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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 11th April, 2013
+ WRIT PETITION (C) 3598/2012
HAMDARD LABORATORIES INDIA AND ANR ..... Petitioners
Through: Mr.Parag P. Tripathi, Sr. Adv. with
Mr.Simran Mehta, Mr.R.M.Mehta &
Ms.Yogita, Advs.
versus
DIRECTOR GENERAL OF INCOME TAX (EXEMPTION)
..... Respondent
Through: Mr.Sanjeev Rajpal, Sr. Standing Counsel.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SIDDHARTH MRIDUL
SANJIV KHANNA, J.
The petitioner No.1 Hamdard Laboratories (India), stated to be a trust,
has filed the present writ petition for issue of writ, order or direction in the
nature of certiorari for quashing order dated 22.02.2012 passed by respondent
No.1/Director General of Income Tax (Exemptions) under Section 10(23C)(iv)
of the Income Tax Act, 1961 (,,Act for short).
2. The petitioner Nos.1 claims that it is governed by a Constitution dated
28.8.1948 and were/are dedicated to business of manufacture of sale of unani
medicines for the purpose of charity. They rely upon clauses 44 to 47 of the
W.P.(C) 3598/2012 Page 1 of 14
deed dated 28.8.1948, which read as under:-
"44. The "Qaumi Income of the Wakf, shall be spent
only within the territories of the Union of India and only
on objects of public charity, which satisfy the following
two cumulative tests:
(a) They must be objects of public charity for the
benefit of all persons irrespective of caste, colour or
creed, such as relief of the poor, education, medical relief
and the advancement of any other object of general
public utility not involving the carrying on of any activity
of profit, and
(b) They must be consistent with the principles of
the true teachings of Islam. Provided, however, that in
spending the income on objects of public charity, priority
shall be given to the collective needs of the country or to
such needs as may benefit the largest number of persons
or their generations.
45. Priority may be given to the following:
(1) To establish and run an Institute for the
promotion of medical education and research with
emphasis on indigenous systems of medicine.
(2) To establish and successfully conduct a
Tibbia College in conformity with the recognized
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."
W.P.(C) 3598/2012 Page 2 of 14
3. The petitioner No.1 has stated that vide declaration of the founder Wakif
Mutawalli dated 10.10.1985, the original deed in respect of "khandani" or
family "income" was irrevocably abolished and no "khandani" income has ever
been distributed or paid.
4. It is an undisputed position that the petitioner No.1 was granted
registration under Section 10(23C)(iv) of the Act w.e.f. assessment year 1984-
1985. Even prior thereto, they have been treated and regarded as a charitable
institution under Section 2(15) of the Act and the applicable provisions. The
earlier dispute between the Income Tax Department and the petitioner No.1 on
the said aspect is referred to and examined below.
5. The petitioner No.1 filed an application for renewal of approval under
Section 10(23C)(iv) for the assessment year 2004-05 onwards vide application
in Form No.56 dated 31.03.2003. Queries were raised and several letters were
exchanged and written between the respondent and petitioner No.1. By order
dated 28.12.2007, the petitioner No.1 was granted renewal w.e.f. 2004-05. The
respondents, however, rely upon certain conditions stipulated in the said order
and submit that there was/is violation of the same.
6. By the impugned order dated 22.02.2012, the earlier order granting
renewal i.e. order dated 28.12.2007 has been rescinded. Accordingly, the
petitioner No.1 is not to be treated as an approved assessee under Section
W.P.(C) 3598/2012 Page 3 of 14
10(23C)(iv) of the Act w.e.f. assessment year 2004-05.
7. The impugned order dated 22.02.2012 has set out and given the following
reasons for recall/rescinding the earlier order dated 28.12.2007:-
(1) Petitioner No.1 was/is engaged in business and its primary and main
activities were/are manufacture and sale of unani and ayurvedic
medicines on commercial lines and not charity or charitable purposes.
(2) The petitioner No.1 is not engaged in any charitable activities set out
in Section 2(15) but donates a part of its surplus to Hamdard National
Foundation (,,HNA for short). This does not meet the requirements of
Section 2(15).
(3) The petitioner No.1 does not maintain proper books of accounts for
charitable activities and business activities and therefore, there is
violation of Clause (c) of the notification under Section 10(23C)(iv)
dated 28.12.2007 and Section 11(4A) of the Act.
