Income Tax Appellate Tribunal - Panji
M/S Geonka Charitable Trust, Amritsar. vs The Commissioner Of Income Tax ... on 8 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
BEFORE SH. T.S. KAPOOR, ACCOUNTANT MEMBER AND
SH. N.K.CHOUDHRY, JUDICIAL MEMBER
I.T.A No.510 & 511(Asr)/2016
Assessment Year:2016-17
M/s. Goenka Charitable Trust, Vs. CIT (Exemption),
81, 1st Floor, Chandigarh.
Kennedy Avenue, Amritsar.
PAN:AACTG-4474E
(Appellant) (Respondent)
Appellant by: Sh. Sanjiv Mehra (Ld. CA.)
Respondent by: Sh. Rahul Dhawan (Ld. D.R)
Date of hearing:06.09.2017
Date of pronouncement:08.11.2017
ORDER
PER N.K.CHOUDHRY:
The instant appeals have been filed by the assessee, on feeling aggrieved against the separate orders dated 28.09.2016 passed by the Ld. CIT (Exemption), Chandigarh for Asst. Year:2016-17.
2. The assessee has raised the following grounds of appeal in ITA No.510(Asr)/2016.
"1. That the learned CIT has erred in law and on facts in rejecting the application of applicant assessee Trust made under section 12A of the Income Tax Act, 1961 ('the Act') for registration of the Trust.
2. On the facts and in the circumstances of the case, the CIT has passed the order on presumptions and surmises completely ignoring the Trust Deed and the activities undertaken so far in accordance with the Trust Deed by the Trust which are genuine and charitable in nature and are covered under section 2(15) of the Act.2 ITA No.510 &511 (Asr)/2016
Asst. Year: 2016-17
3. That the Id. CIT has also exceeded the scope and nature of enquiries at the stage of grant of registration as prescribed under section 12AA. The said order be set aside and consequently the CIT be directed to grant registration.
4. That the learned CIT has erred in law and on facts in rejecting registration u/s 12AA on the ground of Trust being for Corporate Social Responsibility ('CSR') activities of the settlor being a Company incorporated under the Companies Act, 2013, when all such activities are charitable in nature and are covered under section 2(15) of the Act. Further, the Ministry of Corporate Affairs, GOI vide Circular No. 21/2014 dated 18-6-2014 has allowed the companies to contribute to the Trusts registered under Income Tax Act for carrying out CSR activities as mandated under section 135 of the Companies Act, 2013.
5. That the Id CIT was not justified to reject the application for registration u/s 12A of the Act for which proper opportunity of being heard was not given and no specific show cause notice stating the reasons was given to the applicant assessee Trust.
6. That the appellant seeks leave to add, amend, delete or alter any ground or grounds of appeal petition at the time of hearing, if deemed necessary, in the interest of justice and equity."
The following grounds of appeal raised in ITA No.511(Asr)/2016.
"1. That the learned CIT has erred in not granting approval u/s 80G of the Income Tax Act, 1961 to the appellant Trust vide order dated 28-9- 2016 as the registration under section 12AA by the Id. CIT has been rejected simultaneously on the said date.
2. That the order of cancellation of registration u/s 12AA has been challenged by the applicant trust before the Hon'ble ITAT and the appeal is yet to be decided. The Appellant prays that on acceptance of the assessee's appeal filed against order u/s 12AA by the Id. ITAT, the worthy CIT be directed to grant approval u/s 80G as the Trust satisfies all the conditions prescribed for grant of approval.
3. That the appellant seeks leave to add, amend, delete or alter any ground or grounds of appeal petition at the time of hearing, if deemed necessary, in the interest of justice and equity."
