Income Tax Appellate Tribunal - Hyderabad
Cmsn Charitable Trust,, Hyderabad vs Assessee on 31 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No.1010/Hyd/2012 : Assessment Year 2011-2012
CMSN Charitable Trust, V/s Asst. Director of Income-
Hyderabad tax(Exemption), Hyderabad .
(PAN AABTM 9304 Q)
(Appellant) (Respondent)
Appellant by : Shri P.Muralimohana Rao
Respondent by : Smt. Amisha S.Gupt
Date of Hearing 16.01.2013
Date of Pronouncement 22.02.2013
ORDER
Per Chandra Poojari, Accountant Member:
This appeal by the assessee is directed against the order of the Director of Income-tax(Exemption) Hyderabad dated 31.5.2012. passed under S.12AA(1)(b)(ii) of the Income-tax Act, 1961.
2. Assessee's grievance in this appeal is with regard to rejection of the assessee's application for registration under S.12AA of the Act.
3. Brief facts of the case are that the assessee filed an application in Form No.10A on 30.11.2011, seeking registration under S.12AA of the Act. The said application was rejected by tehe Director of Income-tax(Exemption) vide order dated 30.6.2011. On appeal against the same, this Tribunal, vide its order dated 28.6.2012 in ITA Nol1912/Hyd/2011 for assessment year 2011-12, has set aside the matter to the file of the Director of Income-tax(Exemption) for fresh adjudication on the application of the assessee in Form No.10A, with the following observations-
2 ITA No.1010/Hyd/12CMSN Charitable Trust, Hyderabad "4. We heard the parties. We find that the Director of Income-tax(Exemption) has not passed a speaking order, but rejected the application of the assessee observing that the assessee failed to produce the books of account, bills, vouchers, bank statements, details of donations, contributions received etc., though the assessee was requested to furnish the same. Learned counsel for the assessee, while pleading about the inadequate opportunity of hearing provided by the Director of Income- tax(Exemption), has made a statement at bar that the relevant books of account, bills, vouchers and other documents as requested by the Director of Income-tax(Exemption), would be furnished if one more opportunity of hearing is given to it to put forth its case before the Director of Income-tax(Exemption). Considering totality of facts and circumstances of the case, in the interests of justice, we find it fair and proper to set aside the impugned order of the Director of Income-tax(Exemption) and restore the matter to his file with a direction to adjudicate upon the application of the assessee under S.12AA of the Act afresh, in accordance with law, by passing a speaking order and after giving reasonable opportunity of hearing to the assessee. Assessee is directed to furnish requisite details before the Director of Income- tax(Exemption) for proper adjudication in the matter."
4. Consequent to the order of the Tribunal, the Director of Income-tax(Exemption) once again took up the issue and in the course of second round of proceedings, issued a questionnaire vide letter dated 22.2.2012 to the assessee, requesting the assessee to furnish details on specific points and produce books of account, bills and vouchers, for verification.
5. Though the learned Authorised Representative for the assessee filed reply and requisite information in response to the questionnaire, the Director of Income-tax(Exemption) on going through the various documents filed and the information furnished, was not satisfied and was of the view that the assessee is not eligible for registration under S.12AA of the Act. In the first place, he noted that the application of the assessee in Form No10A is defective in as much as the same is not as per the statutory pro forma given in the Income-tax Rules, 1962. Further, he observed that when the trust is shown as created on 3.4.2009, the assessee has not furnished copies of accounts of the preceding two accounting years, filing of which alongwith the said 3 ITA No.1010/Hyd/12 CMSN Charitable Trust, Hyderabad application was mandatory as per Rule 16A(b) of the Income-tax Rules, 1962. He further noted that while as per the application in Form No.10A, date of creation of the trust is 3.4.2009, as per the trust deed filed alongwith the application itself, the deed was executed on 9.12.2010. He wondered how in view of document stated to be made on 9.12.2010, trust was created on 3.4.2009 as stated in the application in Form No.10A. The other objections of the Director of Income-tax(Exemption) contained in paras 2.1. to 2.4 of the impugned order read as follows-
"2.1 .....Further, as per the Trust Deed, the same was executed between four persons stated to be trustees, all of whom are found to be close family members. Further, when in that deed, it is mentioned that the trust shall be called CMSN Charitable Trust, in para 1.(iii) at page 2 of that deed, it is mentioned that the trust has commenced its business with effect from 3.4.2009. From such particular mention, it shows that, actually there was no charitable organization on that date ie, 3.4.2009, but an organization which was doing some business on that date. From such very admission regarding doing business, w.e.f. 3.4.2009, it shows that there was actually no charitable organization in this case.
