Income Tax Appellate Tribunal - Jodhpur
Foundation For Ecological And ... vs Cit, Exemption, Jaipur on 18 September, 2024
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ITA No.47 & 48/Jodh/2024
A Y : 2023-24
Foundation For Ecological and Environmental Sustainability Trust
Versus
CIT(Exemption)
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE SHRI PRASHANT MAHARISHI, AM
AND
SHRIYOGESH KUMAR US, JM
ITA No. 47/JODH/2024 A.Y .2023-24
Foundation For Ecological Commiss ioner of Income
and Environmental Tax (Exemptio n),
Sustainability T rust, Jaipur
804, Desig ner Heights , Vs.
Pratap Nagar,
Udaipur
(Appellant) (Respondent)
ITA No. 48/JODH/2024 A.Y .2023-24
Foundation For Ecological Commiss ioner of Income
and Environmental Tax (Exemptio n),
Sustainability T rust, Jaipur
57, Nakod a Parsvanatha
Villa, Debari to Amberi
Highway, Block Badgon,
District Udaipur
PAN AAATF 6939M
Assessee by Shri Amit Kothari, CA
Revenue by Shri M.K. Jain, CIT(DR),
Date of hearing 17th September, 2024
Date of pronouncement 18th September, 2024
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ITA No.47 & 48/Jodh/2024
A Y : 2023-24
Foundation For Ecological and Environmental Sustainability Trust
Versus
CIT(Exemption)
ORDER
PER PRASHANT MAHARISHI, AM:
1. These are the two appeals filed by the assessee against the two interconnected orders , therefore these are disposed of by this common order.
2. In first appeal in ITA No. 48/Jodh/2024 is filed by the Foundation For Ecological and Environment Sustainability Trust, Udaipur [The Assessee/ Appellant] against the order for rejection of registration u/s. 12AA of the Income Tax Act, 1961 ('the Act') passed by the learned Commissioner of Income Tax (Exemption) [the 'CIT(E)], Jaipur on 29.12.2023 wherein the application filed by the assessee in Form No.10AB seeking registration u/s.12AB of the Act filed on 08.06.2023 is rejected.
3. Assessee is aggrieved and has raised following grounds of appeal:
"a. The Id CIT Exemption has erred in not granting registration u/s 12AB of the Act.
b. The order passed by the Id CIT, Exemption is bad in law and bad on facts, and is also contrary to the principles of natural justice.
c. The various facts mentioned are not justified and are incorrect.
d. The Id. CIT Exemption has erred in observing that the appellant is not carrying on charitable activities."
4. In the second appeal, assessee is also aggrieved by the order rejecting request for approval/recognition u/s.80G of the Act Page | 3 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) passed by the learned CIT(E), Jaipur dated 29.12.2023 wherein the application filed by the assessee on 08.06.2023 in Form No.10AB seeking approval u/s.80G(5) of the Act was rejected for the reason that assessee's application for registration u/s.12AB of the Act is rejected, which is pre condition for exemption u/s.80G of the Act.
5. Therefore, the assessee in ITA No.47/Jodh/2024 has raised following grounds of appeal:
"a. The Id CIT Exemption has erred in not granting u/s 80G of the Act.
b. The order passed by the Id CIT, Exemption is bad in law and bad on facts, and is also contrary to the principles of natural justice.
c. The various facts mentioned are not justified and are incorrect.
d. The Id. CIT Exemption has erred in observing that the appellant is not carrying on charitable activities."
6. The brief fact of the case shows that assessee is a Public Charitable Trust constituted by the trust deed dated 03.11.2017 having the object of Environment and Conservation and Protection, educational facility Infrastructure and programmers, animal welfare and general objects enshrined in clause [ 3] of the trust deed. The assessee is also registered with the Charity Commissioner as a charitable trust vide Registration Certificate dated 28.06.2023. The assessee made an application in Form No.10AB on 08.06.2023 seeking registration u/s.12AB of the Act. In the application assessee claims that it is entitled for registration u/s 12 AB of the Act.