8. The petitioner No.1 has impugned the said order/the aforesaid reasons on
the following grounds:-
(i) Section 2(15) does not prohibit a charitable institution from undertaking
business or commercial activities but the income generated or the surplus earned
should be used for charitable purpose. Business held under trust can fund and
provide finance for conducting and doing charity. [see Additional CIT Vs.
Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC)]
(ii) Amendment made to Section 2(15) of the Act w.e.f. assessment year
2009-10 is applicable only to the last limb i.e. when an assessee carries on
activities under the clause ,,advancement of any other object of public utility.
W.P.(C) 3598/2012 Page 4 of 14
The last limb is not applicable to petitioner No.1. The objects and purpose of
charity undertaken by the petitioner No.1 are relief to poor, education and
medical relief. It is accordingly submitted that the said amendment is not
applicable to petitioner No.1.
(iii) The impugned order dated 22.2.2012 does not specifically state or quote
that the petitioner No.1 was/is carrying on charitable activities under the
residuary head. The impugned order does not disturb the findings recorded in
the earlier appellate proceedings/orders that the charitable activities in the case
of petitioner No.1 relate to the first three heads i.e. relief to poor, education and
medical relief.
(iv) The impugned erroneously records that the Income Tax Department does
not accept the decisions of the Delhi High Court in Additional Commissioner
of Income Tax vs. Hamdard Dawakhana, (1986) 157 ITR 639 and
Commissioner of Income Tax vs. Hamdard Dawakhana, (2001) 249 ITR
601 to cancel/recall the earlier order.
(v) The assertion that the petitioner No.1 did not maintain separate books of
accounts of business and charitable activities should not be accepted as the
entire income or surplus or business was/is being used for charitable purpose
and in such cases Section 11(4) is applicable and Section 11(4A) is not
applicable. Reliance is placed on CIT vs. Mehta Charitable Prajnalay Trust,
(2013) 214 Taxman 88 (Delhi) wherein it has been held that Section 11(4A) is
W.P.(C) 3598/2012 Page 5 of 14
applicable where the business is not held under trust.
9. Section 2(15) of the Act defines ,,charitable purpose and at present reads
as under:-
"[15] "charitable purpose" includes relief of the poor,
education, medical relief, [preservation of environment
(including watersheds, forests and wildlife) and preservation of
monuments or places or objects of artistic or historic
interest,]and the advancement of any other object of general
public utility;
Provided that the advancement of any other object of
general public utility shall not be a charitable purpose, if it
involves the carrying on of any activity in the nature of trade,
commerce or business, or any activity of rendering any service
in relation to any trade, commerce or business, for a cess or fee
or any other consideration, irrespective of the nature of use or
application, or retention, of the income from such activity:]
[Provided further that the first proviso shall not apply if
the aggregate value of the receipts from the activities referred to
therein is ten lakh rupees or less in the previous year;]"
10. We may note here that the first proviso to sub Section was amended by
Finance (No.2) Act, 2009 with retrospective effect from 01.04.2009. The said
proviso is applicable in cases where an assessee claims that it is carrying on
charitable purpose covered by the residuary clause i.e. "advancement of any
other object of public utility". The proviso is not applicable in case an assessee
or institution claims that it is carrying on charitable purpose like relief to poor,
education, medical relief etc., i.e. purposes which have been specifically
enumerated and stated in the earlier part of Section 2(15).
11. We have gone through the impugned order dated 22.02.2012, but do not
W.P.(C) 3598/2012 Page 6 of 14
find any specific finding or statement in the said order that the charitable
activities or purposes in the case of the petitioner No.1 fall under the residuary
head and not under the enumerated heads mentioned in Section 2(15) of the Act.
The impugned order in this regard is completely silent On the said aspect, we
may record that the petitioner No.1 has filed before us number of orders passed
by CIT(Appeals) relating to assessment years 1965-66 onwards upto assessment
year 1994-95 and orders of the Income Tax Appellate Tribunal from 1966-67
upto 1976-77 in which findings have been recorded that the petitioner No.1 was
undertaking charitable activities covered under the clauses; relief to poor,
education and medical relief. It is, therefore, clear that the impugned order has
applied the first proviso to Section 2(15) of the Act without elucidating the
scope and ambit of the said proviso and whether it would be applicable. The
respondents have proceeded on assumption that charitable purpose undertaken
by the petitioner is covered by the residuary clause, without recording any such
specific finding.
