Income Tax Appellate Tribunal - Ahmedabad
Shri H.D. Acharya Vidyottejak Trust vs The Asstt. Commissioner Of Income-Tax on 10 March, 2006
Equivalent citations: [2007]104ITD268(AHD), (2007)106TTJ(AHD)324
ORDER
I.P. Bansal, Judicial Member
1. This is an appeal filed by the assessee, and is directed against the order of the CIT(A) dated 9thJune, 2003 for Asst.Year 1997-98.
2. The grounds of appeal read as under:
1. The learned Commissioner of Income-tax (Appeals)-XXI, Ahmedabad has erred in law and on facts by confirming that the learned Assessing Officer is justified in holding that the Appellant was not entitled to exemption Under Section 10(22) of the Income-tax Act, 1961.
2.The learned Commissioner of Income-tax (Appeals) has erred in law as well as on facts by holding that for the relevant period the Appellant Trust is not registered Under Section 12AA of the I.T. Act, 1961, in accordance with the amended provisions of Section 12AA which came into effect from 1-4-1997, inspite of the fact that the Appellant Trust was duly registered Under Section 12A(a) of the I.T. Act, 1961, very much before the amended procedure for registration as per Section 12AA came into force.
3. The learned Commissioner of Income-tax(Appeals) has erred in law as well as on facts by not properly appreciating that the procedure for registration Under Section 12AA of the I.T. Act, 1961, came into force from 1-4-1997 and therefore such procedure is applicable only in respect of registration Under Section 12A(a) granted after 1-4-1997 and the same is therefore, not applicable in case of the Appellant Trust already registered Under Section 12A(a) long before as evidenced by the Certificate of Registration No. 64/H-19/174-75/CIT-V dated 13th August, 1976.
4. The learned Commissioner of Income-tax (Appeals) has also erred in law as well as on the facts by observing that the Appellant has made claim for exemption Under Section 10(22) and hence not filed Form No. 10A for registration Under Section 12AA of the Income-tax Act, 1961, though in fact the Appellant Trust has duly filed on 29-6-1973, Form No. 10A for registration Under Section 12A(a) as required at that time and such fact has been duly noted in the Certificate of Registration Under Section 12A(a) granted by the Hon'ble Commissioner of Income-tax, Gujarat-V, Ahmedabad.
5. The learned Commissioner of Income-tax (Appeals)has erred in law as well as on the facts by holding that the Appellant Trust is not registered Under Section 12AA for the assessment year under consideration and therefore, the benefit of Section 11 and 12 could not be allowed to the Appellant Trust and by further holding that on this ground itself the findings with regard to not allowing exemption to the Appellant Trust Under Section 11 of the I.T. Act, 1961 are to be upheld.
6. Your Appellant therefore, prays for the following:
(i) that the Appellant Trust be held as an educational institution, eligible for exemption Under Section 10(22) of the I.T. Act, 1961, as claimed by the Appellant.
(ii) that the Appellant Trust be held as duly registered Under Section 12A(a) of the I.T. Act, 1961, so as to fulfill all the conditions for being eligible for the benefit of Section 11 of the I.T. Act, 1961.
3. The only ground raised before us was regarding non-granting of exemption Under Section 11 of the Income-tax Act, 1961 to the assessee-trust on the ground that the assessee-trust was not registered Under Section 12AA of the Act. Before the A.O., the claim of assessee was in respect of exemption Under Section 10(22) as well as Under Section 11 of the Act. The claim of assessee for exemption Under Section 10(22) was disallowed by the A.O. on the ground that the assessee-trust has not directly or indirectly carried out any activity concerned with education. The assessee is not an educational institution, it has not incurred any expenditure on educational activity, and the income derived by the assessee is also not out of any educational activity. It was argued by the assessee that since the donees are educational institutions, the assessee-trust is educational institution and therefore, its income is eligible for exemption Under Section 10(22), was found by A.O. being devoid of any merit in law. It was further found by A.O. that assessee itself in its return of income computed its income in accordance with provisions of Section 11 of the Act and not Under Section 10(22). Therefore, the claim of assessee regarding exemption Under Section 10(22) was rejected. Before us the claim of the assessee regarding exemption Under Section 10(22) is not pressed. Therefore, the same is dismissed.