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7. The learned CIT(E) examined the application and noted that the assessee has furnished a letter dated 29.07.2023 from Society for National Education, Entrepreneurship & Development and Development for organizing the health camps and work order dated 16.10.2023 from PHD Rural Development Foundation for construction of check dam and was of the opinion that the assessee has been awarded contract by these two organizations, which are in the nature of business activities as PHD Rural Development Foundation has given a contract of Rs.27,76,169/- to the assessee trust for construction of CheckDam in Udaipur and further NEED has awarded the work to the assessee for organizing health camp at a cost of Rs.80,000/- per camp. On the basis of terms and conditions of work order provided by these two organizations, which shows that it is a business activity and further Goods and Service Tax (GST) and tax Deduction at source is also applicable on amount received. He was of the opinion that if the work given by the Government is considered as charitable activities, this all tenders flouted by Government would also fall in the ambit of charitable activities. He also referred to the decision of the Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority in 143 Taxman
278. He was of the view that as assessee has received this income, which is neither donation, contribution, grants nor subscription, assessee is violating the trust deed and carrying out these activities beyond the objects of the trust. The trust was issued notice dated 08.12.2023 asking for certain information.
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8. Assessee submitted on 21.12.2023 details in the form of ledger account of expenses, bank statements, photographs of activities, certificate of Gram Panchayat etc. The assessee submitted that the work carried out by the assessee is falling within the provisions of Section 2(15) of the Act as charitable purposes.
9. The learned CIT(E) rejected the explanation of the assessee stating that the i. Work order looking to the nature of the clauses, applicability of GST and TDS clearly shows that it is not for charitable purposes but business income.
ii. assessee is in receipt of work contract income. The assessee is doing activities beyond its object of trust as it can only receive donations.
iii. Report of Income Tax Officer (Exemption), Udaipur on physical verification reported that assessee trust is carrying out activities on behalf of other trust and received payment against activities done and, therefore, the activity of the trust is commercial in nature.
iv. Therefore, he held that application of the assessee for registration u/s.12AA of the Act is liable to be rejected.
v. Further on verification of the details submitted on 03.11.2023, he held that assessee has furnished only the ledger account of the expenses but did not give the nature of such expenses and bills and Page | 6 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) vouchers of these expenses were not furnished and, therefore, the genuineness of the expenditure could not be established.
vi. most of the payments were noted in the name of the trustee and, therefore, there is violation of provisions of Section 13(3) of the Act.
vii. The assessee was asked to furnish further details.
However, on 26.12.2023, the assessee sought time. The learned CIT(E) was of the view that issues can be decided on the basis of information available and inspection of the Assessing Officer.
viii. vouchers submitted by the assessee to the Inspector and before him are self made and further the details submitted also contains the name of the payment to the trustees promoters. As most of the expenditure is in cash the genuineness of the expenses is dubious.
ix. assessee trust is siphoning by paying the honorarium to trustees without proving the work by them, therefore, trustees is also ineligible for registration u/s.12AB of the Act.
x. These activities do not fall within the purview of the charitable trust that whether these are done free of cost or not. Assessee is running commercial activities under the guise of society and, therefore, the registration u/s. 12AA is liable to be rejected.
Page | 7 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) xi. Trustdeed does not contain dissolution clause and, therefore, its application for registration is liable to be rejected.
xii. Trust deed has clause of opening an office in India and abroad and, therefore, for carrying out activities outside in India registration is not to be granted.
xiii. Thus, in nutshell he rejected the application of the assessee for broad reasons.
(i) The assessee is carrying on business activities in the garb of charity and doing activity beyond the objects of the trust.
(ii) The expenses are not verifiable as well as are also made to persons covered u/s.
30(3) of the Act.
(iii) Absence of dissolution clause in the trust deed.
