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Hamdard Laboratories India And Anr. Vs. Assistant Director Of Income Tax (Exemption)
September, 23rd 2015
$~
*       IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                                  Reserved on: 18.03.2015
                                                                Pronounced on: 18.09.2015

+       W.P.(C) 3599/2012 & C.M. NO.7569/2012
+       W.P.(C) 5715/2013
+       W.P.(C) 5716/2013
+       W.P.(C) 5718/2013
+       W.P.(C) 5729/2013

        HAMDARD LABORATORIES INDIA AND ANR...... Petitioners

                                 Through : Sh. Parag. P. Tripathi, Sr. Advocate
                                 with Sh. Simran Mehta, Advocate.

                                 versus
        ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTION)
                                              ..... Respondent

                                 Through : Sh. Rohit Madan with Sh. Ruchir
                                 Bhatia, Advocates.

+       W.P.(C) 5711/2013 & C.M. NO.12626/2013
        HAMDARD LABORATORIES (INDIA) AND ANR...... Petitioners

                                 Through : Sh. Parag. P. Tripathi, Sr. Advocate
                                 with Sh. Simran Mehta, Advocate.

                                 versus
        DIRECTOR GENERAL OF INCOME TAX (EXEMPTIONS)
                                             ..... Respondent

                                 Through : Sh. Rohit Madan with Sh. Ruchir
                                 Bhatia, Advocates.




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                       Page 1
        CORAM:
        HON'BLE MR. JUSTICE S. RAVINDRA BHAT
        HON'BLE MR. JUSTICE R.K. GAUBA

MR. JUSTICE S. RAVINDRA BHAT
%
1.   This judgment disposes of six writ petitions, primarily concerning the
charitable status of Hamdard Laboratories (India) (hereafter referred to as
"Hamdard" the first Petitioner in the six writ petitions) ­ under Section
10(23C)(iv) of the Income Tax Act, 1961 (hereafter "the Act"). The Director
General of Income Tax (Exemptions) ("DGIT(E)") ­ Respondent in W.P.(C)
5711 of 2013 ­ by order dated 21.08.2013 retrospectively withdrew the
exemption granted to Hamdard under Section 10(23C)(iv) of the Act with
effect from assessment year (AY) 2004-05.

2.      In W.P.(C) 5711 of 2013, Hamdard has impugned the said order of
the DGIT(E). In W.P.(C) 3599 of 2012, Hamdard challenges reopening of
its assessment for AY (assessment year) 2005-06, and impugns the notice of
reopening dated 27.03.2012 issued under Section 148 of the Act as well as
the order dated 25.05.2012 rejecting Hamdards preliminary objections
pertaining to the reopening of assessment proceedings. Hamdard contends
that the reopening of assessment by Assistant Director of Income Tax
(Exemptions) ("ADIT(E)") is based on a mere change of opinion on the
same set of facts. In WP (C) Nos. 5715 of 2013, 5716 of 2013, 5718 of 2013
and 5729 of 2013, Hamdard has challenged separate but identical orders
dated 10.07.2013 passed by the Commissioner of Income Tax (Appeals)
("CIT(A)") for AYs 2006-07, 2007-08, 2008-09 and 2009-2010, holding
that Hamdard was not entitled to the benefit of exemption under Section 11




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13         Page 2
of the Act. Since the focal point of the dispute involves the withdrawal of
Hamdards exemption under Section 10(23C)(iv) of the Act, the Court
would first discuss the facts in W.P.(C) 5711 of 2013 before proceeding to
discuss the facts of the other writ petitions. The Income-tax department has
hereinafter been referred to as "Revenue", except in instances where the
concerned officer is addressed specifically for contextual clarity.

W.P.(C) 5711 of 2013

3.      Hamdard is governed by its constitution dated 28.08.1948 (hereafter
referred to as "the Deed"), under which the partners of a business known as
the "Hamdard Dawakhana" dedicated the said business to charity. Hamdard
­ like its predecessor in interest - generates income from the manufacture
and sale of Unani medicines and other allied products. The original Deed
provided for "Qaumi Income" (charity) and "Khandani Income (family
income). However, the concept of family income was abolished by a
declaration of the Settlor/ Founder-Wakif Mutawalli dated 10.10.1985, with
retrospective effect from 01.01.1973. The principal objects of Hamdard, as
set out in the Deed dated 28.08.1948 are 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




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 3
      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 recognised standards.

      (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."

4.      Following its objectives, Hamdard claims that it is involved in various




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13              Page 4
secular, charitable, nation building activities and humanitarian objectives;
and it is not guided by factors relating to caste, creed or religion. It asserts
that it is a pioneer in the development and growth of the Unani system of
medicine. Hamdard has set up around 25 medical, educational, literary,
scientific and cultural organisations including, inter alia, 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.

5.      To carry out its charitable activities, Hamdard created a special
purpose vehicle, a registered society for philanthropic purposes, i.e Hamdard
National Foundation (HNF) on 12.05.1964. HNFs objects and functions are
as follows:

       "The objects for which the Society is established are as follows:-
       1. To receive, control and supervise proper utilisation of the
       income of the Foundation received from Hamdard Dawakhana
       (Wakf), Delhi, as Qaumi Income and from any other body, person
       or concern, Indian and foreign, in any form as aid, grant or
       bequests, with or without any condition, to protect and promote
       the interests of the Society, and to safeguard the rights, privileges
       and interests of all those who derive benefit from the Society.

       2. To spend the income of the Foundation only within the
       territories of India and only on objects of public charity which
       satisfy the following two cumulative tests:




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                  Page 5
      (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 for 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 future generations.

      3. To collaborate and cooperate with institutions having similar
      objects.

      Functions
      1. Priority may be given to the following:-
      (a) To establish and run an Institute for the promotion of medical
      education and research with emphasis on indigenous systems of
      medicines.
      (b) To establish and successfully conduct a Tibbia college in
      conformity with the recognised standards.
      (c) To establish and run charitable hospitals and clinics where
      poor patients are given free treatment.
      2. Income of the Foundation may also be spent on the following:-
      (a) To establish and run education institutions, and/or to aid
      those which are already in existence.
      (b) To build schools, laboratories, libraries, or such other
      buildings of a public nature as may benefit the largest number of
      people in the country.
      (c) To publish books, pictures, maps or literature or to add in
      publications of the same by the publication of which the objects




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                Page 6
      of the wakf are fulfilled or achieved.
      3. Help may also be given to needy orphans, needy widows or
      helpless persons, needy authors, scholars research scholars and
      students and victims of unforeseen calamities without restriction
      of castes, colour or creed."
6.      Both Hamdard and HNF are registered under Section 12A read with
12AA of the Act. In Additional Commissioner of Income Tax v. Hamdard
Dawakhana (Wakf), (1986) 157 ITR 639, this Court examined Hamdards
objects and activities and held them to be charitable. Hamdard had been
enjoying exemption under Section 10(23C)(iv) of the Act since AY 1984-
85. For renewal of the said exemption for AY 2004-2005, Hamdard
submitted its application in the prescribed form. The Revenue sought
clarifications from Hamdard and upon an examination of the objects,
activities and financial records, renewed the exemption under Section
10(23C)(iv) of the Act on 28.12.2007, with effect from AY 2004-2005,
subject to certain conditions stipulated in the order dated 28.12.2007.

7.      On 14.01.2009, the DGIT(E) issued a show cause notice to Hamdard,
for 03.02.2009, for rescinding the exemption order dated 28.12.2007 on the
ground that Hamdard had violated terms (a) and (c) of the exemption order.
Hamdard responded to the said show cause notice on 30.01.2009 and alleged
that the notice was vague and pre-mediated. The DGIT(E) sought several
clarifications and responses from Hamdard, which were provided. While
these proceedings were pending, on 24.12.2010, the DGIT(E) issued another
notice for withdrawal of the exemption under Section 10(23C)(iv) of the
Act, stating that conditions (a) and (c) imposed in the exemption order dated
28.12.2007 had been violated.




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13             Page 7
8.       Rejecting the submissions made by Hamdard, on 22.02.2012, the
DGIT(E) passed an order withdrawing the exemption granted to Hamdard
under Section 10(23C)(iv) of the Act. Relying on this order, on 19.04.2012,
the Assessing Officer ("AO") raised a demand of ` 112 crores against
Hamdard for AYs 2006-2007 to 2009-2010 and re-opened the assessment
proceedings for the AY 2005-2006. Hamdard challenged the order dated
22.02.2012 before this Court in W.P.(C) 3598 of 2012. The said writ petition
was allowed by this Court on 11.04.2013 and the order dated 22.02.2012
was quashed. The Court remanded the matter to the DGIT(E) to decide the
issue afresh. Thereafter, Hamdard made detailed written submissions before
the DGIT(E) on the issue of exemption under Section 10(23C)(iv) of the
Act. The DGIT(E), vide its impugned order dated 21.08.2013, again held
that Hamdard was not entitled to exemption under the said provision and
withdrew it with effect from AY 2004-05.

W.P.(C) 3599 of 2012

9.       In the course of assessment proceedings for AY 2005-2006, the
Revenue raised several queries in its questionnaire dated 17.01.2007
regarding the objects and activities of Hamdard. Hamdard answered those
queries vide letters dated 01.02.2007, 20.02.2007 and 12.03.2007. On
21.03.2007, an order of assessment in Hamdards case was passed under
Section 143(3) of the Act for AY 2005-2006. In the said order, Hamdards
surplus from manufacture and sale of unani medicines was held to be
exempt under Section 11 of the Act. The relevant part of the order reads as
under:




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13          Page 8
      "The assessee is registered u/s 12A of the Income Tax Act vide
      registration dated 20-07-1998. The assessee was also notified u/s
      10(23C)(iv) of the Income Tax Act vide notification dated 15-04-
      2002 which was effective for the assessment years 2001-02 to
      2003-04 and renewal of notification for subsequent years has
      also been applied for by the assessee which is pending. The main
      activity of the assessee is to provide healthcare in the field of
      Unani medicine, production, sale and marketing of unani and
      ayurvedìc medicines, the proceeds of which are governed by the
      Wakf Deed, and applied for charitable purposes. The activities of
      the assessee are within the meaning of section 2(15) of the
      Income Tax Act. As such, exemption is allowed to the assessee u/s
      11 of the Income Tax Act, as claimed."
10.     On 27.03.2012, the Revenue issued a notice to Hamdard under
Section 148 of the Act, seeking to re-open its assessment proceedings for
AY 2005-2006. The Revenue supplied the reasons for reopening assessment
proceedings for AY 2005-06 to Hamdard on 16.04.2012. The said letter
highlighted the sales and expenditure figures of Hamdard and based on such
figures, concluded that Hamdards activities were commercial in nature. It
further stated that Hamdard had made huge surpluses and had made
accumulations over the years for expansion of manufacturing units. Though
Hamdards objects are charitable, its activities were held to be not charitable
in nature. Revenue also stated that Hamdard had violated Section 11(4A) of
the Act by not maintaining separate books of accounts for incidental
business activities, had not utilised the accumulations made during the
relevant assessment year (AY 2005-06) in line with its objects and that it
was giving donations to HNF, which was not in furtherance of its charitable
activities.

11.      According to Hamdard, all the material issues raised in the said




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13             Page 9
reasons were disclosed and were known to the Revenue. Hamdard urged
preliminary objections to the reopening of assessment proceedings on the
ground that it was based merely on change of opinion. However, those
objections were rejected by the Revenue on 25.05.2012.

12.     In W.P.(C) 3599 of 2012, Hamdard impugns the notice dated
27.03.2012 issued under Section 148 of the Act and the order dated
25.05.2012 rejecting Hamdards preliminary objections pertaining to the
reopening of assessment proceedings. Hamdard contends that the Revenue
has sought to reopen Hamdards assessment proceedings for the AY 2005 -
2006, based on a mere change of opinion on the same set of facts.

WP (C) NOS. 5715, 5716, 5718 AND 5729 OF 2013

13.     In these writ petitions, Hamdard impugns four separate orders, all
dated 10.07.2013, passed by the CIT(A), in Appeal Nos. 27-30/2012-13 for
AYs 2006-07 to 2009-10. Hamdard submits that based on the order dated
22.02.2012 passed by the DGIT(E) withdrawing the approval granted to
Hamdard under Section 10(23C)(iv) with retrospective effect from 2004-05,
the ADIT(E) denied its claim for charitable status. Thus, the ADIT(E) by
orders dated 19.04.2012 brought Hamdards income to tax for AYs 2006 -07
to 2009-10. The orders dated 19.04.2012 were confirmed by the CIT(A) in
its impugned orders dated 10.07.2013.

14.     According to Hamdard, the proceedings before CIT(A) commenced in
January 2013, and the matter was heard on several occasions. Hamdard filed
written submissions dated 04.03.2013 and 06.05.2013 before the CIT(A). On
28.06.2013, Hamdards representative ­ the second Petitioner in the four




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13       Page 10
writ petitions - reached the office of CIT(A) for hearing of the appeal and
was awaiting the presence of the counsel for Hamdard. However, he was
informed by the CIT(A) that he was under transfer and that he had already
handed over charge to a new incumbent ­ the second Respondent in the writ
petitions; and thus would not hear the appeal. The second Petitioner
accordingly informed Hamdards counsel and waited for second
Respondents arrival. It is further submitted that as the second Respondent
did not attend office for two hours and no firm time for this purpose was
indicated by his staff, the second Petitioner returned to his own office.

15.     In the four writ petitions, Hamdard states that on 29.06.2013, the
second Petitioner received a call from the second respondent, asking him to
come to his office. Upon reaching there, he was informed by the said
Respondent that he was to go abroad for some official work and that he
would take up the appeal after returning; he further expressed his inclination
to await the passing of a fresh order by the DGIT(E), on the issue of
exemption under Section 10(23C) (iv) of the Act. However, Hamdard in its
rejoinder affidavit submits that these events transpired on 01.07.2013 and
not on 29.06.2013, and that the reference to 29.06.2013 was an inadvertent
error as the events described hereinabove had occurred on the ,,next working
day, which had been incorrectly stated as 29.06.2013.