4. Now coming to the eligibility of assessee-trust regarding exemption Under Section 11 of the Act, the claim of assessee regarding exemption Under Section 11 was rejected by A.O. on the ground that assessee-trust is nothing but a device to avoid tax. He held that trust does not exist for charity and no charitable activities have been carried during the year and it did not pursue any of the object for which it was created. Therefore, he held that the expenditure incurred on donation of Rs. 4,00,777 were not deductible. Thus, the claim of exemption Under Section 11 was denied. An appeal was filed before the CIT(A). It was pleaded that according to Clause (5) and (6) of trust deed dated 24th June, 1957, the assessee trust had applied its income towards charitable purposes. It was pleaded that registration was granted to appellant trust Under Section 12A of the Income-tax Act, 1961, and therefore, Assessing Officer could not go into the objects of the trust. Exemption was allowed to the assessee for earlier years and similar exemption should be allowed in the year under consideration. The decision of the Supreme Court in the case of McDowell & Co. (154 ITR 148) did not apply to the case of the assessee. Reference was made to the decision of Gujarat High Court in the case of K.T. Doctor v. CIT 124 ITR 501, wherein it was held that lifting a veil to ascertain the reality of the business of the trust was not permissible in law as far as the trusts are concerned. Thus, it was pleaded that as per aforementioned decision, the concept of lifting of veil is permissible only in the case of a company with a view to find out the real person behind the corporate body and it was pleaded that the assessee is entitled for exemption Under Section 11 of the Act. Considering these submissions, observations of CIT(A) are as under:
I have considered the contentions of the Ld. Counsel for the appellant and perused the relevant record. As brought out in the case of Stock Exchange Ahmedabad v. ACIT 74 ITD 1 (And), relied upon by the Ld. Counsel, after allowing registration Under Section 12A it was beyond province of Assessing Officer to reject: claim of exemption Under Section 11 by looking into objects of association and holding the same as non charitable in nature. In view of ratio of this decision of the Jurisdictional bench of the ITA'T and other similar decisions the Assessing Officer could not go into the clauses of the trust deed for seeing as to whether objectives were such as to make it a charitable trust or not. However the Assessing Officer could very well examine in a particular period as to whether the expenditure incurred is as per the objectives of the trust or the charitable purposes etc. Rather in the case of ITO v. Dwarika Prasad Trust 80 ITR 34 ITAT Delhi E bench had held that where a presence of a provision in the trust for application of money for non charitable purposes, when in fact no amount was spent for non charitable purposes the mere presence of such position would not vitiate its charitable character. The controversy should also be true then when the provisions are for application of money for charitable purposes but actually the money is applied otherwise than for charitable purposes it would vitiate the charitable character of a trust for that particular period. The Assessing Officer will therefore be fully justified in examining the application of money of the trust during a particular period. Regarding the principle of res judicata it would be applied in this particular case if it is held by the department that a donation made to a particular institution has been held to be for a charitable purposes in an earlier year then it would not be justified to hold donation to the same institution otherwise in a subsequent year in the absence of any other material That being not the exact position here; the principle of res judicata would not apply. The ratio of the decisions relied by the Ld. Counsel would also not help appellants case because the facts and circumstances are different. Further I am inclined to agree with the contention of the Ld. Counsel that the case of Hon'ble Supreme Court in the case of Me Dowell & Company (supra) would not apply in the facts and circumstances of this case. I also agree with the Ld. Counsel that in view of the decision of the Jurisdictional High Court of Gujarat in the case of K.T Doctor v. CIT 124 ITR 501, lifting a veil to ascertain the reality of the business etc. would not apply in the case of a trust. In my opinion exemption Under Section 11 & 12 could only be disallowed to a trust if the conditions laid down under the relevant provisions are not fulfilled or if the case is brought under any of the clauses of Section 18(1) of the I.T. Act. As the Assessing Officer has not proved that the case of the appellant trust is covered under any one of the clauses of Section 18(1), there is no justification in denying the benefit of Section 11 by referring to the various case laws including those of Juggilal Kamlapat (supra) and Me Dowell & (supra). It is however seen that from the Asst, Year 97-98 which is under appeal here, the relevant provisions of the I.T. Act have been amended. As per these amended provisions of Section 12A, the provisions of Section 11 & Section 12 would not apply in relation to the income of any trust or institution unless in addition to the fulfillment other conditions laid down there in such trust or institution was registered Under Section 12AA. It is an admitted position that the appellant trust is not registered Under Section 12AA for the relevant period. As per a slip affixed to the written submissions did. 11.12.00 the appellant had not filed Form No. 10A as the claim was made Under Section 10(22) of the I.T. Act. It is further mentioned in the slip that if not allowed the appellant could file it now. However, so long no such application has been filed and the appellant trust not having been registered Under Section 12AA for the Asst. Year under consideration the benefit of Section 11 & 12 could not be allowed. Therefore on this ground itself the Findings with regard to not allowing exemption to the appellant Under Section 11 of the I.T Act, 1961 are to be upheld. This ground of appeal is therefore rejected on the above ground.