(iv) The provisions of the trust deed of opening offices outside India and further accepting donations from foreign countries. Thus, the application of the assessee trust was rejected by order dated 29.12.2023.
10. Assessee is aggrieved and is in appeal before us.
11. The assessee also made simultaneous application for recognition u/s.80G(5) of the Act which was also rejected by the learned CIT(E) by the order dated 29.12.2023 for the Page | 8 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) reason that when the assessee trust is not registered u/s.12AB of the Act, and therefore it cannot be granted recognition u/s. 80G(5) of the Act. The assessee is also aggrieved with this order. Thus, the above two appeals are interconnected.
12. The learned Authorized Representative (AR) referred to the P.B. filed containing 53 pages containing the trust deed, details submitted before the learned CIT(E), several newspapers cutting about the activities of the assessee along with details of various payments incurred by the assessee. He also submitted the audited accounts of the above trust for the year ended on 2020 to 2023. The learned authorized representative submits that.
i. Provisions of the trust deed and its object are covered u/s.2(15) of the Act and are charitable in nature.
ii. assessee is conducting medical camps along with society for NEED for backwards in certain area of Rajasthan. The activities are carried out as per guidelines of Government of Rajasthan. The assessee is provided the cost of Rs.85,000/- per camp which is also subject to report and guidelines.
iii. The assessee has object of the conservation of water sources such as Dams etc. as per Clause No. 3.1.12 and, therefore, has taken the work for Kasnariya Wall Check Dam Project in Udaipur. This work was given by PHD Chamber of Commerce and Industries to be executed by the assessee. The terms and condition mentioned in the work contract is also according to the PHD Chamber of Page | 9 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) Commerce but which in itself does not make it a business activity.
iv. Thus, organizations of medical camp as well as the water resources etc. is falling within the object of the trust.
v. Income and Expenditure Account of the trust since 2020 to 2023 to state that assessee has received only community contribution, donations receipt and, therefore, it is not carrying on any business activity. But carrying on the activity of the trust as per the trust deed.
vi. activities of the trust may involve the applicability of GST or TDS but that does not make it non charitable and business activity.
vii. As per accounts , for year ended on 31.03.2022 assessee has excess of expenditure over income of Rs.26,420/-, for 2021, Rs.19,538/- for 2020, Rs.669/-. For The Year ended for 2023 excess of income over expenditure is only Rs.1,54,000/-. This itself shows that assessee trust is not existing for profit or any commercial activity or carry on any business. Therefore, reliance on the decision of honourable Supreme Court in case of the Ahmedabad Urban Development authority and Noble educationtrust are not relevant. He further stated that even in the case of CIT versus another under trust to 58 taxmann 54 (Kerala) mentioned by the learned CIT - A does not support that assessee is carrying on the activity for the profit as the above amount is clearly shows that it is almost cost to cost services provided. He in fact relied Page | 10 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) upon the decision of Ashok education society 307 CTR 76 to support his case.
viii. He further submitted all details were submitted which were asked for, therefore, the allegation that the vouchers of expenses were not provided is also not correct. The learned authorized representative submitted that in paragraph number 2.5 the notice dated 8/12/2023 is mentioned where only the Ledger account with the parties and the expenses details were asked for giving the name, address, permanent account number as well as other details which was provided. He referred to the paragraph number 3 of the order wherein in reply dated 3/11/2023 the bank statement and details of expenses were provided to verify the genuineness of the activities. Further when another show cause notice was issued as per paragraph number 3.2 against which the assessee short adjournment on 26/12/2023 but the learned CIT exemption proceeded to decide on the basis of information available. He even otherwise submitted that certain vouchers are provided to the lower authorities which itself is demonstrated by page number 27 and 28 of the order where such expense vouchers are extracted.
ix. He further submitted that the name of the promoters/trustees is mentioned for the only reason that the amount of withdrawal from the bank account is made on that account as well as they used to disperse the expenditure at the site. Therefore,these expenditures are not paid to the trustees, but these expenses are disbursed through the trustees. Thus, the claim of the Page | 11 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) learned CIT exemption that there is a siphoning of the money by the trust and violation of provisions of section 13 (3) of the act is not correct.