3. The brief facts of ITA No.510(Asr)/2016 are as under:
In the instant case, an application for registration u/s 12AA of the Act was filed before the Ld. CIT(E) on 29.03.2016 and it was revealed in the application that the society is an going entity that has been in operation since 08.03.2016. On consideration of the 3 ITA No.510 &511 (Asr)/2016 Asst. Year: 2016-17 application, the Ld. CIT(E) accorded an opportunity of personal hearing on dated 20.09.2016 in order to apprise the activities of the applicant trust as to whether the same were on sync with the stated objects. In response to which reply had been received from the assessee and after considering the reply offered by the assessee/applicant, a show cause letter was emailed at [email protected] on dated 27.09.2016 vide which certain documents/clarifications have been sought by the Ld. CIT(E) and in response through mail, the applicant provided confirmation from Ludhiana Beverage Private Limited stating that the donation amounting to Rs.11,00,000/- has been made out of the CSR obligation under the Companies Act, 2013 and on consideration of various issues the Ld. CIT(E) declined to grant registration u/s 12AA of the Act to the assessee/applicant herein by observing as under:
"13. Considering all the above, it is safe to conclude in the present case (i) that the main aim appears to be forming a trust merely for complying to CSR requirements (ii) that the trust has been stated to formed to implement the CSR activities of the settler company (iii) that the composition of the trust is restrictive and to that extent not amenable to public charity (iv) that no activity in sync with the requirements of the Companies Act has taken place in the trust so far (v) that the activities so far further show that the trust has relinquished its function, as the primary implementation agency and undertaking its own programmes to impact targeted beneficiaries, by transferring its funds to other societies (vi) that it also militates against the legal principle that social enterprises cannot be a direct recipient of money from a corporate as it is a profit making company. Additionally, it is reiterated to be a mere instrument to carry out the CSR functions of the settler company and given its restrictive composition it surely doesn't ensure to the benefit of general public nor does it partake the meaning of public trust. The applicant for registration u/s 12A is hereby rejected."
4. On feeling aggrieved against the order passed by the Ld. CIT(E), the assessee preferred the instant appeal and in support of its case, the assessee made the following submissions.
1. That the Id. CIT (Exemptions), Chandigarh has rejected the application of the applicant made under section 12A of the Income Tax Act, 1961 for registration as a charitable trust. The application dated 25- 3-2016 in Form No. 10A complete in all respects was received in the 4 ITA No.510 &511 (Asr)/2016 Asst. Year: 2016-17 office of CIT (Exemptions), Chandigarh on 28-3-2016 (stated as 29-3- 2016 in the order). The Trust was established on 8-3-2016 under the Trust Deed which was registered with the Sub-Registrar, Amritsar on this date, and the application sought registration from the financial year 2015-16 relevant to the assessment year 2016-17. Also consequent to the rejection of registration under section 12A, appellant's application for approval under 80G has also been rejected simultaneously.
2. Since the Trust was newly established, it commenced its charitable activities by contributing to other registered and recognized/reputed charitable organizations and Government Schools. The application for registration gave a detailed account of such charitable contributions/expenditure for the period from 8 March 2016 to 23 March 2016, along with evidence thereof. Subsequently vide letter 3 August 2016, the appellant filed inter-alia audited accounts for financial year 2005-06 and the details of application for the period from 1-4-2006 to 31-7-2016.
3. That the worthy CIT(Exemptions) vide email dated 27-9-2016 required the details of the composition of M/s Charity Aid Foundation, New Delhi to whom the appellant had made a major charitable contribution of Rs.10,00,000/- on 21-3-2016. Being the third party Trust not connected with the appellant or its trustees in any way, the information required could not be submitted forthwith. The worthy CIT without waiting for the appellant's response abruptly passed the order rejecting registration under sectionl2AA was passed by the Id. CIT(Exemptions) on 28-9-2016.
4. Clearly, the time available was short and the query was made by the Id. CIT(Exemptions) at the last minute. Even taking into account that the case was getting time barred, there was no show cause notice served on the assessee giving reasons for rejection of registration to enable the assessee to respond. Hence, natural justice was denied to the appellant.