16.     Hamdard further states that on 08.07.2013, the second Respondent
again called up the second petitioner asking him to go to his office. There, it
is alleged, he made the second petitioner sign two order sheets, one for
28.06.2013 and the other for 08.07.2013. The same read as under:

      "28/06/2013 Shri Javed Naseem, C.A. (Corporate head finance)




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 11
      appeared for hearing and requested for adjournment. Shri V.K.
      Tiwari CIT (A) XXI was hearing this case and he has been
      transferred out in AGT-2013. order of CBDT, and in his place, I
      Md. Mohsin Alam CIT has taken over the change on 28/6/2013.
      The case is adjourned to 8/7/2013 at 11.30 A.M. 8/7/2013 Shri
      Javed Naseem, CA appeared and the case was heard."


17.     Hamdard alleges that the second Petitioners signatures were obtained
on the said order sheets under the pretext of "just completing the record",
and that nothing was heard by the second Respondent on the merits of the
matter on 08.07.2013. Hamdards counsel, it is alleged, who was authorized
to argue the matter was not present and second petitioner, who was present,
was not competent or equipped to argue the matter. Apparently, he was not
even carrying the file of the case with him. It is alleged that the second
Respondent informed the second Petitioner that it was not certain he would
resume his official duties, after his foreign visit. Thus, no further date was
given on the order sheet and fresh intimation was to be sent to Hamdard. It is
alleged that however, on 11.07.2013, the second Petitioner was informed by
the second respondents office that Hamdards appeal against the ADIT(E)s
orders dated 19.04.2012 had been dismissed by orders dated 10.07.2013.

Submissions on Behalf of Hamdard

I       Withdrawal of Exemption Under Section 10(23C)(iv)

18.     Mr. Parag Tripathi, Hamdards Senior Counsel urges that the order
withdrawing Hamdards exemption under Section 10(23C)(iv) of the Act is
erroneous and legally untenable. Hamdard is an established public charity
enjoying exemption from tax for the last six decades; including under the




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 12
1922 Act. The nature of its activities has remained unchanged since its
inception. Hamdard is a business held under trust for charitable purposes,
which business is only the corpus of the trust and its source of income and
not its object. It has not effected any change in its avowed activities and
objects and has not violated any condition of the grant of exemption dated
28.12.2007; the present being merely a case where the Revenue seeks to take
a different view on the same set of facts. The manufacture and sale of unani
medicines is the Hamdards business since its inception and this pre -existing
business was dedicated to the cause of public charity by the founder-Wakif
Mutawalli in 1948. Hamdard submits that comparing it with a commercial
private pharmaceutical company is ill-founded and perverse as in the case of
commercial companies the profits and gains are free for distribution amongst
shareholders and there is no obligation to apply the same for charitable
objects. On the other hand, no part of its income is distributed or is capable
of distribution for the private benefit of the mutawallis.

19.     Considerable reliance is placed on the fact that Hamdard has been
enjoying exemption from tax for a considerable period of time. Specifically,
Hamdard cites this Courts decision in Additional Commissioner of Income
Tax v. Hamdard Dawakhana (Wakf), [1986] 157 ITR 639, where its objects
and the exact nature of its activities have been examined by this Court in
detail in light of the Supreme Courts decision in ACIT v. Surat Art Silk
Cloth Manufacturers Association (1980) 121 ITR 1, and were held to be
charitable. It is submitted that this Court in the said decision had also held
that Hamdards objects fall within the ambit of the first three heads of
charity under Section 2(15) of the Act, viz. ,,medical relief, ,,education and




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 13
,,relief of the poor. It is emphasised that the decision in Hamdard
Dawakhana (Wakf) has been consistently applied, followed and affirmed by
this Court in a catena of judgments; including the case of Hamdard itself as
also in the case of other parties.

20.     As regards HNF, it is submitted that the Assessment order in its case
for AY 2007-2008 - by which the AO had rescinded its charitable status was
reversed by the CIT(A) on 31.01.2012 and was thus non-est on the date of
passing of the impugned order. HNF is a mechanism having the same
objects as that of Hamdard and is a beneficiary of donations made by
Hamdard, for effectuating the charitable mandate of the the Trust Deed. The
grant of a donation by one charitable institution to another, for the purpose
of carrying on charitable activities amounts to an application of income for
charitable purposes. Hamdard relies on the UK Court of Appeals decision
in Inland Revenue Commissioners v. Helen Slater Charitable Trust Ltd.,
[1980] 3 WLR 157, to say that this view has been followed and relied upon
by the Courts in India in, inter alia, CIT v. Sarladevi Sarabhai Trust, [1988]
172 ITR 698 (Guj); CIT v. Nirmala Bakubhai Foundation, [1997] 226 ITR
394 (Guj), CIT v. Hindustan Charity Trust [1983] 139 ITR 913 (Cal), CIT v.
M. Ct. Muthiah Chettiar Family Trust, [2000] 245 ITR 400 (Mad.), CIT v.
Trustees of the Jadi Trust, [1982] 133 ITR 494 (Bom), CIT v. Shri Ram
Memorial Foundation [2004] 26 ITR 35 (Del).

21.     Hamdard relies upon Instruction No. 1132 dated 05.01.1978, issued
by the CBDT, which states that a charitable trust will not lose exemption
under the Act if it passes a sum of money to another charitable trust for
utilization by the donee trust towards its charitable purposes, and that it shall




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13             Page 14
be proper utilization of money by the donor trust for charitable purposes. It
is further submitted that, since the formation of HNF in 1964, Hamdard has
been carrying out its charitable activities through HNF. This has been
undisputedly accepted by the Revenue for all these years in granting
registration under Section 12A, according approval under Section
10(23C)(iv) and making assessments under Section 143(3) of the Act.

22.     It is urged that the DGIT(E) erroneously surmised that Hamdard did
not apply/accumulate its surplus towards its objects in violation of condition
(a) of the order of exemption dated 28.12.2007. As correctly observed by the
DGIT(E), the manufacture and sale of medicinal products is not the object of
Hamdard in terms its Trust Deed. Not only are Hamdards objects charitable
but the activities are also charitable, the business being an asset dedicated to
charity, and Hamdard utilizes the income generated from the manufacture
and sale of Unani and Ayurvedic medicines for the attainment of the
charitable objects. The details of accumulation and purpose thereof are a part
of the return of income. Accumulation of income for the capital expansion
of the asset is indispensable and incidental to put into effect the charitable
purpose. No part of the surplus of Hamdard is distributable amongst the sons
and grandsons of the Wakif Mutawallis, who are the current mutawallis.
Like other employees of Hamdard, the mutawallis are also drawing nominal,
fixed salaries.

23.     As regards the investment in the Okhla and Manesar projects,
Hamdard submits that the purpose and nature of the accumulations for these
projects has been consistent since long and has been disclosed to and
accepted by the Revenue at every stage. To support this contention,




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13            Page 15
Hamdard relies upon the audited accounts filed by it with the Revenue for
the Financial Years 2003-2004, 2004-2005, 2006-2007 and 2007-2008.

24.     Mr. Tripathi submits that the accumulation of income for legitimate
expansion of the activities of Hamard is merely ancillary to the predominant
charitable purpose. Further, details of the same have been specifically stated
in the documents accompanying the return of income and have been
accepted by the Revenue.

25.     Hamdard submits that a genuine, unintentional inability to spend the
accumulated amount in a particular assessment year, for reasons beyond its
control, cannot result in a permanent and retrospective withdrawal of the
approval under Section 10(23C)(iv) of the Act.

26.     Based on the Supreme Courts decision in ACIT v. Surat Art Silk
Cloth Manufacturers Association (1980) 121 ITR 1, Hamdard urges as
follows:-

      1) If the real, principal, predominant purpose of an entity is
      charitable then the said charitable intent will not stand vitiated
      merely because the activities of the entity result in profit or
      income which can be measured by standards applicable to
      commercial activity.
      2) A clear distinction has to be drawn between a charitable
      object and the incidental and ancillary means employed to feed
      the same, which may result in profit.
      3) Surplus, if any accruing from the activities of such an entity
      has to be applied for the charitable purpose, which also includes
      expansion of the activities of the entity and the said surplus
      should not be capable of distribution in the hands of the trustees.
27.     Mr. Tripathi relies on the concurring judgment of Pathak J, in Surat




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 16
Art Silk (supra), stating that it drew a clear distinction between a charitable
purpose on the one hand and the method, mode and powers applied and
adopted for the fulfillment of that purpose. Any application/permitted
accumulation of the income of Hamdard for the capital expansion and
maintenance of the charitable assets is ex-facie indispensable and incidental
to the effectuation of the charitable purpose.

28.     Furthermore, the period of accumulation provided in clause (a) of the
third proviso to Section 10 (23C) of the Act is only five years and the
Revenue had no jurisdiction to embark upon an enquiry into accumulations
prior to AY 2002-2003; which were incidentally old details not in the
possession of Hamdard. Mr. Tripathi submits that DGIT(E) fell into error in
determining that Hamdard violated clause (b) of the third proviso to Section
10(23C) of the Act by reinvesting in its on going projects; as the said
projects are an application of monies for charitable purposes. Further, Mr.
Tripathi submits that Hamdard has made all investments in the specified
modes, therefore, the Revenues finding to the contrary is unfounded. No
query or show cause, was raised in regard to this aspect of the matter. If the
Revenue had issued a show cause regarding the violation of clause (b) of the
third proviso to Section 10(23C) of the Act, Hamdard would have relied
upon the details of its fixed deposits, being investments in specified modes,
to show that the same had increased from ` 134.45 Crores in AY 2004-2005
to ` 419.56 Crores in AY 2012-2013.

29.     Mr. Tripathi argues that the law laid down by the Supreme Court in
CIT v. Thanti Trust, [2001] 247 ITR 985 has been misconstrued by the
DGIT(E) in its application to Hamdards case. Hamdard submits that the




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 17
principle that a business undertaking can also be in the nature of a "property
held under a trust", entitling it to tax exemptions, finds statutory recognition
in section 11(4) of the Act. In light of this Courts decision in CIT v. Mehta
Charitable Prajnalay Trust, (2013) 357 ITR 560 (Del), it is urged that
Section 11(4A) is not applicable to Hamdards case, and thus, the DGIT(E)
erred in concluding that condition (c) of the order of exemption had been
violated.

30.     Relying upon Section 11 (4A), the DGIT(E) accepted that the
business of Hamdard is incidental to the attainment of the objectives of the
Trust since separate books are required to be maintained for such a business.
As a matter of fact such books of accounts are being maintained all along
and have never been a focal point of dispute between the assessee and the
department. The principle that a business undertaking can also be in the
nature of "a property held under a trust" thereby entitling it to tax
exemptions finds statutory recognition in Section 11(4) of the Act.

31.     As regards the amendment in definition of ,,charitable purpose in
Section 2(15) of the Act with effect from 01.04.2009, it is submitted that the
said amendment does not extend to the first three heads of charity in Section
2(15). Hamdard relies upon CBDTs Circular No. 11/2008 dated
19.12.2008, which clarified that the newly inserted proviso to Section 2(15)
does not apply in respect of ,,relief of the poor, ,,education or ,,medical
relief.

       "2.1 The newly inserted proviso to section 2(15) will not apply
      in respect of the first three limbs of section 2(15), i.e. relief of the
      poor, education or medical relief. Consequently, where the
      purpose of a trust or institution is relief of the poor, education or




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                    Page 18
      medical relief, it will constitute ,,charitable purpose even if it
      incidentally involves the carrying on of commercial activities."
      ...
      3.The newly inserted proviso to section 2 (15) will, apply only to
      entities whose purpose is ,,advancement of any other object of
      general public utility i.e. the fourth limb of the definition of
      ,,charitable purpose contained in section 2(15). Hence, such
      entities will not be eligible for exemption under section 11 or
      under section 10(23 C) of the Act if they carry on commercial
      activities."
      3.2 In the final analysis, however, whether the assessee has for
      its object ,,the advancement of any other object of general public
      utility is a question of fact. If such assessee is engaged in any
      activity in the nature of trade, commerce or business or renders
      any service in relation to trade, commerce or business, it would
      not be entitled to claim that its object is charitable purpose."
Reliance is also placed on the speech of the Finance Minister relating to the
amended definition of ,,charitable purpose, wherein he had stated that it is
not meant to apply to genuine charitable organisations.
32.     Thus, Hamdard submits that the scope, ambit and mischief of the
newly introduced proviso is confined only to organisations which come
under the fourth category of the definition of "charitable purpose", namely
"advancement of any other object of general public utility" and it is not the
intention of the legislature to target institutions engaged in genuine
charitable activities. Further, it is contended that this Court in Hamdard
Dawakhana (Wakf) (supra) has held that Hamdards objects and activities
are specifically relatable to and identifiable with the first three heads of
charity; and that Hamdards business is a business held under trust and is
merely incidental to the effectuation and fulfillment of the charitable




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13              Page 19
purpose. Therefore, given the decision in Dharmadeepti v. CIT, (1978) 3
SCC 499, Hamdards objects cannot be said to fall outside the scope of
definition of ,,charitable purpose in Section 2(15).

Reopening of Assessment Proceedings

33.     Hamdard contends that the reopening of assessment proceedings is
based merely on a change of opinion on the same set of facts, and thus, the
notice of reopening of proceedings and order dismissing Hamdards
preliminary objections to such reopening ought to be quashed.

34.     The AO in the assessment order of HNF for Assessment Year 2005-
06 observed as under:

      "The main source of income is derived from Hamdard
      Dawakhana (Wakf). The income of the assessee is also stated to
      be applied on public charity as relief to the poor, education,
      medical relief and advancement of other objects of general
      utility. The activities of the assessee are charitable within the
      meaning of section 2(15) of the Income-tax Act. As such,
      exemption is allowed to the assessee u/s 11 of the Income-tax Act,
      as claimed."
It is submitted that there is no change in the objects and activities of
Hamdard since AY 2004-2005. For AY 2005-06, it has duly declared a sum
of `25,63,40,455/- as profits and gains of business or profession, leaving no
doubt about the disclosure made by it. Further, the fact that Hamdard was
donating its income to HNF was known to the Revenue even at the time of
passing of the original assessment order and has been so since 1964. This
does not, in law, denude Hamdard of its charitable character. Hamdard also
highlights that HNFs charitable nature has been affirmed by the Revenue.