5. The assessee is aggrieved by such observations of CIT(A) hence in appeal before us.
6. Referring to the order of the CIT(A), it was pleaded by the learned A.R. of the assessee that the only ground on which the claim of assessee regarding exemption Under Section 11 has been rejected by CIT(A) is that the assessee-trust is not registered Under Section 12AA of the Act. He referred to the provisions of Section 12A and 12AA of the Act, which read as under:
12A. The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the [Chief Commissioner or Commissioner] before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, [whichever is later and such trust or institution is registered under Section 12AA]:
[Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Section 11 and 12 shall apply in relation to the income of such trust or institution, -
(i) from the date of the creation of the trust or the establishment of the institution if the Chief Commissioner or Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;
(ii) from the 1st day of the financial year in which the application is made, if the Chief Commissioner or Commissioner is not so satisfied;]
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds [fifty] thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year 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.] [Procedure for registration.
12AA. (1) The Chief Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under Clause (a) of Section 12A, shall -
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he-
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant:
Provided that no order under Sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
(2) Every order granting or refusing registration under Clause (b) of Sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under Clause (a) of Section 12A.]
7. He pleaded that assessee-trust was already registered Under Section 12A of the Act. Section 12AA has been inserted in the Income-tax Act by the Finance (No. 2) Act, 1996 w.e.f. 1-4-1997 and the provisions of Section 12AA contains the procedure for registration. The conditions of registration have been prescribed in Section 12A and when an institution has already been registered Under Section 12A of the Act, there is no need for the institution to reregister itself under the provisions of Section 12AA of the Act. Thus, he pleaded that claim of exemption of assessee Under Section 11 has wrongly been rejected by CIT(A) on the ground that assessee did not obtain registration Under Section 12AA of the Act.
8. The ld. DR relied on the orders of AO and the CIT(A).
9. We have carefully considered the rival submissions in the light of material placed before us. It is the contention of assessee that claim of assessee regarding exemption Under Section 11 has only been rejected by CIT(A) on the basis that assessee trust does not have registration as per Section 12AA of the Act. However, we find that in the order, ld. CIT(A) has held that though it was beyond the province of AO to reject claim of exemption Under Section 11 by looking into objects of association and holding the same as non-charitable in nature but the AO could very well examine in a particular period as to whether the expenditure incurred is as per the objectives of the trust or the charitable purposes etc. and thus the AO will be fully justified in examining application of money of the trust during a particular period. For the application of principle of res judicata he has held that it would be applied only if it is held by the department that donation made to a particular institution has been held for a charitable purpose in an earlier year then it would not be justified to hold donation to the same institution otherwise in a subsequent year in the absence of any other material. Therefore, principle of res judicata will not apply in the present case. He further held that in view of decision of Jurisdictional High Court in the case of K T Doctor v. CIT 124 ITR (supra) lifting a veil to ascertain the reality of the business etc. would not apply in the case of a trust. Finally he held that exemption Under Section 11 & 12 could only be disallowed to a trust if the conditions laid down under the relevant provisions are not fulfilled or if the case is brought under any of the clauses of Section 13(1) of the IT Act and as the AO has not proved that the case of the assessee trust is covered under any one of the clauses of Section 13(1) there is no justification in denying the benefit of Section 11 by referring to the various case laws including those of Juggilal Kamlapat 73 ITR 702 (SC) and Mc Dowell & Company Ltd. v. CTO 154 ITR 148 (SC). However, he found that from assessment year 1997-98 relevant provisions of IT Act have been amended and as per amended provisions of Section 12A, the provisions of Sections 11 & 12 would not apply in relation to the income of any trust or institution unless in addition to the fulfillment of other conditions laid down therein if such trust or institution was registered under Section 12AA of the Act. Since the assessee trust was not registered under Section 12AA for the relevant period, the assessee is not entitled to get the benefit of Section 11 & 12. Thus on this ground itself he held that appellant is not entitled for exemption under Section 11 of the Act. Sections 12 & 12AA have been reproduced in paragraph 6 of this order. There is no dispute to the extent that assessee trust has already been registered under the provisions of Section 12A of the Act long before Section 12AA came into force. Section 12AA has been brought on the statute by the Finance (No. 2) Act, 1996 by which procedure has been laid down which is to be followed for grant or refusal of registration. As per provisions of Section 12AA powers have been conferred on the Chief Commissioner or the Commissioner for calling for documents or information etc. in order to satisfy himself about the genuineness of the activities of the trust and powers have been vested to conduct such enquiries as may be deemed necessary in this behalf. Power conferred on the Chief Commissioner and the Commissioner in this regard includes grant or refusal of registration for which an order has to be passed in writing which order will be sent to the applicant. The provisions of Section 12AA are explained by way of departmental Circular No. 762 dated 18.2.1988, the relevant portion of which is reproduced below:
Registration of charitable and religious trusts, -19.1 Under the existing provisions of the Income-tax Act, exemption from income tax, in respect of the income of a charitable or religious trust or institution is available only if the conditions specified in that section are satisfied. One of these conditions is that the person in receipt of the income shall make an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief Commissioner or the Commissioner of Income-tax within the specified time. However, there was no provision in the Income-tax Act for processing of such an application and granting or refusal of registration to the concerned trust or institution.