2.2 Further, while clarifying about Board of Trustees and Members, under para IV at page 4, it is mentioned that the administration of trust shall vest in the Board of Trustees and Members and it is further mentioned that the shall not be, at any time less than two and more than six Trustees/Members. However, again under that para, at point nNo.iii, it is mentioned that the trustee hereto shall have power to co-opt other members or remove any of the members by a resolution passed at the meeting of the trustees, so, however, that their number inclusive of the founder-trustees shall not exceed five. From this very stipulation, it shows that the maximum number of persons to the Board of Trustees including co-opted member, shall be five, whereas, earlier in that para at point No.(i), it is mentioned that there shall not be more than six trustees/members. Under such anomalous situation, it shows that no valid trust deed has been created in this case. Further, in that point No.iii, it is mentioned that such co-opted members shall have a tenure of two years and shall automatically retire upon completion of two years as a member. Under para (v) relating to cessation of membership of board of trustees/member, it is mentioned that a co-opted member shall cease to be a trustee upon expiry of two years form the date of co-option, in case. It is further mentioned that he/she is not co-opted for a further turn. From the same, it shows that the four trustees who are close family members in this case have exclusive discretion and power in appointing any member to the trust. Such member has no real role/power in the affairs of the said trust. Further, under para (vi) pertaining to meeting of the board, it is mentioned that the meeting of the trustees and 4 ITA No.1010/Hyd/12 CMSN Charitable Trust, Hyderabad members shall be conducted at such intervals as are necessary. As may be seen, there is no clarity about the periodicity of meetings of the board of trustees. Rather, the meetings of the board are to be held as per the discretion of such trustees. Under these circumstances, it cannot be said that a valid public charitable trust has been created in this case. Further, though at page No.9 of the said deed, there is signature of two persons, as witnesses, their addresses have not been furnished/indicated therein.
2.3 Further clarifying about the activities, in the note furnished by the above trust, it is submitted hat the trust during the financial year 2010-11 and 2011-12 had construction of houses situated in Sy. No.550 & 551 of Potladurthi Village, Yerraguntla Mandal, Kadapa Dist., Andhra Pradesh. Further, though it is stated that the trust handed over the houses for weaker needy people and furnished photo copies of allotment letters for different houses in favour of different persons, almost all issued on the same date i.e. 21.12.2010, it has not been explained as to how the assessee trust has made such constructions for those persons. It has not been explained as to how those persons approached the above trust for construction of house for them. Further, in the Income & Expenditure Account for the year ended on 31.03.2010, beneficiaries contribution is shown as Rs.56,68,700/-. However, no schedule or break-up of the same has been furnished. Further, though in that account, trustees contribution and other voluntary contributions are shown at Rs.14,00,000 and Rs.34,56,300 respectively, the required complete details as per query No.8 of that questionnaire, have not been furnished. Similar details in respect of trustees contributions and other voluntary contributions pertaining to Accounting Year 31-3-2011 have not been furnished. It may be clarified here that vide query No.8, it was asked to furnish details of donations and contributions received with full addresses, names, date and mode of such receipts. Though, the assessee trust has furnished certain statements showing names of different persons their addresses and different amounts shown against each one of them, it has not furnished the desired information with regard to date and mode of such receipts.
2.4 Further, the above trust has not furnished complete bank statement since inception. The copy of bank account furnished maintained in ING Vysya Bank Ltd., pertains to only the period from 4.1.2011 to 31.3.2011."
Thus, for the above reasons, the Director of Income-tax(Exemption) rejected the application of the assessee for registration under S.12AA of the Act.