x. It was further submitted that absence of dissolution clause in the trust deed cannot be the reason for denial of the registration under section 12 AB of the act.
xi. Operation of the trust is in India which is specifically mentioned in the trustees and opening of the office in foreign country provided in the trust deed cannot be the reason to reject the registration. Assessee trust does not have any operation out of India. All charitable activities are carried out for the object of the trust and in India.
xii. The object of acceptance of donation from abroad is subject to the registration under the foreign contribution regulation act. Assessee has not accepted any foreign donation till today and therefore no registration is required under this act. Therefore, the registration on this ground cannot be rejected.
13. The learned CIT DR vehemently supported the order of the learned CIT exemption stating that assessee is carrying on the business activity by of training the tender for construction of the check dam and for organizing the medical camps by charging fees. He referred to the various paragraphs in the order of the learned CIT wherein looking to the contract terms it is apparent that assessee is carrying on business activity which is not charitable in nature. He further referred to the fact that assessee has not furnished the details of the expenditure by furnishing the various vouchers so that the genuineness of Page | 12 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) the activities can be verified. It was further stated that most of the expenses have been incurred for the trustees of the trust and therefore there is a clear-cut violation of the provisions of section 13 (3) of the act. He stated that absence of the dissolution clause clearly is the reason by which trust cannot be granted registration. He stated that the assessee has an object of carrying out activities out of India also and therefore the assessee for activities carried out outside India cannot be granted registration. He supported the order of the learned CIT exemption.
14. We have carefully considered the rival contentions and perused the order of the learned CIT exemption rejecting the application for registration under section 12 AA of the act. The assessee is a charitable trust wherein it is established for the object of creating facilities for the welfare and benefit of society at large to promote education, health, environment protection, housing and shelter facilities, rural and urban development, welfare of women and children and needy persons. The working of the trustas per clause number 2 (B) is all of India. It is an established fact that assessee does not have any operation outside India and has also not accepted any donation which is in violation of the foreign contribution regulation act. The list of donors was also furnished wherein all the donations received from resident of Udaipur and also community contribution from 42 persons. The assessee has received a contribution for establishment of a check dam into therefore from PhD rural development foundation which is a social arm of PhD Chamber of Commerce and industry. According to that the assessee was to develop that check dam where the community contribution Page | 13 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) of ₹ 120,000 and the cost provided by the PHD Chamber of Commerce was ₹ 2,776,169/-.
15. The object of the trust are broadly classified under clause 3 of the trust deed. According to clause number 3.1.12 the assessee has an object to conserve the environment and develop water sources like rivers, canals, swamps, marshes, reservoirs and other public in land water sources. It also has another object of organization of medical camps and relief programs as per object clause number 3.3.10. No doubt the terms and conditions of the contract contains clauses for compensation for delay and also involves payment of goods and service tax and deduction of tax at source. However, when a third-party is providing part of resources for carrying out any activity, naturally, it will have such kind of conditions and if the provisions of goods and service tax and tax deduction at source applies, the transaction does not make the business transaction. Because in case of provision of services by the trust, in certain cases, the provisions of goods and service taxes apply equally and on all the income of the trust, if applicable, required taxes to be deducted.
16. Regarding the issue of absence of dissolution clause in the trust deed, the decision of the honourable Rajasthan High Court in Shri Narsingh ka Mandir [2020] 119 taxmann.com 476 (Rajasthan) covers the issue in favour of the assessee.Naturally if the trust or its corpus / fund is exiting the regime of taxation u/s 11 to 13 of the Income tax Act, it would result into an exit tax on the trust at that time.
