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May, 13th 2013

                                      Date of decision: 11th April, 2013

+                   WRIT PETITION (C) 3598/2012

      HAMDARD LABORATORIES INDIA AND ANR            ..... Petitioners
                 Through: Mr.Parag P. Tripathi, Sr. Adv. with
                          Mr.Simran Mehta, Mr.R.M.Mehta &
                          Ms.Yogita, Advs.


                                                     ..... Respondent
                   Through: Mr.Sanjeev Rajpal, Sr. Standing Counsel.



      The petitioner No.1 Hamdard Laboratories (India), stated to be a trust,

has filed the present writ petition for issue of writ, order or direction in the

nature of certiorari for quashing order dated 22.02.2012 passed by respondent

No.1/Director General of Income Tax (Exemptions) under Section 10(23C)(iv)

of the Income Tax Act, 1961 (,,Act for short).

2.    The petitioner Nos.1 claims that it is governed by a Constitution dated

28.8.1948 and were/are dedicated to business of manufacture of sale of unani

medicines for the purpose of charity. They rely upon clauses 44 to 47 of the
W.P.(C) 3598/2012                                   Page 1 of 14
deed dated 28.8.1948, which read as under:-

      "44. The "Qaumi Income of the Wakf, shall be spent
      only within the territories of the Union of India and only
      on objects of public charity, which satisfy the following
      two cumulative tests:

      (a)          They must be objects of public charity for the
      benefit of all persons irrespective of caste, colour or
      creed, such as relief of the poor, education, medical relief
      and the advancement of any other object of general
      public utility not involving the carrying on of any activity
      of profit, and
      (b)          They must be consistent with the principles of
      the true teachings of Islam. Provided, however, that in
      spending the income on objects of public charity, priority
      shall be given to the collective needs of the country or to
      such needs as may benefit the largest number of persons
      or their generations.
      45. Priority may be given to the following:
      (1)          To establish and run an Institute for the
      promotion of medical education and research with
      emphasis on indigenous systems of medicine.
      (2)          To establish and successfully conduct a
      Tibbia College in conformity with the recognized
      (3)          To establish and run charitable hospitals and
      clinics where poor patients are given free treatment.
      46. Qaumi Income may also be spent on the following:
      (1) To establish and run educational institutions,
      and/or to aid those which are already in existence.
      (2) To build schools, laboratories, wells, or such other
      buildings of a public nature as may benefit the largest
      number of people in the country.
      (3) To publish books, pictures, maps or literature or to
      aid in publication of the same by the publication of which
      the object of Wakf are fulfilled or achieved.
      47. Help may also be given to needy orphans, needy
      widows or helpless persons, needy authors and research
      scholars and victims of unforeseen calamities without
      restriction of caste, colour or creed."
W.P.(C) 3598/2012                                     Page 2 of 14
3.    The petitioner No.1 has stated that vide declaration of the founder Wakif

Mutawalli dated 10.10.1985, the original deed in respect of "khandani" or

family "income" was irrevocably abolished and no "khandani" income has ever

been distributed or paid.

4.    It is an undisputed position that the petitioner No.1 was granted

registration under Section 10(23C)(iv) of the Act w.e.f. assessment year 1984-

1985. Even prior thereto, they have been treated and regarded as a charitable

institution under Section 2(15) of the Act and the applicable provisions. The

earlier dispute between the Income Tax Department and the petitioner No.1 on

the said aspect is referred to and examined below.

5.    The petitioner No.1 filed an application for renewal of approval under

Section 10(23C)(iv) for the assessment year 2004-05 onwards vide application

in Form No.56 dated 31.03.2003. Queries were raised and several letters were

exchanged and written between the respondent and petitioner No.1. By order

dated 28.12.2007, the petitioner No.1 was granted renewal w.e.f. 2004-05. The

respondents, however, rely upon certain conditions stipulated in the said order

and submit that there was/is violation of the same.

6.    By the impugned order dated 22.02.2012, the earlier order granting

renewal i.e. order dated 28.12.2007 has been rescinded.          Accordingly, the

petitioner No.1 is not to be treated as an approved assessee under Section

W.P.(C) 3598/2012                                     Page 3 of 14
10(23C)(iv) of the Act w.e.f. assessment year 2004-05.