6. Aggrieved by the above order of the Director of Income- tax(Exemption), assessee is in appeal before us.
5 ITA No.1010/Hyd/12CMSN Charitable Trust, Hyderabad
7. The learned counsel for the assessee submitted that the Director of Income-tax(Exemption) was not correct in observing that the application form filed by the assessee for registration in Form 10A under S.12AA is defective and not as per statutory pro forma. It is submitted in this context that the mistakes pointed out are merely procedural and curable, given an opportunity by the concerned authority, and on that count, application for registration cannot be rejected. It is further submitted that the Director has not considered all the information which was furnished as per the questionnaire, though the assessee has furnished the Income & Expenditure Account and Balance Sheet and other supporting documents in support of its claim for exemption under S.12AA for assessment year 2011-12, and as such the Director of Income- tax(Exemption) was not justified in rejecting the request of the assessee for registration. It is also submitted that the Director of Income- tax(Exemption) has not given sufficient opportunity to the assessee to submit the requisite information/documents. In support of these contentions, the learned counsel for the assessee has placed reliance on the decision of the Delhi Bench of the Tribunal in Dharma Sansthapak Sangh (Niyas) V/s. CIT (2008)118 TTJ(Del) 823, wherein it has been held that so long as the objects of the trust are charitable in nature, carrying on of charitable activity at the stage of commencement is not relevant to decide whether such trust/institution is entitled for registration. He also placed reliance on another decision of the Delhi Bench of the Tribunal in the case of Aggarwal Mitra Mandal Trust V/s. Director of Income- tax(Exemption) (106 ITD 533)-Del., wherein it has been held that under S.12AA, the powers of Director of Income-tax(Exemption) are limited to make enquiries with a view only to satisfy himself about genuineness of activities and object of the trust and application of S.13 falls within the exclusive domain of the Assessing Officer and registration cannot be 6 ITA No.1010/Hyd/12 CMSN Charitable Trust, Hyderabad refused on the ground of violation of the provisions of S.13(1)(b) of the Act.
8. Learned Departmental Representative on the other hand, strongly relying the impugned order of the Director of Income- tax(Exemption), submitted that in view of the detailed reasons discussed by the Director of Income-tax(Exemption) in the impugned order, denial of registration under S.12AA to the assessee is very much justified. He also submitted that after insertion of section 12AA w.e.f. 1.4.1997, the Director of Income-tax(Exemption) is empowered to enquire about the activities of the assessee before passing the order granting registration.
9. We have heard the rival submissions and perused the orders of the lower authorities. The first question arising for our consideration in this appeal relates to the scope of enquiry by the DIT(E) u/s. 12AA of the Act. We are in agreement with the learned Departmental Representative that after insertion of section 12AA w.e.f. 1.4.1997, the DIT(E) is empowered to enquire about the activities of the assessee before passing the order. There may be cases where application is made after the commencement of activities by the assessee trust. In such cases the DIT(E) is justified to enquire about the activities. However, where no activity is commenced, the question of making any enquiry regarding any activity by the DIT(E) would not arise. The nature of enquiry would depend on the facts of each case. Hence the contention of the learned counsel that scope of the powers of the Director is limited to ascertaining only whether the objects are charitable or not cannot be accepted.
10. The next question for our consideration is whether on the facts and in law, the registration u/s. 12AA of the Act can be refused to the assessee. For the purpose of sections 11 and 12, the word 7 ITA No.1010/Hyd/12 CMSN Charitable Trust, Hyderabad "charitable purpose" has been defined in section 2(15) of the Act which reads as follows: .
"Charitable purpose" includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:] [Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year;]"
11. It was held by the Supreme Court in the case of Surat Art Silk & Cloth Mfrs. Association (121 ITR 1) as under:
"It is now well settled as a result of the decision of this Court in Dharmadeepti vs. CIT 1978 CTR (SC) 120 : (1978) 114 ITR 454 (SC), that the words 'not involving the carrying on of any activity for profit' qualify or govern only the last head of charitable purpose and not the earlier three heads. Where, therefore, the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of 'charitable purpose' would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution."
12. At this stage it is also pertinent to note that the clause "not involving carrying any activities of profit" were omitted from this definition by the Legislature by Finance Act, 1983 w.e.f. 1st April, 1983. Therefore, after such omission, the element of profit cannot be excluded from the definition "charitable purposes". u/s. 2(15) of the Act.