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17. As far as the details of the expenditure is concerned, it is the allegation of the learned CIT exemption that the assessee has given the funds to the trustees and therefore it violated the provisions of section 13 (3) of the act. It is the claim of the assessee that such payments are not made to the trustees but are made through the trustees and therefore there is no benefit involved to the trustees. Anyway, applicability of the provisions of section 13 (3) of the act is required to be looked into at the time of assessment of the trust income and if the assessee has given any benefit to the trustees which is violative of the provisions of section 13, naturally the assessee will pay the higher taxes on the above sum as per the provisions of the law. At present the assessee has made an application for the fresh registration under section 12 AB of the act where the learned CIT exemption is required to call for information and documents and also to make an enquiry about the genuineness of the activities of the trust and compliance with the requirement of any other law if those are material for the purpose of achieving its objects. Of course, he is also required to satisfy himself about the object of the trust. Objects of the trust already stated above are covered under the provisions of section 2 (15) of the act. The organization of the medical camp specifically covers under the head of medical relief and water conservation covers the object of construction of check dam.
18. As far as the objects of trust are concerned, they are not for carrying on of any activity for the purpose of the profit. The annual accounts placed before us for last several years shows that except in case of one year where very small amount of excess of income over expenditure is reported for all other Page | 15 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) years there is an excess of expenditure over the income. Therefore, it is apparent that assessee is not existing for the profit, from the activity carried on by the trust it has not earned profits and further even the work of construction of check dam was carried out with the community donations also over and above the donations/contribution of PHD Chamber of Commerce. In view of this we do not find any reason that the object of trust are in the nature of business and not charitable.
19. However, it is true that that some of the expenditure incurred by the assessee are not verifiable as those have not been furnished before the CIT exemption. According to the provisions of section 12 AB, the learned that CIT exemption is duty-bound to examine the genuineness of the activities. On the activities of the trust, the learned CIT exemption has cast some doubt and that too in absence of production of the vouchers of the expenditure incurred by the assessee. It is also true that assessee has not produced all the expenditure vouchers before the CIT exemption. The issue was decided only on the basis of information submitted before the ITO, exemption, and information available with the CIT exemption. The assessee sought some time which is evident at page number 26 of the order of the learned CIT exemption. Further certain observations have been made about the siphoning of the funds by the learned CIT exemption which are not put forth before the assessee seeking its explanation. The issue was decided about the genuineness of the activity only on the basis of few vouchers made available to the ITO exemption. The assessee was never confronted with the views expressed by the CIT exemption about the genuineness. Therefore, in the Page | 16 ITA No.47 & 48/Jodh/2024 A Y : 2023-24 Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) interest of the Justice we restore the issue of verification of genuineness of activities of the trust back to the file of the learned CIT exemption with a direction to the assessee to produce the vouchers of the expenditure incurred so that the genuineness of the activities can be examined.
20. The learned CIT exemption may consider the vouchers and then decide whether the activities carried out by the assessee is genuine or not.
21. In the result appeal of the assessee is allowed for statistical purposes.
22. The IT number 47/JD/2024 is with respect to the recognition of the trust under section 80 G (5) of the act which is solely dependent on the decision of the learned CIT exemption in ITA number 48/JD/2024 for grant of registration under section 12 AA of the act. Therefore, in the interest of the Justice, ITA number 47/JD/2024 is also restored to the file of the learned CIT exemption to decide the same after the decision of granting registration to the assessee trust found in accordance with the law.
23. In the result ITA number 47/JD/2024 is also allowed for statistical purposes.
Order pronounced in the open court on 18/09/2024.
Sd/- Sd/-
(YOGESH KUMAR US) (PRASHANT MAHARISHI)
(JUDIC IAL MEMBER) (ACCOUNTANT MEMBER)
Jodhpur, Dated: 18.09.2024
Aks/-
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ITA No.47 & 48/Jodh/2024
A Y : 2023-24
Foundation For Ecological and Environmental Sustainability Trust Versus CIT(Exemption) Copy of the Order forwarded to :
The Appellant, The Respondent, The CIT, The DR ITAT & Guard File BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Jodhpur