7.     The impugned order dated 22.02.2012 has set out and given the following

reasons for recall/rescinding the earlier order dated 28.12.2007:-

       (1) Petitioner No.1 was/is engaged in business and its primary and main
          activities were/are manufacture and sale of unani and ayurvedic
          medicines on commercial lines and not charity or charitable purposes.
       (2) The petitioner No.1 is not engaged in any charitable activities set out
          in Section 2(15) but donates a part of its surplus to Hamdard National
          Foundation (,,HNA for short). This does not meet the requirements of
          Section 2(15).
       (3) The petitioner No.1 does not maintain proper books of accounts for
          charitable activities and business activities and therefore, there is
          violation of Clause (c) of the notification under Section 10(23C)(iv)
          dated 28.12.2007 and Section 11(4A) of the Act.
8.     The petitioner No.1 has impugned the said order/the aforesaid reasons on

the following grounds:-

(i)    Section 2(15) does not prohibit a charitable institution from undertaking

business or commercial activities but the income generated or the surplus earned

should be used for charitable purpose. Business held under trust can fund and

provide finance for conducting and doing charity. [see Additional CIT Vs.

Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC)]

(ii)   Amendment made to Section 2(15) of the Act w.e.f. assessment year

2009-10 is applicable only to the last limb i.e. when an assessee carries on

activities under the clause ,,advancement of any other object of public utility.
W.P.(C) 3598/2012                                     Page 4 of 14
The last limb is not applicable to petitioner No.1. The objects and purpose of

charity undertaken by the petitioner No.1 are relief to poor, education and

medical relief. It is accordingly submitted that the said amendment is not

applicable to petitioner No.1.

(iii)   The impugned order dated 22.2.2012 does not specifically state or quote

that the petitioner No.1 was/is carrying on charitable activities under the

residuary head. The impugned order does not disturb the findings recorded in

the earlier appellate proceedings/orders that the charitable activities in the case

of petitioner No.1 relate to the first three heads i.e. relief to poor, education and

medical relief.

(iv)    The impugned erroneously records that the Income Tax Department does

not accept the decisions of the Delhi High Court in Additional Commissioner

of Income Tax vs. Hamdard Dawakhana,                   (1986) 157 ITR 639 and

Commissioner of Income Tax vs. Hamdard Dawakhana, (2001) 249 ITR

601 to cancel/recall the earlier order.

(v)     The assertion that the petitioner No.1 did not maintain separate books of

accounts of business and charitable activities should not be accepted as the

entire income or surplus or business was/is being used for charitable purpose

and in such cases Section 11(4) is applicable and Section 11(4A) is not

applicable. Reliance is placed on CIT vs. Mehta Charitable Prajnalay Trust,

(2013) 214 Taxman 88 (Delhi) wherein it has been held that Section 11(4A) is
W.P.(C) 3598/2012                                      Page 5 of 14
applicable where the business is not held under trust.

9.    Section 2(15) of the Act defines ,,charitable purpose and at present reads
as under:-
             "[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
             application, 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 ten lakh rupees or less in the previous year;]"

10.   We may note here that the first proviso to sub Section was amended by

Finance (No.2) Act, 2009 with retrospective effect from 01.04.2009. The said

proviso is applicable in cases where an assessee claims that it is carrying on

charitable purpose covered by the residuary clause i.e. "advancement of any

other object of public utility". The proviso is not applicable in case an assessee

or institution claims that it is carrying on charitable purpose like relief to poor,

education, medical relief etc., i.e. purposes which have been specifically

enumerated and stated in the earlier part of Section 2(15).

11.   We have gone through the impugned order dated 22.02.2012, but do not
W.P.(C) 3598/2012                                        Page 6 of 14
find any specific finding or statement in the said order that the charitable

activities or purposes in the case of the petitioner No.1 fall under the residuary

head and not under the enumerated heads mentioned in Section 2(15) of the Act.

The impugned order in this regard is completely silent On the said aspect, we

may record that the petitioner No.1 has filed before us number of orders passed

by CIT(Appeals) relating to assessment years 1965-66 onwards upto assessment

year 1994-95 and orders of the Income Tax Appellate Tribunal from 1966-67

upto 1976-77 in which findings have been recorded that the petitioner No.1 was

undertaking charitable activities covered under the clauses; relief to poor,

education and medical relief. It is, therefore, clear that the impugned order has

applied the first proviso to Section 2(15) of the Act without elucidating the

scope and ambit of the said proviso and whether it would be applicable. The

respondents have proceeded on assumption that charitable purpose undertaken

by the petitioner is covered by the residuary clause, without recording any such

specific finding.