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13              Page 20
35.     Hamdard further submits that the proviso to Section 147 is squarely
applicable, disabling the Revenue from issuing the notice of reopening after
the expiry of 4 years from the end of the concerned assessment year.
Further, it is a change of opinion on the part of the AO on the same facts as
had been examined by his predecessor and the AO is not empowered to
review the order passed by his predecessor by invoking the provisions of
section 147/148 of the Act. Reliance is placed on the decisions in CIT v.
Kelvinator of India Ltd., (2002) 256 ITR 1, approved by the Supreme Court
in (2010) 320 ITR 561 (SC); BLB Limited v. ACIT, (2012) 343 ITR 129
(Delhi); Atma Ram Properties Pvt. Ltd. v. DCIT, (2012) 343 ITR 141; CIT v.
Purolator India Ltd., (2012) 343 ITR 155; Titanor Components Ltd. v.
ACIT, (2012) 343 ITR 183; CIT v. Cray Research India Ltd., (2012) 343
ITR 212; and Artech Infosystems (P) Ltd. v. CIT, 206 Taxman 432. Finally,
it is stated that the reference to the withdrawal of the notification under
Section 10(23C)(iv) of the Act does not justify the reopening and exemption
can still be examined under Section 11 of the Act.

Orders dated 10.07.2013 passed by the CIT(A)

36.     Hamdard submits that the orders dated 10.07.2013 wrongly record the
presence of the authorized counsel for Hamdard, who never attended any
proceedings before the second respondent. No such presence is recorded in
the order sheets of 28.06.2013 and 08.07.2013. The presence recorded in the
order dated 10.07.2013 is contrary to the order sheets dated 28.06.2013 and
08.07.2013. Prior to 28.06.2013, the second Respondent had not even
assumed charge of the office of CIT(A). Accordingly, on 19.07.2013, the
counsel for Hamdard wrote to the second respondent, categorically refuting




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13          Page 21
the factum of his presence, even once, in the appellate proceedings before
the said officer.

37.     Hamdard further contends that the orders dated 10.07.2013 do not
deal with any submission or authority contained in the detailed written
submissions dated 04.03.2013 and 06.05.2013, filed by it or the submissions
made by Hamdards counsel before Respondent No. 2s predecessor. They
are a replica of the order dated 22.02.2012 passed by the DGIT(E), which
was set aside by this Court in WP No. 3598 of 2012.

38.     According to Hamdard, a valuable right of oral hearing available to it
has been rendered nugatory by the second respondent. It is incomphrensible
that an appeal which was heard at length by the predecessor of the second
Respondent over several months was allegedly "heard" by the second
Respondent on one day, and that too in the absence of the counsel for
Hamdard. The appeals filed by Hamdard were heard in part by Mr. V.K.
Tiwari, the erstwhile CIT(A), and were never heard by the second
respondent, who passed the appellate (impugned) orders. In a judicial or a
quasi-judicial proceeding, the passing of a final order by an officer who has
not himself heard the matter is violative of the principles of natural justice.
Without having heard the matter personally, the second Respondent could
not have drawn sustenance from presence of the counsel for Hamdard in the
proceedings before his predecessor, as admittedly the said counsel has never
appeared and argued the matter before him. Hamdard relies upon the
decisions in G. Nageswara Rao v. APSRTC, AIR 1959 SC 308; R.
Jagdishchand v. Dy. Collector of Customs, AIR 1963 Cal 331; Amir Singh
v. Government of India, AIR 1965 Punjab 84 and Chatro Devi v. Union of




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 22
India, 137 (2007) DLT 14.

39.     Further, it argued that the second Respondent abused his position and
power as a senior appellate authority, and exercised undue influence over the
second Petitioner by making him sign backdated order sheets, under the
pretext of completing the record. The second Respondent did not indicate to
the second Petitioner that the matter was being concluded and that he was
on the verge of passing an order. The right of first appeal before the CIT(A)
is a valuable remedy, available to an assessee, and the same cannot be set at
naught by the adoption of such an improper and mala fide approach. Thus, it
is submitted that the orders dated 10.07.2013 have been rendered in the
exercise of a colourable procedure and in gross violation of the principles of
natural justice, and are thus, void and non-est.

Submissions on Behalf of Revenue

Withdrawal of Exemption Under Section 10(23C)(iv)

40.     Mr. Rohit Madan, learned Counsel for the Revenue, justifies the
withdrawal of exemption under Section 10(23C)(iv) of the Act, stating that
the impugned order comprehensively deals with all the facts in light of the
prevalant position of law. It is stated that Hamdard is engaged purely in
business activities and accordingly notification dated 28.12.2007 under
Section 10(23C)(iv) for AY 2004-05 onwards has been withdrawn. The
assessment records for AY 2006-07 to 2009-10 show that Hamdard is
carrying on the business of manufacturing and sale of medicine on
commercial scale and donating a part of its surplus to its sister organization
­ HNF. Revenue has relied on the following chart in support of its
contention:




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 23
                                 AY 2006-07       AY 2007-08    AY 2008-09   AY 2009-10
Gross Surplus                    352001618        390139031     650201108    842529235
Less:-15% as General reserve     -52800243        58520855      97530166     126379385
Donations and Corpus Funds       -158400000       294381000     292600000    348000000
to HNF
Applied to Fixed Asseets         -19311271        13604038      13230941     25342372
Applied for ongoing projects     19817621         23109268      5597738      0
Utilization of accumulation of
previous year
                                 19817621         23109268      5597738      0
Accumulation                     124901014        23633138      246840001    342806088




41.     The Revenue argues that a bare reading of Section 2(15) reveals that
Hamdards purposes are not covered by the definition of ,,charitable
purpose because it engages only in manufacture and sale of Ayurvedic and
Unani Medicines like any other organization manufacturing pharmaceutical
products. The revenue also urges that Hamdard has enjoyed huge profit
margins year after year and generates huge surplus. Therefore, by no stretch
of imagination, it contends, can this activity be equated with any charitable
organisation.

42.     Revenue disputes that the objects of Hamdard and HNF are identical.
While both Hamdard and HNF are registered under Sections 12A read with
12AA of the Act, the objects of Hamdard are commercial in nature, i.e.
manufacture and sale of Ayurvedic and Unani Medicines on commercial
basis like any other pharmaceutical organization manufacturing medicines -
with the sole intention of earning profit. The revenue submits that although
Hamdards objects are charitable, its entire activity is of manufacturing and
selling medicines, which implies that it is a commercial organization.
Transfer of a part of the surplus generated from such activity to a charitable
organization (HNF) would not mean that the assessee is also a charitable




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                       Page 24
institution.

43.      In response to Hamdards reliance on this Courts decision in
Hamdard Dawakhana (Wakf) (supra), the Revenue submits that this Court
did not minutely analyse Hamdards activities in that case. Since this was
done for the first time, it cannot be said that the Revenue has attempted to
dislodge a settled position of law. Further, it is submitted that the Court in
Hamdard Dawakhana (Wakf) (supra) did not find Hamdards activities to be
falling within the first three heads of charity under Section 2(15) of the Act;
in fact, Hamdards activities fall within the residual category under Section
2(15).




44.      Mr. Madan urges that the DGIT(E) has correctly held that Hamdard
violated conditions (a), (b) and (c) of the order granting exemption dated
28.12.2007. Hamdard has accumulated and applied its income towards its
business activities ­ involving manufacture and sale of unani medicines and
other allied products. This does not constitute application/accumulation of
income towards its objects. Further, Hamdard has accumulated its income in
excess of five years, in violation of the second part of condition (a) in the
order of exemption.

45.      Mr. Madan reiterates that Hamdard has not invested its surplus in
accordance with the provisions of Section 11(5) of the Act, as the said
provision does not permit investment in business activities. He submits that
none of the decisions relied upon by Hamdard deal with a case of investment
in business.

46.      As regards condition (c), it is stated that it is an admitted fact that




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13             Page 25
Hamdard has not been maintaining separate books of accounts for its income
applied to charitable activities. Hence, there is a blatant violation of
condition (c) imposed in the order of exemption as well seventh proviso to
Section 10(23C), which disentitles it for the exemption granted by the
revenue under the law. Hamdards contention that Section 11(4A) does not
apply to businesses held in trust does not hold good in light of the Supreme
Courts decision in Thanthi Trust.

47.     It is further submitted on behalf of the revenue that Hamdard ceases to
be a charitable institution in light of the amended definition of ,,charitable
purpose with effect from 01.04.2009. The first proviso extends to
institutions falling within the residual category of ,,charitable purpose in
Section 2(15), including Hamdard, and does away with the test laid down in
Surat Art Silk (supra). Therefore, it is immaterial that Hamdard applies its
surplus towards charitable activities. Since it carries on an activity of trade,
commerce and business, it ceases to be a charitable organisation with effect
from 01.04.2009.

Reopening of Assessment Proceedings

48.     The Revenues justification for reopening the assessment proceedings
for AY 2005-06 is premised primarily on the withdrawal of Hamdards
exemption under Section 10(23C)(iv) of the Act. In addition, it is contended
that there was no procedural irregularity in reopening the assessment under
Sections 147/148 of the Act.

Orders dated 10.07.2013 passed by the CIT(A)

49.     It is urged that the second Respondent stated that Hamdard was




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13            Page 26
afforded opportunity of hearing and lists the various dates on which hearings
were scheduled. It is argued that the hearing in this case commenced on
18.01.2013, and Hamdard requested for adjournment on 30.01.2013,
25.02.2013, 26.03.2013, 11.04.2013 and 28.06.2013. Further, there was no
compliance by Hamdard for the hearings scheduled on 30.04.2013 and
28.05.2013. The case was heard only on 04.03.2013 and 07.05.2013 and
08.07.2013. It is incorrect that Hamdards counsel never appeared in the
appellate proceedings, as he appeared on 07.05.2013 when the matter was
discussed with him. On 28.06.2013, Shri Javed Naseem, CA & Corporate
Head (Finance) of Hamdard attended office and requested for adjournment
and the case was adjourned to 08.07.2013. Shri Javed Naseem attended
office on this date and the case was heard.

50.     It is contended that that since Hamdards written submissions dated
04.03.2013 and 06.05.2013 were already on record, they were good enough
for the said respondent to understand Hamdards submissions, keeping in
mind the oral submissions made on the respective hearings. Further, it is
incorrect that the orders dated 10.07.2013 do not deal with Hamdards
submissions.

51.     The second Respondent, while denying allegation that the second
Petitioner met him on 29.06.2013 as it was not a working day, states that on
28.06.2013, the said petitioner attended the said respondents office and
requested for adjournment. Accordingly, the case was adjourned to
08.07.2013 for hearing. The second Respondent denies having called the
second Petitioner on 08.07.2013, or that he was asked to sign the order
sheets for 28.06.2013 on 08.07.2013.




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13          Page 27
Analysis and Conclusions

52.     As noted at the outset of this Courts judgment, the focal point of the
six writ petitions involved here is the nature of the objects and activities
carried out by Hamdard. Indeed, this Courts determination as regards
Hamdards entitlement to exemption under Section 10(23C)(iv) of the Act
has a direct bearing on the outcome in W.P.(C) 3599 of 2013 (reopening of
assessment for AY 2005-06) and WP (C) Nos. 5715, 5716, 5718 and 5729
of 2013 (validity of CIT(A)s orders dated 10.07.2013). Therefore, this
Court proceeds to examine this issue first.

Grounds for withdrawal of exemption under Section 10(23C)(iv)

53.     In the order dated 28.12.2007, the DGIT(E), while granting exemption
to Hamdard under Section 10 (23C)(iv) of the Act with retrospective effect
from AY 2004-05, had imposed the following conditions on Hamdard,
which were to be continuously complied with to seek exemption:

      "(a) the assessee will apply its income, or accumulate for
      application wholly and exclusively to the objects for which it is
      established and in a case where more than fifteen per cent of its
      income is accumulated on or after 1st day of April, 2002, the
      period of the accumulation of the amount exceeding fifteen per
      cent of its income shall in no case exceed five years:
      (b) the assessee will not invest or deposit its funds (other than
      voluntary contributions received and maintained in the form of
      jewellery, furniture etc.) for any period during the previous year
      relevant to the assessment years mentioned above otherwise than
      in any one or more of the forms or modes specified in sub-section
      (5) of Section 11;
      c) this order will not apply in relation to any income being profits
      and gains of business unless the business is incidental to the




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                Page 28
      attainment of the objectives of the assessee and separate books of
      accounts are maintained in respect of such business;
      (d) the assessee will regularly file its return of income before the
      Income tax authority in accordance with the provisions of the
      Income Tax Act. 1961;
      (e) that in the event of dissolution, its surplus and the assets will
      be given to a charitable organisation with similar objectives.
      (f) The assessee will get its accounts audited by an accountant as
      defined in explanation below sub-section (2) of section 288 and
      furnish them along with the return of income. The report of such
      audit in the prescribed form duly signed and verified by such
      accountant and setting forth such particulars as may be
      prescribed."
54.     In the impugned order dated 21.08.2013, the DGIT(E) examined
Hamdards compliance with the above conditions. The DGIT (E) held that
Hamdards objects fell within the purview of the residual class under
Section 2(15) (viz. ,,advancement of any other object of general public
utility), and not just within the first three categories (i.e. relief of the poor,
education and medical relief). He then cited the following grounds for
withdrawal of exemption under Section 10 (23C) (iv):

                a.      Hamdard had applied as well as accumulated its income
                not in terms of its objects but towards its business activities,
                which was not its object.

                b.      Hamdard had accumulated beyond 5 years, contrary to
                the second part of condition (a) stipulated in the order dated
                28.12.2007.

                c.      Hamdard made investment in business contrary to




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                 Page 29
                condition (b) stipulated in the said order.

                d.      Hamdards business is not incidental to the attainment of
                its objects and it did not maintain separate books of accounts
                (violation of condition (c)).

                e.      In view of the amendment to Section 2(15) with effect
                from 01.04.2009, Hamdard cannot be held to be existing for
                ,,charitable purpose.

