I. T. AS. NOS. 1046/KB TO 1050/KB OF 1977-78, DECIDED ON 18TH OCTOBER, 1978. Versus I. T. AS. NOS. 1046/KB TO 1050/KB OF 1977-78, DECIDED ON 18TH OCTOBER, 1978.

ORDER

M. T. SIDDIQUI (PRESIDENT).‑ These five departmental appeals will be disposed of by the same order in view of the identical nature of objections from which the same arise. The main objections concern the directions of the Appellate Assistant Commissioner to grant exemption to the incomes earned by the respondent from the charge to tax under the provisions of sec tion 4(3)(i) and the exemption under section 4(3)(ii) to donations received by the respondent‑Trust.

2. The brief facts of the case are that Messrs A ..Foundation was formed as a charitable institution and was duly registered on 2‑6‑1970 under the Societies Registration Act No. XXI of 1860, the founder members being Messrs S .who became the trustees and got the foundation registered Messrs G .and A . donated initially Rs. 10.000 each. In the years 1972‑73 and 1973‑74 the foundation received donations from the trustees aggregating Rs. 1,33,600 and Rs. 84,12,420 respectively. Approval under section 150 of the Income‑tax Act was also obtained from the Central Board of Revenue vide S. R. O. 260 (K)/72, dated 31‑1‑1972. The sums and the funds of the foundation were advanced by way of loans to some of the concerns in which the trustees were directly concerned, and interest was received ranging between 6 %, for the years 1973‑74 to 1975‑76, to 13 % for the year 1976‑77. Some interest free loans were also obtained from the trustees and their relations. Certain investments were also made and divi dends were received in various years. The Income‑tax Officer, observed that the income of the trust was primarily made up from interests and divi dends, but he noted, that for the year 1972‑73 no sums were spent on charity at all, whereas for the years 1973‑74, 1974‑75, 1975‑76, and 1976‑77 the amounts, spent stood as Rs. 61,022, Rs. 90,031, Rs. 1,21,428 and Rs. 5,61,262 respectively, although there were substantial receipts from the advance made primarily to A Group of concerns. The Income‑tax Officer, considered the advancing of loans to the companies, in which the trustees were interested, the receipt of interests and dividends as also the insignificance disbursement of amounts towards charity, as some factors, which rendered the foundation, in his opinion, as a Holding Company of A group. He, therefore, ruled that in spite of its being registered as a charitable institution and in spite of its being recognised under section 15‑D of the Income‑tax Act by the Central Board of Revenue the income of the foundation did not quality for exemption under section 4(3)(i). The Income‑tax Officer also held that the donations received by the respondent were not exempt Under section 4(3)(ii) of the Income‑tax Act, but could be considered as exempt under section 4(3)(vii) of the Income‑tax Act. When the matter went to the learned Appellate Assis tant Commissioner, after recapitulating the facts in detail, he came to the con clusion that the foundation was registered under the Societies Registration Act under which a society can be registered only if it is established for a literary, scientific or charitable purpose. In his opinion, this fact by itself established the bona fide of the Foundation and its character as a charitable institution. He also found that the Central Board of Revenue had approved the Foundation for the purposes of section 15‑D and thus put their seal of acceptance about the genuineness of the Foundation as a public charitable institution. He further noted that the observation of the Income‑tax Officer that at the time when the Foundation came into being there was no property owned by the so‑called charitable institution was factually not correct as, in his opinion, the Income‑tax Officer confined the word "property" in the sense of immovable property alone. In his opinion this interpretation was not warranted by law and he placed reliance in this behalf of a number of cited Judicial decisions. The observations of the Income‑tax Officer that the respon dent‑foundation was, from the beginning, acting as an Investing or Holding concern were also held to be ill‑founded. The learned Appellate Assistant Commissioner observed that the investments, even if made in contravention of terms of the Trust deed, for the Trustees' benefits or in the interest of the Trustees, could not in any manner affect the validity or the genuine existence of the respondent as a charitable institution. In his opinion, the Income‑tax Officer was not concerned to investigate the question whether the assessee was guilty of breach of trust in administering the Trust properties. Even if this was found to be a fact, that could not affect the genuineness or the very existence of the Trust itself. So was the case with the application of the income by the respondent Trust as these factors were wholly irrelevant and not grievance to the determination of the real character of the respondent nor could that same affect the exemption available to its income under the provisions of section 4(3)(i) and to its receipts from tinge by way of voluntary donations under section 4(3)(ii) of the Income‑tax Act. The Income‑tax, Officer had also disallowed the amounts spent on charity after treating the respondent as a holding concern. The learned Appellate Assistant Commis sioner did not agree to this view either as, in his opinion, these amounts were spent in accordance with objects of the Foundation and were un-disput ably of charitable nature. The learned Appellate Assistant Commissioner accepted the assessee‑respondent's contention that the facts of the case relied upon by the Income‑tax Officer in treating the assessee as a Holding Institution; were also distinguishable. He accordingly concluded that the exemption was available to the Incomes earned by the respondent‑Trust under sec tion 4(3)(i) of the Act, and that the voluntary donations received by the respondent‑Trust were also exempt under section 4(3)(ii) of the Act. The taxable income computed by the Income‑tax Officer for the years 1973-74 to 1976‑77 in these circumstances were held to be erroneous. All the five assessments were accordingly cancelled.

