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March, 29th 2014

%                                          DECIDED ON: 04.03.2014

+                         ITA 1359/2009

       DIRECTOR OF INCOME TAX                   ..... Appellant
                     Through: Mr. Rohit Madan with
                     Mr. P. Roychoudhry and Mr. Akash Vajpai,


                                                    ..... Respondent
                          Through: Ms. Rashmi Chopra, Advocate for


    1. This appeal under Section 260A of the Income Tax Act, 1961
       ("the Act"), is preferred by the revenue, against an order dated
       20.11.2008 of the Income Tax Appellate Tribunal ("ITAT")
       whereby the DIT (Exemption) was directed to grant registration
       to the assessee under Section 12A of the Act. The ITAT held
       that Section 24 (iv) of the Delhi Sikh Gurudwara Act, 1971
       empowered the Delhi Sikh Gurudwara Management Committee
       ("the Committee") to constitute a trust for effecting one of its
       aims and objectives, i.e. provision of medical treatment.

ITA 1359/2009                                                      Page 1
   2. The brief facts are that the Committee is constituted under the
       Act; it had constructed a hospital at Gurudara Bala Saheb.
       During the hospital's construction, the Committee's President
       proposed, by a letter dated 4th May, 2006, that the hospital be
       managed by an independent trust settled by the Committee,
       whose trustees would be decided upon by the Committee itself.
       The proposal was accepted, and accordingly, the Guru
       Harkishen Medical Trust, the respondent herein ("the Trust"),
       was created. A trust deed dated 3rd May, 2007, was drawn up,
       by which the Committee was described as the settler. The Deed
       also stated that the Committee was running a number of
       charitable institutions, and that it was interested in establishing
       a specialty hospital to provide medical services at affordable
       rates. The Deed further stated that the trust is being established
       to run and operate the hospital either by itself or in collaboration
       with other organizations with experience and expertise in this
       field. The deed also indicates that to fulfil these objectives, a
       sum of Rs. 1 lakh had been settled to the trustees. The trust deed
       further states that:

                "to effectuate the said desire, the Settlor has made over
                the said specialty hospital buildings being constructed at
                Gurudwara Bala Sahib, New Delhi, to hold the same
                together with all other properties that may be acquired
                out of the same or otherwise and may hereinafter in
                pursuance of the said desire and for carrying out such
                desire into effect the Settlor doth hereby grant, transfer
                and assign upto the trustees only the rights to manage

ITA 1359/2009                                                        Page 2
                said specialty hospital building along with all other
                movables, such as plant, machinery, equipments, etc. and
                to have and to hold the said specialty hospital unto the
                trustees but upon and subject to the trust's powers and
                provisions hereinafter declared and expressed of and
                concerning the same."

   3. Clause 8 states that the aims and objects of the trust are to do
       welfare activities for the benefit of public at large, and more
       specifically for economically poorer sections of the society,
       physically challenged persons, persons suffering from any type
       of physical or mental ailments, old age persons, economically
       poor students or children in particular, without any profit
       motive. Further, Clause 35 declares that none of the trust fund
       or property or its income shall be applied for any other purpose
       which is not consistent with the aims and objects of the Trust
       and the provisions of the deed shall be construed accordingly.
       The Trust, after its constitution, entered into a collaboration
       agreement with Manipal Health Systems Pvt. Ltd., in terms of
       which the hospital was to be run by the latter, with a certain part
       of the revenue paid to the Trust.
   4. The Trust filed an application in Form 10A, dated 7th July,
       2007, seeking registration under Section 12A of the Act, which
       exempted income earned by the trust. The DIT (Exemption)
       rejected the application, on the ground that the Delhi Sikh
       Gurudwara Act, 1971, especially Section 24, concerning the
       powers of the Committee, did not empower the Committee to
       create a trust. A show-cause notice was earlier issued to the

ITA 1359/2009                                                       Page 3
       appellant on this issue, and two replies ­ dated 28th and 29th
       January, 2008 ­ were filed and disposed off by the DIT
       (Exemption). Since the creation of the trust itself was contrary
       to law, registration under Section 12A was denied. Section 24
       reads as follows:

                "24. Powers and functions of the Committee. Subject to
                the provisions of this Act and the rules made thereunder,
                the control, direction and general superintendence over
                all the Gurdwaras and Gurdwara property in Delhi shall
                vest in the Committee, and it shall be the duty of the
                (i) to arrange for the proper performance of the religious
                rites and ceremonies in the Gurdwaras,
                (ii) to provide facilities for worship by the devotees at the
                (iii) to ensure safe custody of its funds, movable and
                immovable properties, deposits, offerings in cash or kind,
                (iv) to do all such things as may be incidental and
                conducive to the efficient management of the affairs of
                Gurdwaras, educational and other institutions under the
                Committee and their properties or to the convenience of
                (v) to provide suitable accommodation and facilities for
                (vi) to maintain free langars,
                (vii) to manage the historic and other Gurdwaras,
                educational and other institutions and their properties in
                such a way as to make them inspiring centres of the Sikh
                tradition, culture and religion,
                (viii) to ensure maintenance of order, discipline and
                proper hygienic conditions in Gurdwaras, educational
                and other institutions under its management,
                (ix) to open free dispensaries,
                (x) to spread education, especially the knowledge of
                Punjabi, in Gurmukhi script,

ITA 1359/2009                                                          Page 4
                (xi) to establish educational institutions, research centres
                and libraries.
                (xii) to render financial assistance to religious and
                educational institutions, societies and needy persons,
                (xiii) to give stipends to needy and deserving students,
                (xiv) to render help in the case of the uplift of the Sikh
                community and propagation of Sikh religion,
                (xv) to perform such other functions and to do such
                religious or charitable acts, as may be prescribed by
                regulations for carrying out the purposes of this Act.

   5. The Trust carried the matter in appeal to the Income Tax
       Appellate Tribunal, which reversed the decision, and held that
       the Committee did have such powers under sub-clause (iv) of
       Section 24. The Revenue impugns this decision of the ITAT in
       the present proceedings, arguing that the powers outlined in
       Section 24 are specific and exhaustive, such that the creation of
       a trust and transfer of property are not contemplated to lie
       within the powers of the Committee, which ­ as a creation of
       statute ­cannot exceed the permissible limits.
   6. Learned counsel for the Revenue has drawn the attention of the
       Court to CS 252/2012 in the Patiala House Court, by which this
       very issue ­ concerning the legality of the Trust ­ was agitated
       and decided by a Civil Judge, holding that the establishment of
       the trust was illegal and contrary to law. There is no dispute
       today that if the creation of the Trust is held to be illegal, no
       exemption can be granted under Section 12A. The dispute
       between the parties before the ITAT concerned the question of
       its legality vis-à-vis the powers of the Committee under Section

ITA 1359/2009                                                         Page 5
       24. Given this development, i.e. the issue concerning the
       legality of the Trust having been deciding in a civil proceeding
       instituted for that purpose, and a judgment in rem having been
       delivered, this Court is of the opinion that the matter, as regards
       the present proceedings, stands decided, subject to any further
       appellate interference with the decision of the Civil Judge.
       There is no mandate to question or re-appreciate the decision of
       the Civil Judge in the present proceedings under the limited
       domain of the appeal under the Income Tax Act, 1961.
   7. Furthermore, even on an independent consideration of the facts
       in this case, it is evident that the Committee is a creation of the
       statute; its functions ­ in the nature of obligations, or duties, are
       outlined in Section 24 of the Act. The reliance placed by ITAT
       on Section 24 (iv) of the Act, in this court's opinion, is
       misplaced. That empowers the Committee to do all incidental
       acts and things necessary to carry out the duties of the
       Committee itself under section 24 (ix) one of the duties of such
       committee is to establish and manage "free clinics"; Section 24
       (xi) enables the maintenance of "research centres". Neither
       Section 24 nor Section 40 (which empowers the Committee to
       frame regulations) enables the Committee to efface their duties
       and create other entities for carrying out their functions. Even
       more importantly, such creations cannot do what Committees
       are not permitted to perform, i.e utilize Committees' properties
       or monies through the device of trusts and societies, to engage
       in indirect commercial activity, - which the trust was authorized

ITA 1359/2009                                                         Page 6
       and created to indulge in the present case. As a consequence,
       the ITAT clearly fell into error in holding that the Act permitted
       the Committee to enter into the agreement which enabled it to
       set up a joint venture for a hospital, on revenue sharing basis.
       Clearly such trust was ultra vires the Committee's powers and
       beyond its statutory mandate.
   8. Accordingly, for the above reasons, this appeal has to succeed.
       The order of the ITAT is hereby set aside, and the denial of
       exemption under Section 12A by the DIT (Exemptions) is
       restored. There shall be no order as to costs.

                                              S. RAVINDRA BHAT, J

                                                        R.V.EASWAR, J
MARCH 04, 2014

ITA 1359/2009                                                      Page 7
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