12.   Our attention has also been drawn to the observations made in the

impugned order with regard to earlier decisions of the High Court in the case

the assessee. The two decisions went in favour of the petitioner No.1. It is not

understandable on what basis the author of the impugned order can ignore or

disregard the said decisions by observing that; "with due respect I differ

W.P.(C) 3598/2012                                    Page 7 of 14
with the decision". The two decisions are binding precedents but can certainly

be distinguished on facts and in case there is any change in law in view of the

amendments or altered statutory provision. The decisions can also be

distinguished or observed as not applicable or good law, in case there is a

decision of the Supreme Court which takes a contrary view.

13.   On a question whether or not the assessee must himself undertake

charitable activities, petitioner No.1 has pointed out observations in the

impugned order that the petitioner No.1 was running two state of the art

dispensaries in Delhi where free medical prescription was provided to the

patients; it has also been stated in the impugned order that petitioner No.1 was

maintaining two state of the art laboratories for R & D in Ghaziabad and

Manesar factories and was providing financial help to Hakims and Vaids by

paying monthly allowance to them.(Quantum of expenditure incurred or

application made is not stated in the writ petition). It is stated in the impugned

order that this financial help was being given to selected Hakims and Vaids of

repute. However, no details of Hakims and Vaids and their incomes have stated

or mentioned in the impugned order. On what basis did the author of the order

reach the conclusion that financial aid was being given to already well of

Hakims and Vaids is not indicated or averred to.

14.   The petitioner No.1 has referred to decisions of this Court and other High

Courts in CIT vs. Sarladevi Sarabhai Trust, (1988) 172 ITR 698 (Guj.), CIT
W.P.(C) 3598/2012                                    Page 8 of 14
vs. Nirmala Bakubhai Foundation, (1997) 226 ITR 394 (Guj.), CIT vs.

Hindustan Charity Trust, (1983) 139 ITR 913 (Cal.), CIT vs. M. Ct.

Muthian Chettiar Family Trust & Ors., (2000) 245 ITR 400 (Mad.), CIT vs.

Trustees of the Jadi Trust, (1982) 133 ITR 393 (Bom.), CIT vs. Shri Ram

Memorial Foundation, (2004) 269 ITR 35 (Del.). It is submitted that these

decisions have accepted the view that application of income for charitable

purposes includes transfer of funds to a third person for the said purposes.

Decision in Inland Revenue Commissioner vs. Helen Slater Charitable

Trust Ltd., (1980) 83 WLR 157 has been referred to. It is accordingly

submitted that application of money for charitable purposes takes place when

the petitioner No.1 transfers his surplus or the entire income or substantial

portion thereof, i.e. 85% or more, to a third person who is also using the funds

for charitable purpose. This is also application of the money for charitable

purpose. It is good and valid application of money unless the transferor i.e. the

assessee know or ought to have know that the money will be mis-applied by the

transferor. At this stage, we record that this contention of the petitioner No.1

has not been dealt with or examined in the impugned order. We record that the

petitioner No.1 has relied upon a decision of the Delhi High Court in

Shri Ram Memorial Foundation, which is the jurisdictional of High Court.

The petitioner has in addition also referred to instruction No. 1132 dated

05.01.1978 issued by the CBDT which states that charitable trust will not lose
W.P.(C) 3598/2012                                    Page 9 of 14
exemption under the Act, if it passes a sum of money to another charitable trust

for utilization for charitable purpose . It is submitted that as per the Board this

constitutes shall be proper utilization of money by the donor for the charitable

purposes. It is pointed out to us that the petitioner No.1 has set up no less than

25 medical, educational, literary, scientific and cultural organizations, the All

India Unani Tibbi Conference, Institute of History of Medicine and Medical

Research, Indian Institute of Islamic Studies, Ghalib Academy, Rabea Girls

Public School, Hamdard Education Society, Majeedia Hospital, Jamia Hamdard

(University), Rufaida Nursing School, Hamdard Study Circle, Hamdard

Coaching Centre, Hamdard Primary School, Hamdard College of Pharmacy etc.

