IN a major setback to the Delhi Sikh Gurudwara Management Committee the Delhi High Court has held that since the Act, 1971 does not empower the Committee to create a new body like a Trust or a Society to run a hospital on its own or in joint venture, such a body cannot be allowed exemption u/s 12A.
Facts of the case
On appeal, the Tribunal reversed the decision and held that the Committee did have such powers under sub-clause (iv) of Section 24. It was contended by the Revenue that the powers outlined in Section 24 were specific and exhaustive, such that the creation of a trust and transfer of property were not contemplated to lie within the powers of the Committee, which – as a creation of statute – cannot exceed the permissible limits.
On appeal before the HC, the Revenue's counsel drew attention of the Court to CS 252/2012 in the Patiala House Court, by which this very issue – concerning the legality of the Trust – was agitated and decided by a Civil Judge, holding that the establishment of the trust was illegal and contrary to law. There was no dispute today that if the creation of the Trust is held to be illegal, no exemption can be granted u/s 12A. The dispute between the parties before the ITAT concerned the question of its legality vis-à-vis the powers of the Committee u/s 24. Given this development, i.e. the issue concerning the legality of the Trust having been deciding in a civil proceeding instituted for that purpose, and a judgment in rem having been delivered, HC was of the opinion that the matter, as regards the present proceedings, stands decided, subject to any further appellate interference with the decision of the Civil Judge. There was no mandate to question or re-appreciate the decision of the Civil Judge in the present proceedings under the limited domain of the appeal under the Income Tax Act, 1961.
++ even on an independent consideration of the facts in this case, it is evident that the Committee is a creation of the statute; its functions – in the nature of obligations, or duties, are outlined in Section 24 of the Act. The reliance placed by ITAT on Section 24 (iv) of the Act, in this court’s opinion, is misplaced. That empowers the Committee to do all incidental acts and things necessary to carry out the duties of the Committee itself under section 24 (ix) one of the duties of such committee is to establish and manage “free clinics”; Section 24 (xi) enables the maintenance of “research centres”. Neither Section 24 nor Section 40 (which empowers the Committee to frame regulations) enables the Committee to efface their duties and create other entities for carrying out their functions. Even more importantly, such creations cannot do what Committees are not permitted to perform, i.e utilize Committees’ properties or monies through the device of trusts and societies, to engage in indirect commercial activity, - which the trust was authorized and created to indulge in the present case. As a consequence, the ITAT clearly fell into error in holding that the Act permitted the Committee to enter into the agreement which enabled it to set up a joint venture for a hospital, on revenue sharing basis. Clearly such trust was ultra vires the Committee’s powers and beyond its statutory mandate. Accordingly, for the above reasons, this appeal has to succeed. The order of the ITAT is hereby set aside, and the denial of exemption under Section 12A by the DIT (Exemptions) is restored. There shall be no order as to costs.