The DGIT(E) relied upon the Supreme Courts decision in Thanthi Trust
(supra), and held that the decision in Surat Art Silk (supra) which was relied
upon by this Court in Hamdard Dawakhana (Wakf) (supra) was no longer
applicable on account of change of law. This court proceeds to examine the
legality of each of the reasons, contained in the impugned order, for the
withdrawal of exemption under Section 10(23C)(iv).

55.     A clarification is called for at this stage, regarding the scope of
applicability of previous decisions of this Court vis-à-vis the Hamdard itself.
Hamdard underlines that it enjoyed exemption under the Act for these past
decades, and that this Court in several cases- for previous assessment years
had approved the charitable purpose of the organisation. Further, it
underscores that the Revenue had thoroughly examined almost all relevant
facts concerning the assessment years in question at the time of granting the
exemption. Therefore, it cannot withdraw the exemption under Section
10(23C)(iv), and that too, retrospectively. This contention, however, is not
sound, because the Revenue is entitled to continuously monitor an assessees
activities and its compliance with the conditions for grant of exemption,




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13             Page 30
statutory or otherwise. This has been affirmed by the Supreme Court
recently in Queens Educational Society v. CIT, (2015) 372 ITR 699, where
Court held:

      "...the 13th proviso to Section 10(23C) is of great importance in
      that assessing authorities must continuously monitor from
      assessment year to assessment year whether such institutions
      continue to apply their income and invest or deposit their funds
      in accordance with the law laid down. Further, it is of great
      importance that the activities of such institutions be looked at
      carefully. If they are not genuine, or are not being carried out in
      accordance with all or any of the conditions subject to which
      approval has been given, such approval and exemption must
      forthwith be withdrawn."
At the same time, this court recognizes that to the extent there is no change
in the facts and circumstances of the case- or the law applicable, the
Revenue is bound to follow the principle of consistency (see Radhaswami
Satsang v. CIT, (1992) 193 ITR 321 (SC) and DIT v. Escorts Cardiac
Diseases Hospital Society, (2008) 300 ITR 75 (Delhi)).

What is the nature of Hamdards objects?

56.     Clauses 44 to 47 of the Trust Deed dated 28.08.1948 stipulate
Hamdards objects. This is undisputed so far as the charitable nature of
Hamdards objects prior to 01.04.2009 is concerned. In light of the
amendment to Section 2(15) introduced by Finance Act, 2008, the revenue
argues that Hamdard ceases to be a charitable organisation with effect from
01.04.2009 and cites it as an additional ground for withdrawal of exemption
from the said date.

57.     This Court in Hamdard Dawakhana (Wakf) (supra) examined




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 31
Hamdards objects and held them to be charitable withint the meaning of
Section 2(15) of the Act. The clauses enumerating Hamdards objects
continue to remain the same and since the definition of ,,charitable purpose
applicable for the period prior to 01.04.2009 is identical to the one applied
by this Court in Hamdard Dawakhana (Wakf), the issue concerning
charitable nature of the organization prior to 01.04.2009 is no longer res
integra. The court would examine the charitable nature of the organisation
from 01.04.2009 onwards in the relevant section below.

58.     That brings the court to the crucial issue to be considered i.e. whether
Hamdards objects fall within either or all of first three heads of ,,charitable
purpose stated in Section 2(15) or within the residual category. While
examining Hamdards objects, the DGIT(E) noted that its primary mode of
expenditure on charitable activities is through HNF, and that its direct
expenditure on charitable objects is negligible. Further, it was stated that
HNF carries out its charity through four Section 12A registered entities, viz.
Jamia Hamdard University (education), Hamdard Education Society (HES)
(education and residual category), Business and Employment Bureau (BEB)
(residual category), All India Unani Tibbi Conference (AIUTC) (residual
category) and through Saeda Hospital. It was held that since Hamdard does
not have control over the charitable activity of HNF, as it may choose to
spend on activities falling within the residual category as opposed to the first
three categories of charitable purpose in Section 2(15), Hamdard ought to be
classified under the residual category. Hamdards direct charitable activities
were held to be insignificant to have a bearing on the determination of its
objects. As regards HNFs direct charitable activities (which constituted




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13            Page 32
3.6% of HNFs total charity), it was held that 64% of direct charity outlay
was for scholarship schemes and the remaining 36% was held to be on ,,core
charity, i.e., falling within the first three heads of ,,charitable purpose under
Section 2(15).

59.     Hamdards contention, both before the DGIT(E) and this Court, is that
this Court in Hamdard Dawakhana (Wakf) (supra) had held the objects of
Hamdard to be falling within the first three categories of Section 2(15).
However, the DGIT(E), in our opinion, rightly rejected this contention.
Although the revenue in that case had urged that the objects fell within the
residual category, the Court did not render a finding on this issue. The Court,
while applying the test laid down in Surat Art Silk (supra), held that
Hamdard applied the surplus generated from its business for charitable
purposes, and therefore, it was not ,,involved in carrying an activity for
profit. If anything, it may be contended that the Court considered
Hamdards objects to be falling within the residual category, for, if the
objects fell within the first three heads of charitable purpose, Hamdard
would have been entitled to exemption from tax "even if an activity for
profit [was] carried on in the course of the actual carrying out of the
primary purpose of the trust" (Ref. Surat Art Silk) and the Court would not
have been required to delve into the issue of whether Hamdard was involved
in carrying an activity for profit. However, this Court does deem it
appropriate to go so far as to infer this from the said decision.

60.     A preliminary issue to be decided here is whether the nature of
objects/activities of HNF, as well as the third set of trusts (i.e. Jamia
Hamdard University, HES, AIUTC, BEB) has a bearing on the classification




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13             Page 33
of Hamdards objects. The DGIT(E)s approach on this aspect is perplexing.
On the one hand, it held that the nature of activity of third set of trusts, i.e.
Jamia Hamdard University, HES, BEB and AIUTC would not impact the
determination of nature of Hamdards objects. On the other hand, the
DGIT(E) relies on the fact the Hamdard does not carry out its charitable
activities directly, and since its donees may choose to apply the donations to
charitable activities falling in the residual category, Hamdard ought to be
within the residual category. In the opinion of this Court, while the activities
of ,,donee trusts may have some relevance for determining the nature of
Hamdards objects for the purposes of Section 2(15), the primary basis for
such determination must needs be Hamdards trust deed containing its
objects.

61.     Now, coming to an examination of Hamdards objects, Clause 44 (a)
of the Deed dated 28.08.1948 lists out objects of public charity to include
,,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. At first look, it would appear that the object is to promote
charity generally, as opposed to limiting to any specific class of charitable
objects. However, clause 45 of the Deed specifies the heads of charity,
which may be classified under ,,education (sub-clauses 45(1) and 45(2)) and
,,medical relief (sub-clause 45(3)). Clauses 46 and 47 permit Hamdard to
engage in other activities which would qualify under the head of ,,relief for
the poor. While Hamdard may pursue charitable activities for the
advancement of objects of general public utility (owing to the generality of
clause 44), clauses 45, 46 and 47 indicates that Hamdards objects fall




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13             Page 34
within the first three categories of ,,charitable purpose spelt out in Section
2(15), and not in the residual category. Here, this Court relies on the
Supreme Courts ruling in Dharmadeepti (supra), where the Court construed
a general provision concerning charitable object in the trust deed in light of a
specific clause. The Court observed:

      "Having regard to the language used and the context in which
      the two main objects are set forth, it would be reasonable to
      identify the expression ,,to give charity and ,,to promote
      education with the first two heads ,,relief of the poor and
      ,,education in the definition of ,,charitable purpose in Section
      2(15) of the Income Tax Act. If the Memorandum of Association
      had referred to ,,charity as the sole object without any
      limitations, including those prescribed by the context, it may have
      been possible to extend it to all the four heads mentioned in
      Section 2(15), as was done in Chaturbhuj Vallabhdas v.
      Commissioner of Income-Tax 14 I.T.R. 144. But the words are ,,to
      give charity; and then ,,to promote education is also specified.
      Obviously, the former must, bear a limited meaning. To our
      mind, the most appropriate seems to be ,,relief of the poor. That
      being so, neither of the main objects can be classed under the
      residual general head ,,the advancement of any other object of
      general public utility."
62.     Turning now, to examine the nature of HNFs objects, this Court finds
that they are identical to those of Hamdard, and the Revenues contention to
the contrary is without any merit. Textually, HNFs objects and ,,functions
would indicate that HNF only has the additional objective of receiving,
controlling and supervising the income received from Hamdard and any
other body and applying it for the purposes enumerated thereafter, which are
identical to clauses 44 to 47 of Hamdards Trust Deed. The fact that they
have been classified under two different heads, viz. ,,objects and ,,functions
is immaterial, as it is only a matter of form and does not alter the manner of




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 35
application of donations received by HNF.

63.     The DGIT(E) in the impugned order dated 21.08.2013 as well as in
the affidavit on record admits that HNFs main activity is donation to Jamia
Hamdard University ­ which qualifies under ,,education in Section 2(15).
Further, it was noted that HNF is making ,,relatively small donations to
HES, BEB and AIUTC. It was held that HES is carrying out charitable
activities falling in the first three categories as well as the residual category,
whereas BEB and AIUTC are carrying out charitable activities under the
residual category. This Court does not deem it necessary to examine the
activities of HES, BEB and AIUTC in detail, for it has already found that
Hamdards and HNFs objects fall within the first three categories of
,,charitable purpose under Section 2(15), and the fact that HNFs charitable
activity carried out through Jamia Hamdard University - admittedly
comprising of bulk of HNFs charity ­ also falls under one of the first three
categories (,,education). Further, the DGIT(E) itself has held that 36% of
HNFs direct charity falls within the first three heads of ,,charitable purpose.
As regards the balance 64%, the DGIT(E) erroneously classified scholarship
schemes under the head ,,object of general public utility. However, this
Court holds that since scholarship schemes are directed towards
incentivising students to pursue education, it must fall under the category of
,,education as opposed the residual category. This determination sufficiently
establish that Hamdards objects fall within the head of ,,education,
,,medical relief and ,,relief of the poor, and not the residual category under
Section 2(15).

64.     The DGIT(E) held that while running an educational institution is




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,,core charity ­ falling within the head of ,,education under Section 2(15),
donating the surplus to an educational institution would not qualify Hamdard
under the category of ,,education. Hamdard submits that the funding of
activities falling within the first three categories is by itself a charitable
purpose within the same categories, and relies upon the Supreme Courts
decision in Aditanar Educational Institution v. Additional CIT, (1997) 3
SCC 346. This Court does not find any support for Hamdards contention in
Aditanar, since in that case, the Court relied upon the fact that the object of
the assessee was to establish, run, manage or assist colleges or schools, as
opposed to merely financing the same. However, the Revenues plea fails
for another reason. In light of the decisions in Sarladevi Sarabhai Trust
(supra) and Shri Ram Memorial Foundation (supra), it is well established
that an entity carrying out its chartiable activities through another charitable
institution is entitled to exemption under the Act. For instance, a trust may
donate its surplus to another trust, which runs and manages an educational
institution, or transfers the surplus received to another educational
institution.

65.     Sarladevi (supra) held as follows:

      "We respectfully agree with the view expressed by the Bombay
      High Court on the point. Our attention was also invited by Mr.
      Patel for the assessed to a decision of the Calcutta High Court in
      the case of CIT v. Hindusthan Charity Trust [1983] 139 ITR 913.
      In that case, a Division Bench of the Calcutta High Court
      consisting of Sabyasachi Mukharji J. (as he then was) and Suhas
      Chandra Sen J. had to consider the question whether donation
      given by one charitable trust to another trust under the bona fide
      belief that the donee was a charitable trust would be covered by
      the provisions of Section 4(3) of the Indian Income-tax Act, 1922,




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13              Page 37
      which is the forerunner of Section 11 of the Income-tax Act,
      1961. The Calcutta High Court, speaking through Sabyasachi
      Mukharji J., in terms, held that the assessed donor trust was
      entitled to exemption under Section 4(3) of the Income-tax Act. It
      must, therefore, be held that when a donor trust which is itself a
      charitable and religious trust donates its income to another trust,
      the provisions of Section 11(1)(a) can be said to have been met
      by such donor trust and the donor trust can be said to have
      applied its income for religious and charitable purposes,
      notwithstanding the fact that the donation is subjected to any
      conditions that the donee trust will treat the donation as towards
      its corpus and can only utilise the accruing income from the
      donated corpus for religious and charitable purposes, and that
      the question whether the gifted income is to be utilised by the
      donee trust fully for its religious and charitable purposes or
      whether the donee trust had to keep intact the corpus of the
      donation and has to utilise only the income there from for its
      religious and charitable purposes, would not make the slightest
      difference, so far as entitlement of the donor trust for exemption
      under Section 11(1) goes."


66.     The above decision of the Gujarat High Court was concurred in
Shriram Memorial Foundation (supra) by a Division Bench of this Court. It
is settled, therefore, that the trust which donates the surplus at the first
instance would be qualified for exemption under Act, for its activities would
be charitable in nature. While determining the head of ,,charitable purpose
under which the said trust falls, it would be inharmonious to not relate it to
the nature of activity carried out by the donee trust, or the third set of
trust/institution to which the donee trust transfers its surplus. Therefore, if
the donee trust is engaged in managing an educational institution, the first
trusts charitable activity would also fall under the category of ,,education.
The Revenues contention that donation of surplus by Hamdard to HNF,




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which transfers its surplus primarily to Jamia Hamdard University, does not
come within the head of ,,education is rejected.

67.     Hamdard had been carrying out its since charitable activities through
HNF since the latter was set up, and HNF enjoyed the benefit of exemption
under Section 11 of the Act since its inception on 12.05.1964. HNFs
charitable status was further approved by the CIT(A) in its order dated
31.01.2012. However, the DGIT(E) has drawn a distinction between corpus
and non-corpus donations of Hamdard to HNF, the non-corpus fund ­ which
is the source of HNFs charity ­ comprises of a small proportion of
Hamdards total donation to HNF. In other words, the DGIT(E) held that the
predominant portion of donation is applied towards buildin g HNFs corpus
as opposed to being applied for charitable purposes and the extent of actual
charity carried out by HNF is not significant. However, in this Courts
opinion, Hamdard rightly contends that the DGIT(E) erroneously drew a
distinction between corpus and non-corpus donations made by it to HNF.
The resolutions of Hamdard placed on record clearly mandate that the
interest income generated from corpus donations was to be utilized for
charitable purposes.