3. It is in these circumstances that the Department has come up in appal before us. The Departmental Representative again summarised the contentions of the Income‑tax Officer. His main plea was that the entire donations amounting to over Rs. 25,00,000 and the resultant income earned, exceeding Rs. 25,00,000 were advanced to allied concerns of A ..group at nominal rates of interest because of the Trustees' interest in these concerns. He argued that these facts were duly mentioned in the audited statement of accounts concerned. The learned Departmental Representative argued that on the basis of these facts also it was clear that the respondent had failed to fulfil the conditions laid down under section 4(3)(i) of the Act to claim exemption on a charitable institution. He then placed reliance on a decision of the Tribunal in I. T. A. No. 509 of 1971‑72 dated 22‑3‑1972 to contend that the assessee was just nothing but a Holding or Investing concern under the veil of charity, as the male object of manipulating the affairs of A... group of companion. In this view of the matter it was argued that notwith standing the approval by the Central Board of Revenue, under sec tion 15‑D of the Act, the learned Appellate Assistant Commissioner was not justified in holding that the respondent was a charitable institution, the incomes when of even exempt under the provisions of section 4(5)(i) of the Income‑tax Act, and the voluntary donations received by it were exempt under section 4(3)(ii) of the Income‑tax Act. The respondent's representative on the other hand, maintains that the nature and character of the Founda tion could be determined only with reference to the objects for which the Foundation was established. It was stated that the learned Appellate Assistant Commissioner, has mentioned, in detail, the objects, all of which are of public charitable nature. He again laid emphasis on the fact that the said Foundation was registered under the Societies Registration Act as a public charitable institution, while the approval by the Central Board of Revenue, under section 15‑D clearly establishes its charitable character. The property which was owned by the Trust was money received through volun tary donations and this was invested in shares etc. In the best interest of the Trust. It was contended that the Trust is not carrying on any business and, therefore, the proviso to section 4(3)(i) was not attracted to this case. It was argued that if there was any objection to the advancing of the loans to the allied concerns, that by itself could not change the real character of the respon dent‑Foundation. He placed reliance on a number of decisions, reported as, (1935) 1 I T R (1963) 47 I T R 558, (1965) 58 I T R 600 and (1973) 91 I T R 261, to contend that once a Trust was treated under a legal obligation for charitable purposes, the income derived by it could remain exempt‑under the provisions of section 4(3)(i) of the Income‑tax Act and that even the non- maintenance of accounts could not authorise the taxing authorities to interfere with the affairs of the Trust. He argued that even where only a small portion of the income of a charitable trust is spent for such purposes, the revenue authorities could not press into service that situation to doubt the nature and character of the trust itself. His argument in a nutshell was that if a trust is validly created no amount of subsequent bad conduct could put an end to a trust as long as it is established that w complete dedication of the property had taken place. He again sought to distinguish the case of the other Foundation, relied upon by the learned Departmental Representative, wherein the Tribunal had held that the Trust was just a camouflage for a Holding Company.

