned order passed by the Director of Income Tax (Exemption) as well as the Tribunal are hereby set aside.
(iii) The respondent shall pay a sum of Rs. 25,000 to the assessee towards cost of this appeal.
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