Whether Hamdard accumulated and applied its income towards its objects?

68.     The DGIT(E) held that Hamdard accumulated and applied its income
towards expansion of its business ­ and since Hamdards business does not
form a part of its objects, it was in violation of condition (a) imposed in the
order of exemption dated 28.12.2007. Hamdard submits that the application
of its current and accumulated surplus for sustaining and augmenting the
income generating capacity of its charitable corpus constitutes an application




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for charitable purpose. It relies on the decisions in DIT v. Abul Kalam Azad
Islamic Awakening 2013 VAD (Delhi) 44; DIT v. Govindan Naicker Estate,
(2009) 315 ITR 237; CIT v. St. George Forana Church, (1988) 170 ITR 63.
It is submitted that the application/permitted accumulation of its income for
capital expansion and maintenance of charitable assets is indispensable and
incidental to the effectuation of its charitable purpose. It would, therefore, be
appropriate to first examine the objects of Hamdard, prior to determining
whether its application and accumualation of income is in accordance with
the same.

69.     The starting point for discussion is this Courts decision in Hamdard
Dawakhana (Wakf) (supra), where, upon an examination of Hamdards
objects and its activities, the dominant object of the trust was to held be
charitable and not carrying out a business activity. The Revenues
contention that this Court in that case did not have the opportunity to
examine the actual nature of the activity carried out by Hamdard is
unfounded. The revenue had then contended that Hamdards objects also
included running commercial institutions, laboratories, schools, inns,
publication of books etc. and therefore, it should be denied exemption under
the Act. However, the Court rejected this contention, and held that the
objective of the trust was to apply the income for charitable purposes, and
therefore, exemption could not be denied. The relevant observations of this
Court merit reproduction herein, as follows:

      "16. Thus, the emphasis [of the Revenue] is on the fact that this
      charity     is   carrying     on     a     business,     namely,
      the Hamdard Dawakhana. In fact, the dedication is of a business
      because the dedicated property is neither any building, nor any




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13             Page 40
      trade mark, but the business of the Hamdard Dawakhana. It is,
      therefore, urged that this is not a charitable purpose at all and
      hence no exemption can be granted...
      17. We find that on a proper construction of the Act, this is not
      the meaning to be given to the definition. In order to have a
      charity, you must have a source of income. The income may come
      from gifts, or it may come from running a business. In this case,
      the trust is of a portion of the income of
      the Hamdard Dawakhana. Although the source of the income is a
      business, the object of the trust is not to run that business, but to
      utilise the income of that business for a charitable purpose...
      18. In our view, the entire point is now covered by the Supreme
      Court's judgment in Addl. CIT v. Surat Art Silk Cloth
      Manufacturers Association [1980] 121 ITR 1 (SC). The court
      pointed out in that case that when the object of a trust was the
      carrying on of an object of general public utility, it is that object
      of general public utility which must not involve the carrying on of
      an activity for profit. It was pointed out that it was immaterial
      how the money for achieving or implementing such purpose was
      found. Whether that money was obtained by the running of an
      activity for profit or not, did not make the charity not charitable.
      Thus, in the present case, no doubt, the trust earns the money
      from the Hamdard Dawakhana. If that money is used for
      charitable purpose and not for the carrying on of any business at
      a profit, then the object of the trust is charitable, notwithstanding
      the source of the income.
      19. It is hardly possible for a charitable trust to work with no
      source of income. So, the makers of the trust in the present case,
      dedicated a portion of the income of the business for being used
      for charitable purpose As long as the user of that money is
      charitable, then the exemption has to be granted.
      XXX                                XXX                    XXX
      26. It was submitted before us that clause 46 shows that it is
      possible to use the trust even for running profitable businesses
      such as commercial institutions, schools, laboratories, inns and




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                 Page 41
      also by publication of books. Thus, a non-charitable purpose was
      visualised by this trust.
      27. No doubt, the words actually used do suggest that
      conceivably the trust income could be used for non-charitable
      purposes. At the same time, we think that the object of the trust
      was not to use the income for non-charitable purposes. When one
      visualises that education and medical relief are themselves
      charitable purposes within the meaning of section 2(15), we do
      not see why the charitable income cannot be used for running
      such educational and commercial institutions. What is visualised
      is the running of institutions for the employment of the poor.
      Similarly, the inns referred to in clause 46 are really not hotels
      run for commercial purposes, but sera is for the housing of the
      poor. The context in which the objects have been specified shows
      that the income has to be used for charitable purposes. The
      enumeration of charitable purposes, if not read in the context in
      which they are used, can give rise to an inference that the money
      is to be used for non-charitable purposes. The proper way to
      construe the document is to visualise the fact that the executants
      wanted to make a charitable trust and they also specified in what
      way the charitable income was to be used. You can use income to
      set up a factory at a profit and you can also use the income to set
      up a poor house for employment of poor people. The effect may
      be the same, i.e., the setting up of a commercial establishment,
      but the object is different. One is to run an institution for profit
      and the other is to provide employment to the poor by giving
      them work and income. Similarly, in making a graveyard or a
      mosque or an inn, the money is used for charitable purposes or it
      may be used for profit by selling the space, e.g., by making
      income from the inn. If you read it in the context in which the
      utilisation of the charitable money is being indicated, then you
      can infer that the real purpose is not to run a charitable
      institution, but one which results in a charity. The ambiguity of
      reading one or the other meaning has been removed by the
      clarification dated March 24, 1964, made by the executants, to
      the effect that the money will only be used for charitable
      purposes and clauses 45 to 49 will be read as denoting only a
      charitable utilisation of the money of the trust."




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                                                                (emphasis supplied)
70.     Hamdards objects, as laid down in its Trust Deed, continue to remain
the same as those considered in Hamdard Dawakhana (Wakf) (supra).
However, the DGIT(E) in its impugned order did not follow the ruling in
Hamdard Dawakhana (Wakf), stating that the latter relied upon Surat Art
Silk (supra), which is no longer applicable in light of the Supreme Courts
decision in ACIT v. Thanthi Trust, (2001) 247 ITR 785 and Section 11(4A),
which was introduced subsequent to the decision in Surat Art Silk (supra).

71.     The Supreme Court in Thanthi Trust did not discuss the issue of
applicability of the test laid down in Surat Art Silk (supra) in light of the
insertion of Section 11(4A). The DGIT(E)s ruling ­ that Surat Art Silk
(supra) is no longer applicable in light of the decision in Thanthi Trust ­
presupposes, at the least, the applicability of Section 11(4A) to instances of
businesses held in trust, such as the instant case (and it was so held by the
DGIT(E), in its impugned order). However, this Court (for reasons
explained in the section concerning violation of condition (c) below) holds
that in light of the decision in CIT v. Mehta Charitable Prajnalay Trust,
(2013) 357 ITR 560, Section 11(4A) is not applicable to Hamdards case.
Further, the Supreme Court in CIT v. Gujarat Maritime Board, (2007) 295
ITR 561 as well as in its recent decision in Queens Educational Society
(supra) has also applied the Surat Art Silk (supra) test to determine the
dominant object of the respective assessees, notwithstanding its earlier
pronouncement in Thanthi Trust (supra) and the insertion of Section 11(4A).
This Court in Institute of Chartered Accountants of India v. DGIT, [2013]
358 ITR 91 has also held that the dominant object test of Surat Art Silk




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(supra) continues to apply for determining whether an entity carries on
business. The reliance placed by the DGIT(E) on CIT v. Dharmodayam,
(2001) 116 Taxman 204 is out of place, as the Supreme Court in that case
did not hold that the Surat Art Silk (supra) test had been rendered obsolete in
light of the insertion of Section 11(4A). In light of this overwhelming
authority in favour of Hamdard on this issue, this Court has no hesitation in
holding that the DGIT(E) erred in holding that the dominant purpose test
laid down in Surat Art Silk (supra) does not apply in light of the decision in
Thanthi Trust and insertion of Section 11(4A). As a result, the DGIT(E)s
basis for rejecting this Courts determination in Hamdard Dawakhana
(Wakf) (supra), on the nature of Hamdards objects, does not survive.

72.     To construe Hamdards objects, the Supreme Courts decision in
Thiagarajan Charities (supra) is instructive. In that case, the objects of the
trust in question contained a clause (Clause 1(g)) which allowed the trust to
"engage in, carry on, help, aid and assist and promote rural reconstruction
work, cottage industry and all other matters incidental thereto in India".
Further, clause 7(e) of the trust deed therein allowed the trust to invest in
any business undertaking to be carried on by the trust. The trust carried on
business of purchase and sale of cotton yarn. Based on Clause 1(g), the
revenue contended that the object of the trust was to carry on activity for
profit and therefore, the object of the trust was not charitable within the
meaning of Section 2(15) of the Act. While holding that the business of the
trust was carried out under clause 7(e) of the trust deed, the Court held that
clause 1(g) of the trust deed did not mean that the object of the trust was to
carry on a business with the motive of earning profits. Instead, as in




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Hamdards case, it provided the trust with the means of achieving the
objects of the trust ­ which was education, medical relief and relief for the
poor. The Court further ruled that the business run by the trust was a part of
its corpus, and thus a business held under trust.

73.     This Court in a series of decisions has considered the absence of profit
motive to be a vital factor in determining the charitable nature of an entity
(see M/s. GS1 India v. DGIT, [2014] 360 ITR 138; Institute of Chartered
Accountants of India v. DGIT, [2013] 358 ITR 91; PHD Chamber of
Commerce & Industry v. DIT, (2013) 357 ITR 296). A look at Hamdards
Trust Deed and its activities unequivocally establish that they are not guided
by profit motive. Indeed, in furtherance of the charitable purpose,
Hamdards Trust Deed dated 28.08.1948 was amended on 10.10.1985 with
effect from 01.01.1973 to abolish the concept of family income; and all
proceeds generated from Hamdards activities are solely in furtherance of its
charitable objectives. The relevant declaration reads as follows:

      "6. That the words ,,Khandani Income and all provisions and
      references relating thereto, wherever they appear in the Wakf
      Deed and/or in the subsequent declarations, modifications and
      amendments thereto, or elsewhere, are abrogated, annulled and
      deleted therefrom and the Hamdard Dawakhana (Wakf) is 64/64
      or 100% Charitable Wakf and there is no Khandani Income
      whatsoever and no private beneficiary whomsoever."
74.     The Revenue urges that Hamdard had been enjoying enormous profit
margins year after year, generating considerable surplus and consequently,
its activities cannot be considered as those of a charitable organisation.
However, this submission runs afoul a plethora of Supreme Court decisions,
the most recent being Queens Educational Society (supra), where,




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following the law laid down in Surat Art Silk (supra), Aditanar Educational
Society (supra) and American Hotel and Lodging Association v. CBDT,
(2008) 301 ITR 86, the Court held that merely because an educational
institution is generating surplus does not imply that it ceases to enjoy the
benefit of exemption under Section 10(23C)(iii-ad) of the Act.

75.     The next issue to be examined is whether Hamdard applied and
accumulated its surplus towards its objects. The DGIT(E) found that
Hamdard had been applying its surplus and accumulated income towards
fixed assets and ongoing projects relating to Hamdards business. These
included Hamdards new factories at Okhla and Manesar, Herbs and
Medicinal Plants Cultivating Project, Muffadarat Plant Ghaziabad and Multi
Speciality Hospital and Medical College (Jamia Hamdard Universitys
project). The DGIT(E) held that only the Multi Speciality Hospital and
Medical College project was charitable in nature, while the others were in
furtherance of Hamdards business and not its objects. Insofar as the former
was concerned, since it was a project of Jamia Hamdard University, the
DGIT(E) held that Hamdard could not claim application of funds towards
that project as application for charitable purposes.

76.     Hamdard relies on this Courts decision in Abul Kalam Azad Islamic
Awakening (supra) to contend that application of current as well as
accumulated surplus for the purposes of augmenting the income of a
charitable institution is permissible, and does not lead to cessation of
charitable nature of the institution. Specifically, the following observations
have been cited:

      "7.2 Clause (x) of Sub sec. (5) to sec. 11 prescribes one of the




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13            Page 46
      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 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."



However, the DGIT(E) refused to apply the above observations to




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Hamdards case, drawing a distinction between investment in immoveable
property and investment in business. The DGIT(E) held as follows:

      "The assessee is relying on this decision to argue that it is
      permissible to even buy business assets or engage in business
      with the accumulated funds as long as the surplus of business is
      utilised for charity. To my mind, this proposition does not find
      support from the decision. There is a vast difference between
      investing in an immovable property and investing in business. In
      fact Hon'ble Court has approved the investment in immovable
      property only after taking note of the fact that the assessee was
      not involved in business of purchase & sale of property as can be
      seen from the concluding part of para 7.3 quoted above."



Similarly, the DGIT(E) refused to rely upon Govinda Naicker Estate (supra)
on the ground that it did not concern investment in business. In Govinda
Naicker Estate, the Madras High Court had approved exploitation of
property for the purposes of augmenting the charitable institutions business.

77.     This Court finds that the DGIT(E) misconstrued the nature of
Hamdards activities, inasmuch as it held them to be in the nature of
business. This Court has already held above that Hamdards objects are
charitable in nature, and its activities relating to manufacture and sale of
unani medicines and other allied businesses are only meant to act as a source
of funds for its charitable activities. It is undisputedly a case of a business
held in trust, and Hamdard has been consistently applying the proceeds of its
activities for charitable purposes.

78.     A Full Bench of this Court in Hakim Abdul Hamid v. CIT, (1973) 90
ITR 203, concerning Hamdard, held that the amount transferred by Hamdard




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to its Reserve Funds would be exempt from tax under Section 11 if it is
applied or finally set apart for charitable or religious purposes. The DGIT(E)
refused to rely on this decision on the ground that the clauses pertaining to
the application of amounts in Reserve Fund no longer exist; and the
introduction of Section 13(1)(d) and Section 11(5), which preclude
reinvestment of funds into business.

