Whether Delhi Sikh Gurudwara Committee has powers to create a Trust or Society to run a hospital, eligible for exemption u/s 12A - NO: Delhi HC

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

Delhi Sikh Gurudwara Management Committee had constructed a hospital at Gurudwara Bala Saheb. During the hospital’s construction, the Committee’s President proposed that the hospital be managed by an independent trust settled by the Committee, whose trustees would be decided upon by the Committee itself. The proposal was accepted, and accordingly, the Guru Harkishen Medical Trust, the respondent Trust, was created. A trust deed was drawn up, by which the Committee was described as the settler. The Deed also stated that the Committee was running a number of charitable institutions, and that it was interested in establishing a specialty hospital to provide medical services at affordable rates. The Deed further stated that the trust was being established to run and operate the hospital either by itself or in collaboration with other organizations with experience and expertise in this field. The deed also indicated that "to fulfil these objectives, a sum of Rs. 1 lakh had been settled to the trustees. The trust deed further stated that to effectuate the said desire, the Settlor had made over the said specialty hospital buildings being constructed at Gurudwara Bala Sahib, New Delhi, to hold the same together with all other properties that may be acquired out of the same or otherwise and may hereinafter in pursuance of the said desire and for carrying out such desire into effect the Settlor doth hereby grant, transfer and assign upto the trustees only the rights to manage said specialty hospital building along with all other movables, such as plant, machinery, equipments, etc. and to have and to hold the said specialty hospital unto the trustees but upon and subject to the trust’s powers and provisions hereinafter declared and expressed of and concerning the same.” Clause 8 stated that the aims and objects of the trust were to do welfare activities for the benefit of public at large, and more specifically for economically poorer sections of the society, physically challenged persons, persons suffering from any type of physical or mental ailments, old age persons, economically poor students or children in particular, without any profit motive. Further, Clause 35 declared that none of the trust fund or property or its income shall be applied for any other purpose which was not consistent with the aims and objects of the Trust and the provisions of the deed shall be construed accordingly. The Trust, after its constitution, entered into a collaboration agreement with Manipal Health Systems Pvt. Ltd., in terms of which the hospital was to be run by the latter, with a certain part of the revenue paid to the Trust. The Trust filed an application seeking registration u/s 12A, which exempted income earned by the trust. The DIT(E) rejected the application, on the ground that the Delhi Sikh Gurudwara Act, 1971, especially Section 24, concerning the powers of the Committee, did not empower the Committee to create a trust. A show-cause notice was earlier issued to the assessee on this issue, and two replies – dated 28th and 29th January, 2008 – were filed and disposed off by the DIT(E). Since the creation of the trust itself was contrary to law, registration u/s 12A was denied.

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.

Held that,

++ 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.