5. That the appellant had, however, maintained during the registration proceedings that the donation received from Ludhiana Beverages Private Limited amounting to Rs.11,00,000 during the previous year ended 31-3- 2016 is out of CSR Obligations under the Companies Act, 2013, and out of this amount a sum of Rs.10 lacs has been contributed to the said M/s Charity Aid Foundation, New Delhi being an income tax approved charitable institution which has been carrying on public charitable activities including CSR activities as enlisted in Schedule VII of the Companies Act, 2013.
6. Subsequently, the appellant has procured (1) the copy of Trust Deed and (2) the order under section 80G of the Income Tax Act, 1961 of the said M/s Charity Aid Foundation, New Delhi. The Trust deed states the trustees and the objects of the Trust. The said Trust has incorporated various objects as stated in Corporate Social Responsibility (CSR) under the Companies Act, 2013. The Income Tax Department has also approved the Trust under section 80G of the Income Tax Act, 1961.
5 ITA No.510 &511 (Asr)/2016Asst. Year: 2016-17 Since these documents were not available with the appellant and hence could not be produced before the worthy CIT(Exemptions) to enable him to appreciate the case of the appellant.
7. That the two documents mentioned above have great evidentiary value and go to the root of the matter.
8. The courts have held that from the perusal of provisions of section 255 and the ITAT Rules, that the Tribunal has full powers of admission of additional evidence as it thinks fit and in the interest of justice, if the Tribunal feels appropriate it has to call for the evidence or examine the witness as is necessary for deciding the appeal before them.
In addition to the written statement, it was further submitted by the Ld. AR that in view of the judgment passed by the Hon'ble Allahabad High Court in the case of CIT vs. Red Rose School (2007) 212 CTR 394 (ALL) submitted that scope for enquiry by the CIT u/s 12A of the I.T. Act is very limited and the enquiry regarding genuineness of the activities cannot be stretched beyond the genuineness of the activities.
Further the Ld. AR relied upon the order passed by the ITAT, Lucknow Bench in the case of St. Don Bosco Educational Society vs. CIT (2004) 90 ITD 477 and submitted that provisions of Sec.12AA of the Act, restrict the power of the CIT to examine as to whether assessee who has moved an application for registration u/s 12A of the Act is actually carrying on the activities which are genuine or not, and the second, whether the object of the assessee society/institution is in consonance with the requirement of Sec.11/13 of the Act. No other enquiry contemplated by this section of the Act.
The Ld. AR further relied upon the judgment passed by ITAT, Amritsar Bench in the case of Dreamland Educational Trust vs. CIT (2007) 109-TTJ-ASR (850) and submitted that for grant of registration u/s 12AA of the Act, the only relevant consideration is satisfaction of 6 ITA No.510 &511 (Asr)/2016 Asst. Year: 2016-17 the CIT(E) regarding the objects of the trust and the genuineness of the activities and finally submitted that the objects of the assessee trust are laid down in the trust deed dated 08.03.2016 and are charitable in nature within the meaning of Sec.2(15) of the Act and to achieve the said objects, the assessee trust has spent amounts from time to time for charitable purposes in accordance with the objects of the trust for which the details have been furnished along with evidences before the Worthy CIT(E). The assessee trust has also made donation to other (unrelated) registered/recognized charitable institutions having valid exemption on similar charitable activities as enshrined in the objects of the Appellant Trust. Further the trust has also provided monetary aid to Government run schools in the surrounding areas and all the amounts if for genuine charitable activities and are appearing in the audited income and expenditure account and no infirmity in the activities carried down by the assessee trust have been pointed out in this regard by the Worthy CIT(E), however, the Worthy CIT has exceeded his powers available to him u/s 12AA and has stepped into shoes of Assessing Officer whose scope is to determine the income of the trust which is an annual exercise for each assessment year. Hence, the order passed by the Ld. CIT(E) is liable to be set aside.