19.2 Hence the Finance (No. 2) Act, 1996, now provides for a procedure to be followed for grant of registration to a trust or institution. According to this procedure, the Chief Commissioner or Commissioner shall call for documents and information and conduct enquiries to satisfy about the genuineness of the trust or institution. After he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will pass an order granting registration. If he is not so satisfied, he will pass an order refusing registration. However, an opportunity of being heard shall have to be provided to the applicant before an order of refusal to grant registration is passed by the Chief Commissioner or the Commissioner. The reasons for refusal of registration shall also have to be mentioned in that order. The order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Chief Commissioner or the Commissioner and a copy of such order shall be sent to the applicant.
19.3 It has also been provided that the grant of registration shall be one of the conditions for grant of income-tax exemption.
19.4 These amendments shall take effect from the 1st day of April, 1997. (Sections 5 and 5).
Section 12AA nowhere provides that certificate granted under Section 12A will no more be in force and all existing trusts should get re-registered themselves as per Section 12AA of the Act. There is an existing order of CIT vide which the registration has already been granted to the assessee trust under Section 12A of the Act. The said registration has not been withdrawn. Unless the said registration is withdrawn, as per provisions of Section 13 or any other specific provisions, the registration granted earlier shall be considered to be in force. So far as it relates to the procedure as laid down in Section 12AA of the Act, the scope as pointed in the circular reproduced above, is for the trust who wants to get them registered after 1st day of April, 1997. Had it been the intention of the legislature that all the existing trusts prior to 1st April, 1997 which are already registered with the department should again get registered under Section 12A of the Act, then a specific provision was required to be made in this respect. This having not been done, the trust already having the registration cannot be held not entitled to exemption under Section 11 on the ground that they should get themselves re-registered under Section 12AA of the Act. In this view of the situation, we find that exemption under Section 11 cannot be denied to the assessee merely on the ground that it was not registered under Section 12AA of the Act as there is no such requirement put by the statute on the trusts which were registered with the department as per Section 12A of the Act. Thus we hold that for grant of exemption to assessee trust under Section 11, there was no requirement put by the statute for getting registration by the assessee trust under Section 12AA of the Act particularly when assessee was already registered under Section 12A of the Act.
10. Before parting, we may mention that ld. CIT(A) in his order has held that in view of decisions of Hon. Gujarat High Court in the case of KT Doctor v. CIT (supra) the principles of lifting of veil to ascertain the reality of the business etc. is not applicable in the case of a trust. This finding of CIT(A) has been given without considering the latter decision of Gujarat High Court in the case of CIT v. Sona Family Trust 171 CTR (Guj) 555 wherein it has been observed by Hon. Jurisdictional High Court that the Supreme Court has not approved of the view on the basis of which the Tribunal proceeded, as the tax authorities and the Tribunal cannot go into the question whether the trust was merely a device to avoid payment of taxes and their Lordships found that Supreme Court was of the view that even for the period prior to amendment of Section 161 i.e. for the period prior to first April, 1984 it was open to the tax authorities and the Tribunal to examine the plea of a device to avoid payment of taxes. Thus the findings of CIT(A) to that extent are not in accordance with the subsequent decision of Jurisdictional High Court in the case of CIT v. Sona Family Trust (supra) in which decision their Lordships have considered the decision in the case of KT Doctor v. CIT (supra). However, the revenue has not filed appeal against such finding of CIT(A) and assessee is the appellant, we are not supposed to enter into in this controversy.
11. To conclude our findings for present appeal are that assessee trust could not be denied benefit of exemption under Section 11 merely on the ground that it is not registered under Section 12AA of the Act for the reasons elaborately discussed in the above part of this order. However, to examine that whether assessee has fulfilled the conditions for grant of registration under Section 11 for the year under consideration, we restore this matter back to the file of AO to consider the same as per provisions of law. With these observations, the appeal filed by the assessee is considered to be partly allowed.
This order is pronounced in the open Court on 10 March, 2006.