12. Our attention has also been drawn to the observations made in the
impugned order with regard to earlier decisions of the High Court in the case
the assessee. The two decisions went in favour of the petitioner No.1. It is not
understandable on what basis the author of the impugned order can ignore or
disregard the said decisions by observing that; "with due respect I differ
W.P.(C) 3598/2012 Page 7 of 14
with the decision". The two decisions are binding precedents but can certainly
be distinguished on facts and in case there is any change in law in view of the
amendments or altered statutory provision. The decisions can also be
distinguished or observed as not applicable or good law, in case there is a
decision of the Supreme Court which takes a contrary view.
13. On a question whether or not the assessee must himself undertake
charitable activities, petitioner No.1 has pointed out observations in the
impugned order that the petitioner No.1 was running two state of the art
dispensaries in Delhi where free medical prescription was provided to the
patients; it has also been stated in the impugned order that petitioner No.1 was
maintaining two state of the art laboratories for R & D in Ghaziabad and
Manesar factories and was providing financial help to Hakims and Vaids by
paying monthly allowance to them.(Quantum of expenditure incurred or
application made is not stated in the writ petition). It is stated in the impugned
order that this financial help was being given to selected Hakims and Vaids of
repute. However, no details of Hakims and Vaids and their incomes have stated
or mentioned in the impugned order. On what basis did the author of the order
reach the conclusion that financial aid was being given to already well of
Hakims and Vaids is not indicated or averred to.
14. The petitioner No.1 has referred to decisions of this Court and other High
Courts in CIT vs. Sarladevi Sarabhai Trust, (1988) 172 ITR 698 (Guj.), CIT
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vs. Nirmala Bakubhai Foundation, (1997) 226 ITR 394 (Guj.), CIT vs.
Hindustan Charity Trust, (1983) 139 ITR 913 (Cal.), CIT vs. M. Ct.
Muthian Chettiar Family Trust & Ors., (2000) 245 ITR 400 (Mad.), CIT vs.
Trustees of the Jadi Trust, (1982) 133 ITR 393 (Bom.), CIT vs. Shri Ram
Memorial Foundation, (2004) 269 ITR 35 (Del.). It is submitted that these
decisions have accepted the view that application of income for charitable
purposes includes transfer of funds to a third person for the said purposes.
Decision in Inland Revenue Commissioner vs. Helen Slater Charitable
Trust Ltd., (1980) 83 WLR 157 has been referred to. It is accordingly
submitted that application of money for charitable purposes takes place when
the petitioner No.1 transfers his surplus or the entire income or substantial
portion thereof, i.e. 85% or more, to a third person who is also using the funds
for charitable purpose. This is also application of the money for charitable
purpose. It is good and valid application of money unless the transferor i.e. the
assessee know or ought to have know that the money will be mis-applied by the
transferor. At this stage, we record that this contention of the petitioner No.1
has not been dealt with or examined in the impugned order. We record that the
petitioner No.1 has relied upon a decision of the Delhi High Court in
Shri Ram Memorial Foundation, which is the jurisdictional of High Court.
The petitioner has in addition also referred to instruction No. 1132 dated
05.01.1978 issued by the CBDT which states that charitable trust will not lose
W.P.(C) 3598/2012 Page 9 of 14
exemption under the Act, if it passes a sum of money to another charitable trust
for utilization for charitable purpose . It is submitted that as per the Board this
constitutes shall be proper utilization of money by the donor for the charitable
purposes. It is pointed out to us that the petitioner No.1 has set up no less than
25 medical, educational, literary, scientific and cultural organizations, the All
India Unani Tibbi Conference, Institute of History of Medicine and Medical
Research, Indian Institute of Islamic Studies, Ghalib Academy, Rabea Girls
Public School, Hamdard Education Society, Majeedia Hospital, Jamia Hamdard
(University), Rufaida Nursing School, Hamdard Study Circle, Hamdard
Coaching Centre, Hamdard Primary School, Hamdard College of Pharmacy etc.