13. An institution carrying on charitable activities can claim exemption u/ss. 11 and 12 as element of profit is not excluded by the 8 ITA No.1010/Hyd/12 CMSN Charitable Trust, Hyderabad Legislature. The reason is obvious because of financial affairs of such institution are well controlled by the provisions of sections 11 and 13 of the Act. Section 11 clearly provides that in order to claim exemption such institution must apply 75% of its income for charitable purposes. The surplus if any has to be invested in specified bonds. Further, exemption can be denied if the provisions of section 13 are violated. Therefore, if there is any violation of either section 11 or section 13, then, the profits of such institution would be taxable. Further the fact that, only 75% of the income is to be applied for charitable purposes itself shows that element of profit is not excluded from the definition of charitable purpose for the purpose of sections 11 and 12. Because some profit has been earned by an institution registration u/s. 12AA cannot be denied so long as provisions of sections 11, 12 and 12AA are complied with. So long as it is established that income of the assessee society has been applied for the purpose of charitable activities in terms of section 11(2) and there is no violation of section 13, the assessee would be entitled to enjoy the benefit of registration u/s. 12AA of the Act.
14. Under both the categories mentioned above, the societies/trusts created with the sole object to advance the cause of charitable activities would become entitled for registration under S.12AA. In the present case, the CIT(A) has noted certain discrepancies in the trust deed with regard to the following aspects -
(i) In point (i) it is mentioned that there shall not be more than six trustees/members.
(ii) In point (iii), it is mentioned that such co-opted members shall have a tenure of two years and shall automatically retire upon completion of two years as a member.
(iii) Under para (v) relating to cessation of membership of board of trustees/member, it is mentioned that co-opted members 9 ITA No.1010/Hyd/12 CMSN Charitable Trust, Hyderabad shall cease to be a trustee upon expiry of two years from the date of co-option.
It is also noted that the assessee has failed to furnish certain information with regard to contribution collected by the assessee, in spite of receiving the questionnaire issued by the Director of Income- tax(Exemption). Considering totality of facts and circumstances of the case, and considering the plea of the assessee for one more reasonable opportunity to rectify the discrepancies and furnish the requisite information called for, and keeping in mind the ends of justice, we set aside the impugned order of the Director of Income-tax(Exemption), and restore the matter to the file of the Director of Income-tax(Exemption) with a direction to redecide afresh the application of the assessee for registration under S.12AA, after giving once again reasonable opportunity to rectify the discrepancies pointed out in the trust deed, and to furnish the details as requisitioned by the Director of Income-tax(Exemption) and to substantiate its case. On the assessee furnishing the requisite information and rectifying the discrepancies in the trust deed pointed out, the Director of Income-tax(Exemption), if satisfied with the charitable activities carried out by the assessee, shall grant registration applied for by the assessee. The assessee is directed to cooperate in the early disposal of the matter, by proper compliance with the notices/letters of the Director of Income-tax(Exemption), as otherwise, the Director of Income-tax(Exemption) would be at liberty to draw his own inferences and dispose of the matter accordingly. The Director of Income- tax(Exemption) is directed to examine the application of the assessee for registration under S.12AA of the Act afresh, and pass appropriate speaking order in accordance with law and after giving reasonable opportunity of hearing to the assessee.
10 ITA No.1010/Hyd/12CMSN Charitable Trust, Hyderabad
15. In the result, assessee's appeal is allowed for statistical purposes.
Order pronounced in the court on 22.2.2013
Sd/- Sd/-
(Asha Vijayaraghavan) (Chandra Poojari)
Judicial Member. Accountant Member.
Dt/- 22nd February, 2013
Copy forwarded to:
1. CMSN Charitable Trust, C/o. M/s.P.Murali & Co., Chartered Accountants, 6-3-6755/2/3, 1st Floor, Somajiguda, Hyderabad-82
2. Director of Income-tax(Exemption) Hyderabad
3. Asstt. Director of Income-tax(Exemption) Hyderabad
4. The Departmental Representative, ITAT Hyderabad B.V.S.