THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 26.02.2013
+ ITA 80/2013
DIRECTOR OF INCOME TAX (EXEMPTION) ... Appellant
versus
ABUL KALAM AZAD ISLAMIC AWAKENING ... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Karan Khanna, Ms Asmita Kumar
For the Respondent : None
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This appeal by the revenue is directed against the order dated
30.03.2012 passed by the Income Tax Appellate Tribunal in ITA
386/Del/2012 pertaining to the cancellation of registration under Section
12AA(3) of the Income Tax Act, 1961(hereinafter referred to as the `said
Act'). The respondent assessee had filed an appeal before the Tribunal
being aggrieved by the order of the Director of Income Tax (E) passed
under Section 12AA(3) read with Section 12 of the Income Tax Act
cancelling the registration granted to the assessee under Section 12(A).
2. The entire case of the revenue was that since the assessee, in the
assessment year 2005-2006, had invested in commercial property at
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Bangalore and it was not for a charitable purpose and further that in the
said property no educational activity was carried out which was the object
of the assessee. The respondent/assessee had contended that it was
permissible for it to invest in immovable property in terms of section
11(5) of the said Act. It was also contended that though the investment
was in commercial property, the income generated from it was applied for
charitable purposes. Therefore, the registration under section 12A of the
said Act could not have been cancelled. The Tribunal accepted the pleas
raised by the assessee and allowed its appeal. The Tribunal observed as
under:-
"7. We have heard rival contentions and gone through the
relevant material available on record. Relevant provisions
of Section 11, read as under :
"Income from property held for charitable or
religious purpose.
11 (2) Where eighty-five per cent of the income
referred to in clause (a) or clause (b) of sub-section (1)
read with the Explanation to that sub-section is not
applied, or is not deemed to have been applied, to
charitable or religious purposes in India during the
previous year but is accumulated or set apart, either in
whole or in part, for application to such purposes in
India, such income so accumulated or set apart shall not
be included in the total income of the previous year of
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the person in receipt of the income, provided the
following conditions are complied with, namely :
(a) Such person specifies, by notice in writing given to
the Assessing Officer in the prescribed manner, the
purpose for which the income is being accumulated or
set apart and the period for which the income is to be
accumulated or set apart, which shall in no case exceed
ten years;
(b) The money so accumulated or set apart is invested
or deposited in the forms or modes specified in sub-
section (5).
....
(5) The forms and modes of investing or depositing the
money referred to in clause (b) of sub-section (2) shall
be the following, namely :-
......
(x) Investment in immovable property.
7.1. Plain reading of provisions of sec. 11 (2)(b) lay down
that 85% of the income is to be applied to charitable
purposes or set apart and the moneys accumulated or set
apart can be invested or deposited in the forms or modes
specified in sub-sec.(5).
7.2. Clause (x) of Sub sec. (5) to sec. 11 prescribes one of the
modes of investment as "investment in immovable property".
Thus, the surplus income can be applied to investment in
immovable property. The charitable purposes will include
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the educational activities and acquiring the income yielding
assets to promote the educational objects of the Society.
Consequently, combined reading of these provisions make it
clear that the assessee can set apart or invest its income in an
"immovable property". The word "immovable property" by
natural reading, will include any type of land, residential or
commercial property or any other form of property, which
can be termed as immovable property as defined in the
Transfer of Property Act. Thus, the society/ management is
allowed to invest its surplus in immovable property,
including commercial property. Thus, there cannot be a bar
on management of Society to invest its surplus funds in
acquisition of a commercial property as the law does not
mandate any extra bar.
7.3. Coming to the other aspect that because the assessee is
not carrying out any educational activity in this commercial
property, therefore, the investment becomes for non-
charitable purposes and the assessee has endeavored to enter
into business operations. In our view the assessee's charitable
objects include spreading education and opening of schools;
investment even in commercial property assets remains
charitable purposes so long as the income generated by it is
applied to charitable objects. It has not been demonstrated
that the assessee applied rent received from these properties
to any non- charitable purposes. Besides, it has not been
demonstrated that the assessee's intention was to enter in
business of purchase and sale of commercial property
inasmuch as we are in year 2012, the property was purchased
in FY 2004-05 and the Trust still retains this property. In
these circumstances, we are unable to hold that the assessee's
investment can be held non-charitable in nature."
(underlining added)
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3. We are of the view that the Tribunal had correctly appreciated the
law and has come to the conclusion that the respondent assessee was
entitled under Section 11(5)(x) to invest in immovable property out of the
funds which were surplus with it. The Tribunal has also concluded that
there was no evidence on the part of the department that the assessee had
applied the rent received from the commercial property for non-charitable
purpose. That being the case, the registration under Section 12 A could
not have been cancelled. We do not find any substantial question of law
which arises for our consideration.
4. The appeal is dismissed.
BADAR DURREZ AHMED, J
R.V.EASWAR, J
FEBRUARY 26, 2013
`ns'
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