5. On the contrary, the Ld. DR relied upon the order passed by the Ld. CIT(E) and submitted that the order under challenge is well reasoned and logic order, does not suffer from illegality, perversity and impropriety.
6. We have gone through with the facts and circumstances of the case, as it as rightly pointed out by the CIT(E) in his order that provisions of Sec.12A of the Act necessitate examination of two basic 7 ITA No.510 &511 (Asr)/2016 Asst. Year: 2016-17 conditions for grant of registration and the same include, apart from the examination of the objects of the society, satisfaction of the competent authority in respect of genuineness of activities as well, particularly when the applicant is on going entity and it would also be necessary to examine the real purpose that is inherently built creation of captive trusts by companies in order to redeem their CSR obligations.
In the order, it was observed by the Ld. CIT(E) that Ludhiana Beverage Pvt. Ltd. is a company which is closely linked to the applicant trust. Apart from the fact that Ludhiana Beverage Pvt. Ltd is the settler of the trust in contention the major contributions are also witnessed to have been provided by the company to this trust. Further, it is evidenced that the Managing Director of Ludhiana Beverage Pvt. Ltd Sh. Kailash Kumar Goenka is also among the trustees in addition to three other close relatives who presumably are also intricately linked to the private limited company mentioned above. The contents of the trust deed particularly point '6' revealed 'that any donations and contributions received from Ludhiana Beverages Pvt. Ltd., or from any other company in pursuance of their corporate social responsibility policy shall be spent/applied by the trust as per directions of the donor'. The above clearly is a method to attempt redeeming the CSR obligations cast upon by the Companies Act. Further, from the above it is clear that the objects narrated regarding other charitable activities being claimed are ostensible addendum to the main activity which is proposed to conduct CSR in case of the settler company. The assessee in its obligation to spend CSR amount in the limited company has tried to give cover to the activities of the assessee trust as a charitable one.
8 ITA No.510 &511 (Asr)/2016Asst. Year: 2016-17 The Corporate Social Responsibility has been incorporated through Section 135(1) of Companies Act, 2013 in which 2% of average NP for the last 3 years of some large companies has to be spent on C.S.R. There is no specific tax exemptions available on expenses incurred on C.S.R. However, there are several activities, part of Schedule VII of the Companies Act, 2013, that enjoy exemptions under the Income Tax Act. The contents of the Schedule-VII is reproduced herein below.
SCHEDULE VII (See Section 135) Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:--
[(i) Eradicating hunger, poverty and malnutrition," promoting health care including preventive health care"] and sanitation '[including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water.
(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water '[including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga].
(v) protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;
(vi). measures for the benefit of armed forces veterans, war widows and their dependents;
(vii) training to promote rural sports, nationally recognized sports, Paralympics sports and Olympic sports
(viii) contribution to the prime minister's national relief fund or any other fund set up by the central govt., for socio economic development and relief 9 ITA No.510 &511 (Asr)/2016 Asst. Year: 2016-17 and welfare of the schedule caste, tribes, other backward classes, minorities and women;
(ix) contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.
(x) rural development projects]
(xi) slum area development.
Explanation.- For the purposes of this item, the term 'slum area' shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.] The Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to Corporate Social Responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession and as per provisions of CSR the amount spent under the head of CSR will not be deductible as business expenditure and in order to work around the provisions, the Ludhiana Beverage has created a trust where the Managing Director is the Trustee of the applicant Trust and an amount of Rs.11,00,000/-
has been given as donation to the applicant trust who out of the same, further donated Rs.10,00,000/- to one another charitable institution i.e., Charities Aid Foundation , New Delhi, who has already been registered u/s 80G and in fact, in directly has been done with the purpose to avail the benefit of 80G which seems to be close arrangement to control the finances of the Trust indirectly, by seeking exemption which would not have been otherwise deductible as expenditure is now being claimed exempt.