15. HNF, it is claimed, was set up by late founder Wakif Mutawalli on
12.5.1964 as a special purpose vehicle to implement charitable purposes which
are identical to the charitable purposes of the petitioner No.1. Our attention was
specifically drawn to the objects of HNF, a philanthropic society registered
under the Societies Registration Act, 1860 and the objects and functions
referered to in the Constitution of HNF. It is stated that HNF is registered under
Section 12A read with Section 12AA of the Act and throughout they have been
granted exemption. For assessment year 2007-08, the Assessing Officer had
denied exemption to HNF under Section 11 of the Act but the said decision was
reversed by the appellate authority vide decision dated 31.1.2012 i.e. before the
date of the present order dated 22.2.2012. The impugned order however, does
W.P.(C) 3598/2012 Page 10 of 14
refer to the order of the Assessment Officer but does not notice the appellate
order passed on 31.01.2012 reversing the findings of the Assessing Officer.
16. On the question of surplus, application of income and accumulation, our
attention was drawn to the chart mentioned in Paragraph 8.3 of the impugned
order. It is pointed out that the gross surplus is mentioned in the first column.
The second column refers to 15% of the general reserve and the last column
mentions the accumulative reserve. Petitioner No.1 submits that the amount
mentioned in last column accumulation is less than 15% of the general reserve
and therefore, the petitioner meets the prescribed parameters. This aspect has
been ignored in the impugned order by recording that the surplus has been given
to HNF or surplus/income has been passed on and given to HNF. The effect
thereof and whether objects/use of funds by HNF can be determinative and
relevant for deciding the applicable head u/s 2(15) in the case of the petitioner
No.1 is an aspect which requires examination/consideration.
17. On the question of books of accounts, we have already noticed the
contention of petitioner No.1 relying upon the decision of Delhi High Court in
Mehta Charitable Prajnalay Trust (supra).
18. Looking at the aforesaid situation, we allow the present writ petition and
issue the writ of certiorari quashing the impugned order dated 22.2.2012 passed
by the Director General of Income Tax (Exemptions). The Director General of
Income Tax (Exemptions) will pass a fresh order dealing with all the
W.P.(C) 3598/2012 Page 11 of 14
contentions and issues raised by the petitioner No.1 keeping in mind the case
law on the subject. The reason why we are remitting the matter is that we find
that there are several issues and questions, which have been partially adverted to
in the impugned order and we cannot in this writ petition form a firm view. We
have discussed the legal contentions raised and also referred to the legal
position on certain aspects but application of legal ratio is dependent upon the
facts. Difference in facts can materially affect the final outcome and the legal
position applicable; whether it be books of accounts, question of application of
income, quantum of surplus available or the activity undertaken by HNF. For
example whether activities of HNF can be treated as charitable activity of the
petitioner for the purpose head under Section 2(15) as claimed by the petitioner
No.1. We find ourselves handicapped and unable to give any firm/final opinion
on issues/contentions, which may have been touched but not elaborated in the
impugned order and/or examined without appreciating the correct legal position.
The petitioner No.1 has also disputed some factual assertions stated in the
impugned order. Fairness and justice demands that the matter should be
examined threadbare, first factually and then by applying the applicable legal
ratio. We refrain from elucidating and going into the greater details on these
aspects, least it causes prejudice to any side, in view of the remand order.
19. In order to curtail delay, it is directed that the petitioner No.1 through his
authorized representative will appear before the Director General (Exemptions)
W.P.(C) 3598/2012 Page 12 of 14
on 2nd May, 2013, when a date of hearing will be fixed.
20. By order dated 01.06.2012, it was directed that the assessment
proceedings can continue and even assessment orders can be passed but
demands will not be enforced by the Revenue without leave of the Court. The
said interim order was applicable to all assessment years except assessment year
2005-06.
21. In another writ petition W.P.(C) No.3599/2012 relating to AY 2005-06,
an interim order was passed on the same day that the assessment proceedings
can continue but no final assessment order can be passed.
22. The interim order in W.P.(C) 3598/2012 will continue for a period of
three months. We hope and expect that the respondent-Director General of
Income Tax (Exemptions) will be able to decide and dispose of the remand
expeditiously and within the said period. Similarly, it will be open to the
Commissioner of Income Tax (Appeals) to dispose of the appeals within the
said time. The assessee is expected to cooperate and in case there is any laxity
and failure, it will be open to the authority to take action and decide the matter
in accordance with law.
23. We clarify that this decision does not deals with the interim order for the
assessment year 2005-06 passed/operating in W.P.(C) No.3599/2012.
W.P.(C) 3598/2012 Page 13 of 14
The writ petition No.3598/2012 is accordingly disposed of with no order
as to costs.
SANJIV KHANNA, J.
SIDDHARTH MRIDUL, J.
APRIL 11, 2013
Gm/NA
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