4. After giving our due consideration to the facts of the case we find that the A ..foundation, namely the respondent in this case was registered admittedly under the provisions of the Societies Registration Act No. XXI of 1860. According to the preamble to is Act registration under Act No. XXX of 1860 is meant only for registration of the literary, scientific, and charitable societies. The Memorandum of Association of Foundation enume rates it objects in section 3 thereof and these include (a) promotion of education in Pakistan particularly in the fields of Islamic research scientific, Technolo gical, Nuclear and Space research, Medical, Commerce, Arts and for all other purposes etc. (b) to establish, construct, takeover, run and administer Hospitals, Clinics etc., etc., for the treatment of the sick, fighting diseases and epidemics and for improving the health of the public, (c) to construct, establish and maintain colonies, hospitals, orphanages etc. etc. The provision of sec tion 3(h) clearly lays down that the Trust is to receive and administer funds for the objects mentioned in previous clauses for the public welfare and for no other purpose. This clause also lays down that for the above purposes it may sell, convey, dispose of any such property and may invest; or re‑invest the principal and income thereof, and may deal with and expend the principal and income of the Foundation for any of the afore mentioned objects and purposes except with such limitations as may be contained in the instructions under which such property is received or other limitations are imposed by law. Similarly, 'the object clause 3(i) clearly mentions that the Trust may hold and even use the proceeds and incomes of stocks, bonds, obligations, or other securities of any corporation or corporations etc., for the afore -going purposes or some of them. Clause 4 of this Memorandum of Association further states that the Foundation shall be financed by contribu tions to it of funds and property absolutely or upon for its purposes herein stated and for. Clause 5 while laying down the mode of management clearly stipulates that no membership, trusteeship or interest in the Foundations shall be assignable intervives or shall any membership, trusteeship or interest in Foundation pass to any personal representative, heir or devises whereas clauses 6 of its Memorandum of Association states clearly that ail of the property of the Foundation and accumulations thereof, shall be held anti administered to affectuate its purposes and to serve the general welfare of the people. These articles in our view clearly disclose the true nature and character of the Foundation. However, we find that section 14 of the Societies Registration Act under which the respondent‑society has been registered also t lays down that if upon the dissolution of any society so registered under this Act, there shall remain after the satisfaction of all its debts and liabilities any property whatsoever, the same shall not be paid to or distributed among the members of the said society or any of them, but shall be given to other society. This also clearly establishes the independent nature of the society and the fact that its asset including its incomes, donations etc. will remain perpetually for use for charitable purposes only. Therefore, we must accept the findings of the learned Appellate Assistant Commissioner that real nature and character of respondent‑society cannot be assailed in this case. In the case relied upon by the Department, the Tribunal's decision treating the Found ation as a Holding Company was primarily based on the facts that the said society was registered under the Companies Act, 1953 and not even under sec tion 26 of that Act. It was also found in that case that there was no declaration of the Trust. There was no settler and all the share‑holders held their capital in their own rights and that their lien on their capital was maintained even till the winding up of that society. Even the Memorandum of Association of that company disclosed that the objects were not charitable as the funds of the Foundation in that case could be utilised for any business purposes without check or hinderance whatsoever. In that case also in spite of the fact that the technical permission was obtained under section 15‑D from the Central Board of Revenue the Tribunal concluded that after wearing the veil of charity, they made reality of that Foundation clearly established it as a Holding Company with the sole object of manipulating the affairs of some of the allied concerns and to save their shares losing their values on the stock exchange. The Tribunal clearly ruled in that case that the said Foundation, having come into existence by the Memorandum of Association and Articles duly incorporated under the Companies Act, was to be governed by that Act and not by the Trust or any other Act. The Tribunal held that most of the objects of that Trust were beyond charity, like, gifting away, selling, leaning, engaging or otherwise disposing of or dealing with or any of the funds or assets of that Foundation. The Tribunal had concluded that, in fact, the said Foundation existed merely as a hand‑maid to the two Foundations and was working under their discretion and at their behest and was utilising its income accordingly. The sole desire in that case was to stabilise the shares of number of allied concerns and device of creating a Charitable Foundation was adopted only in an attempt to have the income of the Foundation exempted from the payment of the taxes. It was on these facts that the Tribunal ruled that Foundation was neither charitable in charac ter nor its income was exempt, under the provisions of section 4(3)(i) or 4(3)(ii). The facts found here as we have stated already, are completely different. The only objection that could possibly be taken was about the investment of the funds at low rate of interest, but it was explained before the Income‑tax Officer, that this was done with a view to make the realisation of the funds convenient. Even if this situation was not to be accepted, the fact remains that the founders of the Trust or their heirs, subscribers etc. have totally divested themselves from any interest in the incomes or asset of this Foundation and have for force to utilise the same for the purposes of public charity. At the worst, if any of the Trustees or the Member of the society is found guilty of misconduct or of wilfully injuring any of the property of the society, he shall be subject to the same imprisonment and if convicted shall be liable to be punished any person who is not a member of the society. Therefore, even if misuse of the funds could be established, the remedy would 'lie, also where and not in disintegrating the charitable society itself. For these reasons, in our opinion, the learned Appellate Assistant Commissioner was fully justified in holding that the income of the society was exempt under the provisions of section 4(3)(i) and that the aforementioned donations received by the said society, were exempt under the provisions of section 4(3)(ii). We, therefore, see no reason to interfere with his order.

4‑A. All the five departmental appeals accordingly fail and are hereby dismissed.

Appeals dismissed.