We are in agreement with the observation of the Ld. CIT(A) that the method adopted by the applicant, which is controlled by single company (settler) and managed through trustees who are simultaneously part of the Company, in fact, seems to be in-house 10 ITA No.510 &511 (Asr)/2016 Asst. Year: 2016-17 captive trust ostensibly for doing C.S.R. activity in order to control the amount which is compulsorily to be spent.
With regard to the contention of the assessee, the Ld. AR that the scope of enquiry u/s 12A of the Act is very limited for his satisfaction with regards to the object of the trust and the genuineness of the activities. We are of the considered opinion that certainly it is true that the scope of enquiry by the CIT(E) is very limited to satisfy himself about the objects of the society of institution and the genuineness of its activities and the judgments relied upon by the assessee are not disputed, however, he is fully empowered to call for such documents or information from the society or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the society or institution and may also make such enquiry as he may deem necessary in this behalf. Further he is also empowered to pass order for registration of society or institution and further if he is not so satisfied, then also empowered to pass an order refusing the register the society or institution, after satisfying himself about the objects of the society or institution and genuineness of its activities.
In the instant case, there is clause No.(v) in the trust deed which specifying that any donation received "shall be spent/applied by the trust as per the objects of the trust, donation trust corpus of the trust shall be applied in accordance with specific directions from the donor."
Further in clause (vi) specifies that any donation or contribution received from Ludhiana Beverage Pvt. Ltd or from any other company in pursuance of their Corporate Social Responsibility shall be spent/applied by the trust as per directions of the donor. These clauses in the trust deed are clearly seems to keep the trust by the settler etc. Ludhiana Beverage 11 ITA No.510 &511 (Asr)/2016 Asst. Year: 2016-17 Pvt. Ltd. in its own domain. The directions shall however fall within the purview of the objects of the trust.
Further from the trust deed it reflects that settler and the trustees are almost family members having no participation of the public which also not sync with the Corporate Social Responsibility project and in addition to that except giving donation to the tune of Rs.40,000 and 30,000/- to the Govt. Schools out of Rs.11,00,000/-, the applicant trust has not carried out any activities till passing of the impugned order even otherwise till disposal of this appeal.
We are in agreement with the CIT(E) that activity so far clearly shows that the trust has relinquished its function as the primary implementation of the agencies and undertaking its own programmes to impact targeted beneficiaries by transferring its funds to other societies and it is also militates against the legal principal that the social enterprises cannot be a direct recipient of money from a corporate as it is a profit making company and it is also clear that the composition of the trust is restrictive in nature and to that extent not amenable to the public charity.
Finally, on the aforesaid observation and consideration, we are of the considered opinion that the Ld. CIT(A) has gone into the genuineness of the activities of the society and made necessary enquiries and after nonsatisfying about the genuineness of the activities rightly passed an order refusing the registration to the applicant society.
We do not find any infirmity, perversity and illegality in the order of the Ld. CIT(E), Hence, the appeal of the assessee stands dismissed.
In the result, ITA No.510(Asr)/2016 stands dismissed.
12 ITA No.510 &511 (Asr)/2016Asst. Year: 2016-17 However, the applicant/trust shall be at liberty to apply afresh after removing the restrictive clauses of Trust deed as well as defects observed by the Ld. CIT(E).
7. Now, we take up ITA No.511(Asr)/2016, in which the assessee has raised the separate grounds. Since, the issue of registration u/s 12AA of the Act, has already been decided by us hereinabove in ITA No.510(Asr)/2016 and the findings given therein shall apply mutatis mutandis to this appeal also. Accordingly, in view of declining of registration u/s 12AA of the Act, this appeal is also dismissed.
8. In the result, the appeals filed by the assessee are dismissed.
Order pronounced in the open Court on 08.11.2017.
Sd/- Sd/-
(T. S. KAPOOR) (N.K.CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:08.11.2017.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By order