15.   HNF, it is claimed, was set up by late founder Wakif Mutawalli on

12.5.1964 as a special purpose vehicle to implement charitable purposes which

are identical to the charitable purposes of the petitioner No.1. Our attention was

specifically drawn to the objects of HNF, a philanthropic society registered

under the Societies Registration Act, 1860 and the objects and functions

referered to in the Constitution of HNF. It is stated that HNF is registered under

Section 12A read with Section 12AA of the Act and throughout they have been

granted exemption. For assessment year 2007-08, the Assessing Officer had

denied exemption to HNF under Section 11 of the Act but the said decision was

reversed by the appellate authority vide decision dated 31.1.2012 i.e. before the

date of the present order dated 22.2.2012. The impugned order however, does
W.P.(C) 3598/2012                                     Page 10 of 14
refer to the order of the Assessment Officer but does not notice the appellate

order passed on 31.01.2012 reversing the findings of the Assessing Officer.

16.   On the question of surplus, application of income and accumulation, our

attention was drawn to the chart mentioned in Paragraph 8.3 of the impugned

order. It is pointed out that the gross surplus is mentioned in the first column.

The second column refers to 15% of the general reserve and the last column

mentions the accumulative reserve. Petitioner No.1 submits that the amount

mentioned in last column accumulation is less than 15% of the general reserve

and therefore, the petitioner meets the prescribed parameters. This aspect has

been ignored in the impugned order by recording that the surplus has been given

to HNF or surplus/income has been passed on and given to HNF. The effect

thereof and whether objects/use of funds by HNF can be determinative and

relevant for deciding the applicable head u/s 2(15) in the case of the petitioner

No.1 is an aspect which requires examination/consideration.

17.   On the question of books of accounts, we have already noticed the

contention of petitioner No.1 relying upon the decision of Delhi High Court in

Mehta Charitable Prajnalay Trust (supra).
18. Looking at the aforesaid situation, we allow the present writ petition and issue the writ of certiorari quashing the impugned order dated 22.2.2012 passed by the Director General of Income Tax (Exemptions). The Director General of Income Tax (Exemptions) will pass a fresh order dealing with all the W.P.(C) 3598/2012 Page 11 of 14 contentions and issues raised by the petitioner No.1 keeping in mind the case law on the subject. The reason why we are remitting the matter is that we find that there are several issues and questions, which have been partially adverted to in the impugned order and we cannot in this writ petition form a firm view. We have discussed the legal contentions raised and also referred to the legal position on certain aspects but application of legal ratio is dependent upon the facts. Difference in facts can materially affect the final outcome and the legal position applicable; whether it be books of accounts, question of application of income, quantum of surplus available or the activity undertaken by HNF. For example whether activities of HNF can be treated as charitable activity of the petitioner for the purpose head under Section 2(15) as claimed by the petitioner No.1. We find ourselves handicapped and unable to give any firm/final opinion on issues/contentions, which may have been touched but not elaborated in the impugned order and/or examined without appreciating the correct legal position. The petitioner No.1 has also disputed some factual assertions stated in the impugned order. Fairness and justice demands that the matter should be examined threadbare, first factually and then by applying the applicable legal ratio. We refrain from elucidating and going into the greater details on these aspects, least it causes prejudice to any side, in view of the remand order. 19. In order to curtail delay, it is directed that the petitioner No.1 through his authorized representative will appear before the Director General (Exemptions) W.P.(C) 3598/2012 Page 12 of 14 on 2nd May, 2013, when a date of hearing will be fixed. 20. By order dated 01.06.2012, it was directed that the assessment proceedings can continue and even assessment orders can be passed but demands will not be enforced by the Revenue without leave of the Court. The said interim order was applicable to all assessment years except assessment year 2005-06. 21. In another writ petition W.P.(C) No.3599/2012 relating to AY 2005-06, an interim order was passed on the same day that the assessment proceedings can continue but no final assessment order can be passed. 22. The interim order in W.P.(C) 3598/2012 will continue for a period of three months. We hope and expect that the respondent-Director General of Income Tax (Exemptions) will be able to decide and dispose of the remand expeditiously and within the said period. Similarly, it will be open to the Commissioner of Income Tax (Appeals) to dispose of the appeals within the said time. The assessee is expected to cooperate and in case there is any laxity and failure, it will be open to the authority to take action and decide the matter in accordance with law. 23. We clarify that this decision does not deals with the interim order for the assessment year 2005-06 passed/operating in W.P.(C) No.3599/2012. W.P.(C) 3598/2012 Page 13 of 14 The writ petition No.3598/2012 is accordingly disposed of with no order as to costs. SANJIV KHANNA, J. SIDDHARTH MRIDUL, J. APRIL 11, 2013 Gm/NA W.P.(C) 3598/2012 Page 14 of 14
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