79.     This Court does not find either of the aforesaid reasons for non-
applicability of Hakim Abdul Hamid (supra) to be tenable. First, as regards
the introduction of new statutory provisions, Section 13(1)(d) merely states
that funds not invested or deposited in accordance with the provisions of
Section 11(5) would not be available for exemption under Section 11 of the
Act. The guiding provision for application of funds of a charitable
institution, therefore, is Section 11(5). Section 11(5) does not in any manner
precludes the application of funds of a charitable institution for its objects.
This Court in Abul Kalam Azad Islamic Awakening has held that "investment
even in commercial property assets remains charitable purposes so long as
the income generated by it is applied to charitable objects ". As a result, the
insertion of Section 11(5) or Section 13(1)(d) does not negative the
applicability of this Courts decision in Hakim Abdul Hameed (supra) to the
facts of this case. Secondly, the deletion of clauses from the Trust Deed
prescribing the mode of utilisation of Reserve Funds is not relevant, as the
principle on which this Court held the amounts in Reserve Fund to be
exempt from tax would continue to apply. According to the Court, "[f]rom a
perusal of the above clauses it would be clear that the Reserve Fund has to
be applied primarily for either presenting the Wakf business or for




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 49
expanding or developing the said business and as such it retains the
character of the Wakf business itself". The Court further held:

      "The creation of the Reserve Fund was necessary in the interest
      of the Trust itself. If the Trust business has to continue to yield
      profits which are to be utilised for the purposes for which the
      Trust was created then it was necessary that a portion of the
      profit should be transferred to a Reserve Fund. The purpose of
      the Reserve Fund, therefore, is the same as the purpose of the
      Trust itself. The trust has a two-fold purpose, namely, benefit to
      the community at large and maintenance of the family of the
      Mutawalli. The Reserve Fund also has the same two-fold
      purpose. To the extent that the Reserve Fund is ultimately utilised
      for the benefit of the community at large it is exempt from
      assessment under Section 4(3) (i) of the Act just as the portion of
      the income from the Wakf business which is set apart for
      charities has been exempted from assessment by the department
      itself."
80.     Hamdard continues to apply its income from its ,,business activities
for charitable purposes in accordance with its Trust Deed. It is baffling that
the DGIT(E), on one hand, justified the ruling in Hakim Abdul Hamid
(supra) on the ground that the reserve fund was to be utilized for Hamdards
business whereas on the other hand, withdrew the exemption under Section
10(23C)(iv) of the Act for the reason that Hamdard was applying and
accumulating its income for business purposes. The DGIT(E) fell into error
in reasoning that in light of the deletion of clauses in the Trust Deed ­ which
obligated Hamdard to utilize the Reserve Fund for business purposes ­ this
Courts decision in Hakim Abdul Hamid (supra) does not hold any
relevance. This Court also notes that the Revenue granted exemption to
Hamdard under Section 10(23C)(iv) of the Act vide its order dated
28.12.2007, with complete knowledge of Hamdards activities. It is obvious




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 50
that Hamdard would be required to invest funds in such activities in order to
sustain its charitable purpose. In such circumstances, it is incomphrenesible
that the DGIT(E) would construe Hamdards application or accumulation of
funds towards its activities, which constitute a part of its objects, as a
violation of any of the statutory conditions imposed under Section 10 or
Section 11 or those imposed by the order dated 28.12.2007.

81.     In light of the above, this Court holds that the decision in Abul Kalam
Azad Islamic Awakening (supra), where it was held the application of
income derived from investment in commercial property to be the
determining factor, is squarely applicable. Here, too, Hamdard, in
accordance with its Trust Deed, has been applying and accumulating its
income from business activities for charitable purposes. Hamdard has rightly
placed reliance on this Courts decision in DIT v. Eternal Science of Mans
Society, (2007) 290 ITR 535, where the Court allowed acquisition of
moveable and immoveable property if it achieved the objects of a charitable
trust. Therefore, this Court holds that Hamdard did not fail to apply or
accumulate its income/surplus towards its objects.

Whether Hamdard accumulated its income in excess of five years?

82.     The DGIT(E) in his impugned order held that Hamdard accumulated
its income beyond five years in respect of accumulations made upto AY
2005-06. It also held that Hamdard had admitted a sum of ` 17.21 crores as
amount deemed to be income as per Section 11(3) for AY 2010-11, which
was not offered to tax in the return filed for the said assessment year.

83.     This Court finds that the DGIT(E) has misintepreted the provision




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13              Page 51
concerning accumulation of income, third proviso to Section 10(23C) (a),
which forms condition (a) in the order granting exemption under Section
10(23C)(iv) dated 28.12.2007. That provision mandates that income
accumulated in excess of 15% of the total income should be utilized within
five years of the period of accumulation. It does not bar all forms of
accumulation. The DGIT(E) has nowhere concluded that Hamdard
accumulated in excess of 15% of the income, much less concluding that any
amount in excess of 15% accumulated by Hamdard was not utilised within a
period of five years of its accumulation. Further, Revenues contention that
Hamdard had admitted a certain amount to be deemed income within the
meaning of Section 11(3) of the Act does not conclusively determine the
issue. It is settled that estoppel does not apply under the Act and the assessee
can resile from an incorrect position it had adopted earlier (see CIT v. Bharat
General Reinsurance, 81 ITR 303).



Did Hamdard invest its funds in violation of condition (b) stipulated in the
order dated 21.08.2013?



84.     Condition (b) of the order granting exemption, sourced from sub-
clause (b) of third proviso to Section 10(23C), requires Hamdard to invest or
deposit its funds in accordance with the provisions of Section 11(5). The
DGIT(E) held that Hamdard had failed to comply with this condition, as it
has invested its funds in business and not in the modes specified in Section
11(5), beyond 31.03.1993, which is the grace period provided in the 4th




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13            Page 52
proviso to Section 10(23C) for exemption from the applicability of the 3 rd
proviso. Hamdard contended that no query was raised by the DGIT(E) on
this issue and therefore, it could not present its case. Were Hamdard granted
an opportunity, it would have demonstrated that it has fixed deposits of `
419.56 crores, which constitutes investment in the modes specified in
Section 11(5). In response to this contention, the Revenue submits that this
issue was raised in the DGIT(E)s order dated 22.02.2012, which had been
quashed by this Court in its order dated 11.04.2012. In other words, since all
issues raised in the order dated 22.02.2012 were remanded by the Court for
fresh determination, specific show cause for each individual violation/query
was not required. Further, the Revenue submits that this was raised during
the hearings, and Hamdard also made written submissions on the same on
21.05.2013. Since Hamdard has admittedly made investments in ongoing
business activities, condition (b) of the order of exemption read with Section
11(5) of the Act has not been complied with.

85.     A perusal of the order dated 22.02.2012 indicates that the Revenue
had alleged violation of third proviso to Section 10(23C) of the Act.
However, there was no finding on the same. Further, the written submissions
filed by Hamdard, including the submissions dated 21.05.2013 relied upon
by the Revenue, also do not deal with such allegation. Given these facts, this
Court does not have any basis to accept the Revenues contention that this
issue was the subject matter of hearing before the DGIT(E). Therefore, the
Revenues submission that Hamdard was aware of allegations of violation of
this condition does not have any merit. In such circumstances, Revenue
cannot rely upon this purported non-compliance for withdrawal of




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 53
exemption under Section 10(23C)(iv).

86.     Hamdard has contended that its accumulated surplus is invested in
fixed deposits with nationalized banks and therefore, there is no violation of
condition (b) imposed in the order of exemption dated 28.12.2007. However,
in the absence of this fact having been examined by the DGIT(E), this Court
cannot determine the veracity of the same at first instance.



Did Hamdard violate condition (c) of the order of exemption



87.     The DGIT(E)s determination that Hamdard violated condition (c) of
the order of exemption is premised on its finding that Section 11(4A) of the
Act applies to an entity in the nature of Hamdard. It is apparent that
condition (c) has been sourced from the seventh proviso to Section 10(23C),
and is identical to Section 11(4A) of the Act (insofar as its applicability to
Hamdard is concerned). The three provisions are quoted below for ease of
reference:

Condition (c)

      "c) this order will not apply in relation to any income being
      profits and gains of business unless the business is incidental to
      the attainment of the objectives of the assessee and separate
      books of accounts are maintained in respect of such business"


Seventh proviso to Section 10(23C) reads as follows:




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13              Page 54
      "Provided also that nothing contained in sub-clause (iv) or sub-
      clause (v) or sub-clause (vi) or sub-clause (via) shall apply in
      relation to any income of the fund or trust or institution or any
      university or other educational institution or any hospital or
      other medical institution, being profits and gains of business,
      unless the business is incidental to the attainment of its objectives
      and separate books of account are maintained by it in respect of
      such business"
Section 11(4A) reads as follows:

      "Sub-section (1) or sub-section (2) or sub-section (3) or sub-
      section (3A) shall not apply in relation to any income of a trust
      or an institution, being profits and gains of business, unless the
      business is incidental to the attainment of the objectives of the
      trust or, as the case may be, institution, and separate books of
      account are maintained by such trust or institution in respect of
      such business."


88.     Given the similarity in the phraseology of Section 11(4A) and the
seventh proviso to Section 10(23C)/condition (c), the DGIT(E)s approach
of applying the principles of interpretation of the former provision for
interpreting the applicability of the latter cannot be faulted with. Therefore,
if Section 11(4A) were held to be applicable to Hamdard, so would
condition (c)/seventh proviso, and vice-versa. As a corollary, if the nature of
Hamdards activities were such that no compliance with Section 11(4A) was
required, the issue of violation of Section 11(4A) or condition (c) or the
seventh proviso to Section 10(23C)(iv) would not arise.

89.     The DGIT(E) concluded that Section 11(4A) is applicable to
Hamdard, even though it is admittedly a business held in trust. In so holding,
the DGIT(E) relied on the Supreme Courts decision in ACIT v. Thanthi




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                 Page 55
Trust (2001) 247 ITR 785, and ruled that the Court therein had rejected the
distinction between a business held in trust and a business carried on by the
trust insofar as the applicability of Section 11(4A) was concerned. Hamdard
relied upon this Courts decision in CIT v. Mehta Charitable Prajnalay
Trust, (2013) 357 ITR 560, where it was held that Section 11(4A) of the Act
would not apply to a business held under trust. However, the DGIT(E)
refused to follow Mehta Charitable Prajnalay Trust (supra) since it was a
case of a trust doing business, as opposed to business held in trust; since
both Thanthi Trust (supra) and the instant case involve the latter, the
decision in Thanthi Trust (supra) was held to be applicable.

90.     This Court in Mehta Charitable Prajnalay Trust (supra) categorically
held that Section 11(4A) of the Act is not applicable to a business held under
trust, for such a case is governed by Section 11(4), to the exclusion of
Section 11(4A). The issue that arises is whether this ruling is contrary to the
Supreme Courts decision in Thanthi Trust (supra), and consequently,
whether the DGIT(E) could have refused to follow this Courts decision. For
this purpose, it would be necessary to closely examine the two decisions.

91.     The Supreme Court in Thanthi Trust (supra) was concerned with a
trust engaged in newspaper publishing activity. The object of the trust was to
educate the Tamil public and diseminate news. The Court had to determine
whether the trust was entitled to exemption under Section 11 for three
different periods: (a) AY 1979-80 to AY 1983-84, in light of Section
13(1)(bb) of the Act; (b) AY 1984-84 to AY 1991-92, in light of Section
11(4A) of the Act as originally enacted; (c) AY 1992-93 onwards in light of
amended Section 11(4A) (which continues to apply till date). The distinction




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 56
sought to be drawn between a business held under trust and a trust carrying
on business was rejected by the Court only insofar as Section 13(1)(bb) was
concerned. This would be evident from the following discussion:

      "13. Dr. Pal, learned counsel for the Trust, drew a distinction
      between a business that was held under Trust and a business that
      was carried on by a Trust. He submitted that there was a
      difference between income derived from a business that was a
      property or part of the corpus of a Public Charitable Trust and
      income derived from a business which was carried on by such a
      Trust but which was not held under Trust. In other words, there
      was a legal obligation to use the income for the public charitable
      purpose of the Trust in the first case and not in the latter...
      XXX                                XXX                                XXX

      15. A Public Charitable Trust may hold a business as part of its
      corpus. It may carry on a business which it does not hold as a
      part of its corpus. But it seems to us that the distinction has no
      consequence insofar as section 13(1)(bb) is concerned. Section
      13(1)(bb) provides, so far as is relevant to this case, that the
      provisions of section 11 shall not operate so as to include in the
      total income of the previous year of a Public Charitable Trust for
      the relief of the poor, education or medical relief which carries
      on any business, any income derived from such business unless
      the business is carried on in the course of the actual carrying out
      of a primary purpose of the Trust. Section 13(1)(bb), therefore,
      will apply to a Public Charitable Trust for the relief of the poor,
      education or medical relief that carries on a business, regardless
      of whether or not that business is held by the Trust in Trust, that
      is, as a part of its corpus. Even a business that is held by such a
      Trust as a part of its corpus is carried on by the Trust and,
      therefore, section 13(1)(bb) will apply to such Trust."
                                                                (emphasis supplied)


Although a similar contention was raised by the assessees counsel in the




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context of Section 11(4A) (as it originally stood), the Court did not give any
unequivocal finding on the same. This is evident from the following
excerpts:

      "21. Learned counsel for the Trust laid emphasis on the fact that
      in the Bill to introduce sub-section (4A) into section 11, sub-
      section (4) thereof had been proposed to be deleted, but it had
      been retained when the Bill was passed. A business held under
      Trust had, therefore, not been intended to be excluded from the
      benefit of section 11 by reason of the enactment of sub-section
      (4A). This was also evident from the fact that sub-section (4A)
      did not mention in its non obstante clause sub-section (4).
      22. Sub-section (4) of section 11 remains on the statute book, and
      it defines property held under Trust for the purposes of that
      section to include a business so held. It then states how such
      income is to be determined. In other words, if such income is not
      to be included in the income of the Trust, its quantum is to be
      determined in the manner set out in sub-section (4).
      23. Sub-section (1)(a) of section 11 says that income derived
      from property held under Trust only for charitable or religious
      purposes, to the extent it is used in the manner indicated therein,
      shall not be included in the total income of the previous year of
      the Trust. Sub-section (4) defines the words "property held under
      Trust" for the purposes of section 11 to include a business held
      under Trust. Sub-section (4A) restricts the benefit under section
      11 so that it is not available for income derived from business
      unless (a) the business is carried on by a Trust only for public
      religious purposes and it is of printing and publishing books or
      any other notified kind or (b) it is carried on by an institution
      wholly for charitable purposes and the work in connection with
      the business is mainly carried on by the beneficiaries of the
      institution, provided, in both cases, that separate books of
      account are maintained by the Trust or the institution in respect
      of such business. Trusts and institutions are separately dealt with
      in the Act (Section 11 itself and sections 12, 12A and 13, for
      example). The expressions refer to entities differently constituted.




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                Page 58
      It is thus clear that the newspaper business that is carried on by
      the Trust does not fall within sub-section (4A). The Trust is not
      only for public religious purposes so it does not fall within clause
      (a). It is a Trust not an institution, so it does not fall within clause
      (b). It must, therefore, be held that for the assessment years in
      question the Trust was not entitled to the exemption contained in
      section 11 in respect of the income of its newspaper.


92.     There is nothing to indicate that the Court rejected the distinction
between a business held under trust and a trust carrying on business for the
purposes of Section 11(4A). On the other hand, this Court in Mehta
Charitable Prajnalay Trust (supra) was categorical in its ruling that Section
11(4A) of the Act does not apply to a business held under trust. The Court
arrived at the said conclusion based on an elaborate discussion of the
historical background of Section 11(4A), and the interpretation given by the
Supreme Court to an analogous provision (Section 4(3)(ia)) under the 1922
Act. The Court held:

      "15. The question whether sub-section (4A) would apply even to
      a case where a business was held under trust was answered in
      the negative in several authoritative pronouncements starting
      from the judgment of the Lahore High Court in Gadodia
      Swadeshi Stores v. Commissioner of Income Tax, Punjab, (1944)
      12 ITR 385. The general provision under Section 4(3)(i) of the
      1922 Act exempted income derived from property held under
      trust from taxation. However, section 4(3)(ia) provided that any
      income derived from a business carried on behalf of a religious
      or charitable trust would be entitled to exemption only if the
      business was carried on in the course of carrying out of a
      primary purpose of the trust or the work in connection with the
      business is mainly carried on by the beneficiaries of the trust.
      The contention of the revenue in that case was that since clause
      (ia) was a special provision dealing with the topic of exemption




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                    Page 59
      in respect of a business carried on for and on behalf of a trust,
      any claim for exemption as regards the profits of such business
      can be made only under that provision, and when the conditions
      laid down therein are not satisfied, it is not open to the assessee
      to fall back upon the general provision contained in Section
      4(3)(i) and claim exemption thereunder on the ground that
      business is property. The Lahore High Court held that the fact
      that the business carried on behalf of the trust failed to satisfy the
      two conditions laid down in Section 4(3)(ia) was no reason why
      it should not be exempted from taxation if it fell within Section
      4(3)(i) and the main ground of the decision is that the two
      categories mentioned in the two clauses having been enacted as
      two different clauses, it must be taken that the one did not
      exclude the other. This judgment of the Lahore High Court was
      approvingly referred to by the Supreme Court in J.K. Trust v.
      Commissioner of Income-tax, (1957) 32 ITR 535. The judgment
      of the Supreme Court in J.K. Trust v. CIT (supra) was followed
      by the Supreme Court (a Bench of equal strength) in
      Commissioner of Income-tax v. Krishna Warriar (P.), (1964) 53
      ITR 176. By that time clause (ia) of Section 4(3) had been
      enacted as a proviso to clause (i) of Section 4(3), by an amending
      Act of 1953. After referring to the judgment of the Lahore High
      Court (supra) and rejecting the argument of the revenue that a
      proviso in a statute be always read as limitation upon the effect
      of the main enactment Subbarao, J. (as he then was) observed as
      under:-
      ........But it is not an inflexible rule of construction that a proviso
      in a statute should always be read as a limitation upon the effect
      of the main enactment. Generally the natural presumption is that
      but for the proviso the enacting part of the section would have
      included the subject-matter of the proviso; but the clear language
      of the substantive provision as well as the proviso may establish
      that the proviso is not a qualifying clause of the main provision,
      but is in itself a substantive provision. In the words of Maxwell,
      "the true principle is that the sound view of the enacting clause,
      the saving clause and the proviso taken and construed together is
      to prevail". So construed we find no difficulty, as we will indicate
      later in our judgment, in holding that the said clause (b) of the




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      proviso deals with a case of business which is not vested in trust
      for religious or charitable purposes within the meaning of the
      substantive clause of section 4(3)(i).
      16. Thus, if a property is held under trust, and such property is a
      business, the case would fall under Section 11(4) and not under
      Section 11(4A) of the Act. Section 11(4A) of the Act, would apply
      only to a case where the business is not held under trust.
      17. In view of the above settled legal position, we are unable to
      accept the contention urged on behalf of the revenue before us
      that the provisions of Section 11(4A) are sweeping and would
      also take in a case of business held under trust."
93.     This Court rendered a clear finding in the above terms regarding the
exclusion of a business held under trust from the scope of Section 11(4A),
that too upon an overall consideration of the decision in Thanthi Trust. In
such circumstances, we hold that the DGIT(E)s refusal to follow Mehta
Charitable Prajnalay Trust (supra) is erroneous. The distinction drawn by
the DGIT(E) on facts, viz. that in Mehta Charitable Prajnalay Trust (supra)
the business was not held in trust, which is admittedly the case herein, is
immaterial, given that the Courts ruling therein was on the precise issue
which fell for determination before the DGIT(E) in the instant case.
Therefore, Section 11(4A), and consequently, condition (c) and the seventh
proviso to Section 10(23C) are not applicable in Hamdards case.

94.     Given the above finding, Hamdards failure to maintain separate
books of accounts is not fatal to its case, since such an obligation would
have existed only in the event of applicability of condition (c). This Courts
ruling in PHD Chamber of Commerce & Industry (supra) also supports this
conclusion. In that case, the Court held that the services performed by a
trade, professional or similar association, such as a chamber of commerce




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 61
and industry, could not be held to be in pursuit of a business or trade with a
profit motive and would not qualify as a business activity. Thus, Section
11(4A) of the Act would be inapplicable to such associations and they are
not required to maintain separate books of accounts to avail exemption from
tax. This Court, upon an examination of Hamdards objects, has already
concluded that it is not carrying on a business of the nature envisaged in
condition (c) of the order of exemption/seventh proviso to Section 10(23C).
Consequently, it is not required to maintain separate books of accounts. The
banality of adopting this ground for withdrawal of exemption by the
DGIT(E) is best explained by the following observations of this Court in
GS1 (supra):

      "The statement and submission of the respondents that the
      petitioner was not maintaining separate books of account for
      commercial         activity      and,        therefore,      denied
      registration/notification, has to be rejected as fallacious and
      devoid of any merit. Similar allegation is often made in cases of
      charitable organization/association without taking into account
      the activity undertaken by the assessee and the primary objective
      and purpose i.e. the activity and charity activity are one and the
      same... The 'business' activity undertaken by the petitioner is
      integral to the charity/charitable activities. As noted above, the
      petitioner is not carrying on any independent, separate or
      incidental activity, which can be classified as business to feed
      and promote charitable activities. The act or activity of the
      petitioner being one, thus a single set of books of account is
      maintained, as what is treated and regarded by the Revenue as
      the 'business' is nothing but intrinsically connected with acts for
      attainment of the objects and goals of the petitioner. We fail to
      understand when the petitioner is maintaining the books of
      accounts with regard to their receipts/income as well as the
      expenses incurred for their entire activity then how it can be held
      that separate books of accounts have not been maintained for




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 62
      'business' activities. The "business" activities are intrinsically
      woven into and part of the charitable activity undertaken. The
      "business" activity is not feeding charitable activities. In any
      case, when we hold that the petitioner is not carrying on any
      business, trade or commerce, question of requirement of separate
      books of accounts for the business, trade or commerce is
      redundant."
                                                                (emphasis supplied)


Did Hamdard cease to be a charitable institution with effect from
01.04.2009?

95.     The Finance Act 2008 altered the scope of definition of ,,charitable
purpose with effect from 01.04.2009 by inserting the first proviso to
Section 2(15) of the Act. The said proviso reads as follows:

      "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."
96.     Facially, this proviso sought to do away with the test of application of
surplus of charitable organisations generated from business activities laid
down in Surat Art Silk (supra). Thus, an entity whose charitable purpose
falls within the residual category would not be said to be having a
,,charitable purpose within the meaning of Section 2(15) if it, inter alia,
carried on an activity in the nature of trade, commerce or business for a cess
or fee or any other consideration. The fact that the said entitys surplus
generated from such activity was being applied for charitable purposes




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                         Page 63
became immaterial. A second proviso to Section 2(15) was inserted by
Finance Act, 2010 with retrospective effect from 01.04.2009, which
excludes the applicability of the first proviso where the total receipts of the
entity are less than the limit prescribed therein. However, this is not relevant
for the purposes of this case.

97.     The DGIT(E) held that the first proviso to Section 2(15) squarely
applies in Hamdards case, as Hamdards objects fall within the residual
category and its activities are in the nature of business. However, in light of
this Courts determination above, viz. Hamdards cha ritable activities fall
within the heads of ,,education, ,,medical relief and ,,relief of the poor, the
first proviso is not applicable. The DGIT(E) in his impugned order accepts
that the said proviso would not be applicable to entities doing ,,core charity
­ i.e. those falling in the non-residual category of Section 2(15). Indeed, the
DGIT(E) could not have held the contrary in light of the umambiguous
phrasing of the first proviso and this Courts decision dated 11.04.2013 in
Hamdards case in W.P.(C) 3598 of 2012, whereby it quashed the order
dated 22.02.2012. On the applicability of the first proviso to Section 2(15),
the Court noted:

      "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)."




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13              Page 64
98.     This Court holds that arguendo if Hamdards objects were to be
construed to be falling within the residual category of ,,charitable purpose
with the result of attracting the applicability of the first proviso, it would not
cease to be a charitable organisation with effect from 01.04.2009. The
interpretation of first proviso put forward by the DGIT(E) would exclude all
entities advancing an object of general public utility from the definition of
,,charitable purpose if such entities carry on any activity of trade, commerce
or business, irrespective of the nature of application of surplus generated
from such activity. This unduly broad interpretation has been rejected by this
Court in Institute of Chartered Accountants of India (supra), where the
Court held that while determining whether an assessee is carrying on
business, the dominant purpose test laid down in Surat Art Silk (supra),
albeit in a different context, would continue to apply. The Court noted:

      "The expressions ,,trade, ,,commerce" and ,,business as
      occurring in the first proviso to section 2(15) of the Act must be
      read in the context of the intent and purport of section 2(15) of
      the Act and cannot be interpreted to mean any activity which is
      carried on in an organised manner. The purpose and the
      dominant object for which an institution carries on its activities
      is material to determine whether the same is business or not. The
      purport of the first proviso to section 2(15) of the Act is not to
      exclude entities which are essentially for charitable purpose but
      are conducting some activities for a consideration or a fee. The
      object of introducing the first proviso is to exclude organizations
      which are carrying on regular business from the scope of
      ,,charitable purpose. The purpose of introducing the proviso to
      Section 2(15) of the Act can be understood from the Budget
      Speech of the Finance Minister while introducing the Finance
      Bill 2008. The relevant extract to the Speech is as under:-




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 65
      '............. "Charitable purpose" includes relief of the poor,
      education, medical relief and any other object of general public
      utility. These activities are tax exempt, as they should be.
      However, some entities carrying on regular trade, commerce or
      business or providing services in relation to any trade, commerce
      or business and earning incomes have sought to claim that their
      purposes would also fall under "charitable purpose". Obviously,
      this was not the intention of Parliament and, hence, I propose to
      amend the law to exclude the aforesaid cases. Genuine charitable
      organizations will not in any way be affected.'
      The expressions "business", "trade" or "commerce" as used in
      the first proviso must, thus, be interpreted restrictively and where
      the dominant object of an organisation is charitable any
      incidental activity for furtherance of the object would not fall
      within the expressions " business", "trade" or "commerce"."
      XXX                                XXX                       XXX
      70. Although in [Surat Art Silk] the statutory provisions being
      considered by the Supreme Court were different and the
      utilisation of income earned is, now, not a relevant consideration
      in view of the express words of the first proviso to
      section 2(15) of the Act, nonetheless the test of dominant object
      of an entity would be relevant to determine whether the entity is
      carrying on business or not."
99.     More recently, this Court in India Trade Promotion Organization v.
Director General of Income-tax (Exemptions), [2015] 371 ITR 333, while
adjudicating upon the constitutional validity of the first proviso to Section
2(15), read down the said proviso when applied in the context of Section
10(23C)(iv) and reiterated the dominant purpose test discussed in Institute of
Chartered Accountants of India (supra). The objects of the assessee therein
fell under the residual category of Section 2(15), and the Revenue withdrew
the exemption granted to the assessee under Section 10(23C)(iv) with effect
from 01.04.2009 in light of the insertion of the first proviso. The Court held







W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                Page 66
that the assessees activities could not be said to be within the nature of a
business, for:

      "...merely because the petitioner derives rental income, income
      out of sale of tickets and sale of publications or income out of
      leasing out food and beverages outlets in the exhibition grounds,
      does not, in any way, affect the nature of the petitioner as a
      charitable institution if it otherwise qualifies for such a
      character."
Affirming the dominant purpose test applied in Institute of Chartered
Accountants of India (supra) in the context of first proviso to Section 2(15),
the Court noted:

      "From the said decision, it is apparent that merely because a fee
      or some other consideration is collected or received by an
      institution, it would not lose its character of having been
      established for a charitable purpose. It is also important to note
      that we must examine as to what is the dominant activity of the
      institution in question. If the dominant activity of the institution
      was not business, trade or commerce, then any such incidental or
      ancillary activity would also not fall within the categories of
      trade, commerce or business..."
100. Finally, the Court rejected the broad ambit of first proviso sought to
be urged by the Revenue, specifically in the context of Section 10(23C)(iv),
and held as follows:

      "58. In conclusion, we may say that the expression "charitable
      purpose", as defined in Section 2(15) cannot be construed
      literally and in absolute terms. It has to take colour and be
      considered in the context of Section 10(23C)(iv) of the said Act. It
      is also clear that if the literal interpretation is given to the
      proviso to Section 2(15) of the said Act, then the proviso would
      be at risk of running fowl of the principle of equality enshrined in
      Article 14 of the Constitution of India. In order to save the




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                Page 67
      Constitutional validity of the proviso, the same would have to be
      read down and interpreted in the context of Section 10(23C)(iv)
      because, in our view, the context requires such an interpretation.
      The correct interpretation of the proviso to Section 2(15) of the
      said Act would be that it carves out an exception from the
      charitable purpose of advancement of any other object of general
      public utility and that exception is limited to activities 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. In both the
      activities, in the nature of trade, commerce or business or the
      activity of rendering any service in relation to any trade,
      commerce or business, the dominant and the prime objective has
      to be seen. If the dominant and prime objective of the institution,
      which claims to have been established for charitable purposes, is
      profit making, whether its activities are directly in the nature of
      trade, commerce or business or indirectly in the rendering of any
      service in relation to any trade, commerce or business, then it
      would not be entitled to claim its object to be a 'charitable
      purpose'. On the flip side, where an institution is not driven
      primarily by a desire or motive to earn profits, but to do charity
      through the advancement of an object of general public utility, it
      cannot but be regarded as an institution established for
      charitable purposes."
101. This Court has already held above that Hamdards dominan t purpose
is charitable in nature, and it is not guided by the motive of profit-making.
Therefore, the first proviso to Section 2(15) does not alter the charitable
status of the organisation. This outcome is also in consonance with the
rationale for the insertion of first proviso to Section 2(15), which was noted
by this Court in M/s. GS1 India v. DGIT, [2014] 360 ITR 138, citing a
CBDT Circular of 2008, as follows:

      "It is, evident from the Circular no. 11 of 2008 that the new
      proviso of Section 2(15) of the Act is applicable to the assessees
      who are engaged in commercial activities, i.e. carrying on




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 68
      business, trade or commerce, in the garb of ,,public utility to
      avoid tax liability as it was noticed that object of ,,general public
      utility was sometimes only a mask or device to hide the true
      purpose which was ,,trade, commerce or business."
102. It has thus been established that Hamdard is by no means a mask or a
device to conceal any income generated from any of its activities.

W.P.(C) 3599 of 2012

103. The ADIT(E) re-opened assessment proceedings for Hamdard for AY
2005-06 through its notice dated 27.03.2012 issued under Section 148 of the
Act. The following reasons for re-opening the assessment were provided by
the ADIT(E) in its letter dated 16.04.2012:

                a.      Hamdard was carrying out activities which were
                commercial         and     business      in     nature.   Furthermore,   the
                manufacture and sale of medical products did not form a part of
                Hamdards objects as per its Trust Deed;

                b.      Hamdard had made huge surpluses for the assessment
                year in question, i.e. 2005-06, and had also made accumulations
                over the years for expansion of its manufacturing units and
                allied objects. Though Hamdards objects were charitable, its
                activities were not;

                c.      Hamdard had violated Section 11(4A) of the Act by not
                maintaining separate books of accounts for incidental business
                activities;

                d.      Hamdard had not utilised the assessments made during




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                        Page 69
                the concerned assessment year in line with its objects;

                e.      Hamdard was giving donations to HNF, which was not
                for furtherance of its business activities;

                f.      DGIT(E) had withdrawn the approval granted under
                Section 10(23C)(iv) of the Act with effect from AY 2004-05.

104. Hamdards preliminary objections dated 14.05.2012 against the re-
opening of assessment were dismissed by the ADIT(E) on 25.05.2012. The
said order provided the following reasons for Hamdards prelminary
objections against the reopening of assessment for AY 2005-06:

      "The Notice u/s 148/147 has been issued to you in case of A.Y.
      2005-06 based on the reasons recorded before issuance of such
      notice and upon cancellation of Sec. 10(23C)(iv) Registration by
      Ld. DGIT(E). The facts brought in your return for A.Y. 2005-06
      have not been disclosed all the facts properly (sic) which could
      lead to assessment. Even, when an Organization has lost its
      charitable status retrospectively, claim of exemption by that
      organization tantamount to furnishing of false particulars and
      failure on part of assessee to disclose fully and truly all material
      facts necessary for assessment.

      XXX                                        XXX                XXX

      The AO in this case has not changed its opinion but based on the
      exemption status of the assessee and changed facts &
      circumstances of the case has re-opened it u/s 147/148 of the I.T.
      Act. When assessee's exemption has been withdrawn by a higher
      authority, AO has to give effect to that Order as assessee now
      falls under the non-exempt category. The various case laws
      quoted by the assessee can be distinguished from the facts stated
      above."




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                Page 70
105. Hamdard contends that the proviso to Section 147 is squarely
applicable herein, as the notice of reopening has been issued after the expiry
of four years from the end of the relevant assessment year (AY 2005-06).
Further, it is contended that the reopening of assessment is based on a mere
change of opinion, as the AOs predecessor had examined the same set of
facts.

106. It is not disputed that an order of assessment under Section 143(3) of
the Act was passed for AY 2005-06 on 21.03.2007 and the assessment
proceedings for AY 2005-06 have been re-opened after the expiry of four
years prescribed in the first proviso to Section 147. According to the first
proviso, re-opening of assessment beyond this stipulated time-period is
permissible only if: a) the assessee has failed to file a return under Section
139 or in response to a notice issued under sub-section (1) of section 142 or
section 148; or b) to disclose fully and truly all material facts necessary for
assessment. The former does not concern this case. As regards the latter, the
ADIT(E) in the order dated 25.05.2012 dismissed Hamdards preliminary
objections to reopening of assessment on account of its failure to disclose all
material facts, besides the withdrawal of exemption under Section
10(23C)(iv) of the Act. The order dated 16.04.2012, while noting that
Hamdards surplus to the tune of ` 25,23,36,930/- may have escaped
assessment, does not state that the said conclusion was being arrived at
based on new facts discovered by the ADIT(E). Indeed, the letters dated
01.02.2007, 20.02.2007 and 12.03.2007 placed on record by Hamdard
demonstrate that all information sought by the ADIT(E) in the letter dated
17.01.2007 was provided by it, specifically details regarding the surplus for




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13           Page 71
past 10 years, along with the audited balance sheet and profit and loss
account for FYs 2002-03 and 2003-04. In the order dated 25.05.2012,
besides a general reference to Hamdards alleged failure to disclose all
material facts, there is no reference to the particular facts which have not
been disclosed. In such circumstances, this Court holds that the pre-
condition for reopening of assessment after the expiry of four years has not
been met in this case.

107. Even on the merits of the reasons provided by the ADIT(E) for the
reopening of assessment proceedings, contained in the orders dated
16.04.2012 and 25.05.2012, the Revenues case does not succeed. It is
evident from these orders that the reopening of assessment was premised on
the withdrawal of Hamdards exemption under Section 10(23C)(iv) of the
Act by the CIT(A)s order dated 22.02.2012. Indeed, owing to withdrawal of
exemption the ADIT(E) refused to rely on the precedent cited by Hamdard.
The order dated 22.02.2012 withdrawing the exemption has been set aside
by this Court on 11.04.2012 in W.P.(C) 3598/2012. Even the subsequent
order dated 28.07.2013, withdrawing the exemption under Section
10(23C)(iv), has been set aside in W.P.(C) 5711 of 2013 above. The reasons
for reopening of assessment stated in the orders dated 16.04.2012 and
25.05.2012 are identical to those contained in the order dated 28.07.2013.
Therefore, in light of this Courts order in W.P.(C) 5711 of 2013, the basis
for re-opening of assessment proceedings for AY 2005-06 does not survive.
Consequently, the notice of reopening dated 27.03.2012 and orders dated
16.04.2012 and 25.05.2012 passed by the ADIT(E) are hereby quashed.

WP (C) Nos. 5715, 5716, 5718 and 5729 of 2013




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13         Page 72
108. The CIT(A) through separate but identical orders dated 10.07.2013 for
AY 2006-07 to AY 2009-10 dismissed Hamdards appeal against the AOs
orders denying exemption under Section 11 of the Act. Hamdard contends
that the CIT(A) passed the said orders dated 10.07.2013 without providing
an opportunity of oral hearing to Hamdard. It is contended that the CIT(A)
has passed the order without taking into consideration its submissions. The
Revenue, on the other hand, defends the impugned orders on the ground that
the CIT(A)s predecessor had given several opportunities of hearing to
Hamdard, and that the case was heard on 08.07.2013 by the CIT(A) who
passed the impugned orders.

109. This Court holds that the second Respondent, acting as the CIT(A),
has passed the impugned orders dated 10.07.2013 in violation of the
principles of the natural justice, without having given Hamdard an
opportunity of presenting its case and having failed to consider Hamdards
written submissions in the impugned orders. The Supreme Court in G.
Nageswara Rao (supra) held in unequivocal terms and dismissed the notion
that an authority that decides a dispute may be different from the one that
heard the same. The material on record establishes that the CIT(A), the
second Respondent in the four writ petitions herein, assumed charge on
28.06.2013 and the submissions by Hamdard were made prior to the said
date before the second Respondents predecessor. There is no dispute
regarding the fact that second Respondent did not hear the matter on
28.06.2013. As regards the scheduled hearing on 08.07.2013, Hamdard
contends that no such hearing took place on the said date whereas the second
Respondent contends that Hamdards counsel ­ Mr. R.M. Mehta ­ made




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13         Page 73
submissions on that date. Hamdard has placed on record letters dated
19.07.2013 and 04.09.2013 wherein the second Respondent was urged to
clarify that Hamdards counsel did not appear before the second Respondent
on 08.07.2013. Further, a perusal of the impugned orders dated 10.07.2013
would indicate that the second Respondent has omitted to consider
Hamdards submissions filed before the second Respondents predecessor
on 04.03.2013 and 06.05.2013. Indeed, this Courts order dated 11.04.2012
in W.P.(C) 3598 of 2012, whereby it set aside the order of withdrawal of
Hamdards exemption under Section 10 (23C)(iv) dated 22.02.2012, does
not even find mention in the four impugned orders, notwithstanding that this
fact was highlighted by Hamdard in its written submissions dated
06.05.2013. The case law cited by Hamdard in its written submissions of the
said date also do not find any mention in the impugned orders. This Court
cannot go into the propriety of Hamdards submission that the second
Respondent got orders dated 28.06.2013 and 08.07.2013 signed by
Hamdards representative on a false pretext. However, the other facts
discussed above are sufficient to establish that the second Respondent
violated principles of natural justice in passing the impugned orders. Even
on merits, it is apparent that the ground for denial of exemption under
Section 11 is that Hamdard is not engaged in charitable activities within the
meaning of Section 2(15) of the Act. The CIT(A) held in this regard as
follows:

      "4.9 I have considered the order of the AO and the submissions of
      the assessee and I do not find any merit in the submissions of the
      assessee. There is no dispute and it is in fact admitted by the
      assessee that the assessee is engaged in business activities of
      manufacturing and sale of Hamdard medicines. The assessee




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13              Page 74
      itself is wholly and solely engaged in business activity and the
      assessee by itself is not engaged in any charitable activity except
      the donations made to HNF, which the assessee considers as a
      charitable organization. But it is seen that even the activities of
      HNF is not charitable as no free treatment or free medicines are
      distributed to the poor. The exemption u/s. 11 is available when
      the assessee is engaged in charitable activities, but in the present
      case it is an admitted fact that the assessee is engaged in
      business and is not directly involved in any charitable activity as
      provided u/s. 2(15). After considering all the facts and
      circumstances of the case, I am of the view that the assessee is
      not a charitable organization as provided u/s. 2(15) and as such
      assessee is eligible for exemption u/s. 11 and accordingly, the
      action of the AO in denying the exemption u/s.11 is confirmed."


110. The charitable status of Hamdard under Section 2(15) has been
affirmed in W.P.(C) 5711 of 2013 above. For this reason as well, the
impugned orders dated 10.07.2013 concerning AYs 2006-07 to 2009-10 are
set aside.

Conclusion

111. The DGIT(E)s order dated 21.08.2013 withdrawing Hamdards
exemption under Section 10(23C)(iv) with effect from AY 2004-05 of the
Act is hereby quashed. Hamdard is entitled to refund of any amount
collected by the Revenue pursuant to the order dated 21.08.2013 with
interest @ 6% per annum from the date such amount was paid was income-
tax. W.P.(C) 5711 of 2013 is disposed of in the said terms.

112. The ADIT(E)s notice of reopening of assessment for AY 2005-06
dated 27.03.2012 and orders dated 16.04.2012 and 25.05.2012 are hereby
quashed. W.P.(C) 3599 of 2012 is thus allowed.




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13                Page 75
113. The orders dated 10.07.2013 passed by the CIT(A) for AYs 2006-07
to 2009-10 denying exemption to Hamdard under Section 11 of the Act are
quashed. Resultantly, W.P.(C) 5715 of 2013, 5716 of 2013, 5718 of 2013
and 5729 of 2013 are allowed.

114. There shall be no order as to costs in the six writ petitions disposed
hereinabove.


                                                                S. RAVINDRA BHAT
                                                                          (JUDGE)


                                                                      R.K. GAUBA
                                                                         (JUDGE)
SEPTEMBER 18, 2015




W.P.(C) 3599/12, 5715/13, 5716/13, 5718/13, 5729/13 & 5711/13               Page 76

 
 
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