Income Tax Appellate Tribunal - Chandigarh
Tara Ripu Damanpal Trust, Kurukshetra vs Assessee on 7 January, 2016
1
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L. KARWA, HON'BLE VICE PRESIDENT AND
MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER
ITA No. 309/Chd/2015
Under Section 12AA
Tara Ripu Damanp al Trust Vs. CI T (Exemp tion).
Narayan Bhawan, Chandigarh
Salarpur Road, Gita Niketan Parisar
Kurukshetra
PAN No. AACTT2652F
(Appellant) (Respondent)
Appellant By : Sh. K.R. Chhabra
Respondent By : Sh. Manoj Mishra
Date of hearing : 17/12/2015
Date of Pr onouncement : 07/01/2016
ORDER
PER ANNAPURNA MEHROTRA A.M. This appeal has been filed by the assessee against the order passed by CIT (Exemptions), Chandigarh dated 16.02.2015, refusing to grant registration to the assessee u/s 12AA.
2. Brief facts of the case are that the assessee trust was created and registered on 20.06.2013 vide Registration No. 2069 of 2013-14. An application for grant of approval u/s 12AA was filed in the office of the CIT, Karnal, in F. No. 10A on 12.08.2014. The application was thereafter transferred to the office of CIT(Exemption), Chandigarh. Ld. CIT, after considering the documents filed by the assessee, refused to grant registration for the reason that not a single penny had been spent by the assessee trust towards its aims and objects. Ld. CIT also found that the assessee trust had neither applied 85% of its income for charitable 2 purposes nor accumulated the same as per section 11(2) of the Income Tax Act. Further, Ld. CIT stated that a report had been called from the Income Tax Officer (Exemptions), who had not recommended granting registration since the assessee trust had failed to furnish information / documents as desired. Therefore, Ld. CIT held that the assessee was not eligible for registration u/s 12A of the Act.
3. Before us Ld. AR argued that the Ld. CIT could not have refused registration for the reasons stated. Ld. AR submitted that the application for registration is required to be made within one year of creation of the trust or society and there is no requirement that the trust or society should have started all its envisaged activities in the first year itself. According to Ld. AR, u/s 12 A / 12AA of the Act, satisfaction regarding genuineness of the activities of the trust / society is to be seen and the stage for application of income is yet to arrive i.e. when the trust or society files its return. Ld. AR argued that the Ld. CIT had to only consider whether the objects of the assessee trust were genuine or not. Ld. AR stated that as per section 12A and the interpretation of the same by various Courts, Ld. CIT could not refuse registration for any reasons other than that stated in section 12A. Ld. AR placed reliance on the order of the Jurisdictional High Court in the case of Surya Educational & Charitable Trust (2013) 355 ITR 280, to strengthen his argument. Ld. AR further stated that no adverse observations have been made by the Ld. CIT regarding the objects of the trust. Ld. AR also stated that since it was the first year of functioning of the assessee trust no activities had been carried out by it. Therefore Ld. AR pleaded that registration u/s 12A could not be refused for not carrying out the stated 3 objects of the trust. Ld. AR again placed reliance on the order of Surya Educational Trust (Supra) in this regard. Further Ld. AR stated that examination of the fulfillment of the condition of section 11 was the prerogative of the A.O. to check during assessment proceedings and could not be a considered by the CIT while granting registration u/s 12A. The Ld. AR also stated that registration could not be refused on the recommendation of the Assessing Officer without disclosing the contents of the report confronting the same to the assessee. Thus the Ld. AR stated that the Ld. CIT had erred in not granting registration to the assessee trust.
4. Ld. DR on the other hand relied upon the order of the Ld. CIT and stated that since no activities in pursuance to the stated objects of the assessee trust had been carried out and further since the assessee had failed to comply with the condition regarding application of income to the extent of 85% or accumulation of the same as per section 11(2), the Registration u/s 12A had been rightly refused by the Ld. CIT.
5. We have heard the rival submissions and perused the order of the authorities below, as also the documents placed before us.
6. In the instant case, the contention of the Commissioner in refusing to grant regis tration to the society u/s 12A of the Act is that the Society had not carried out charitable activities and had also not applied its accumulated income as laid down in section 11 of the Act and further the Assessing Officer had not recommended grant of registration since the assessee trust had failed to furnish documents / information desired.
4Undisputedly the application for regis tration has been filed by the assessee trus t in the first year of its coming into existence. We find that the issue of refusal of Registration u/s 12A for not carrying out the stated charitable activities in identical circumstances has been dealt with by the Hon'ble Punjab & Haryana High Court in the case of CI T Vs. BKK Memorial Trust (2013) 29 Taxmann.com 286 (Hon'ble High Court of Punjab & Haryana), wherein the Hon'ble High Court has held as under:-
"6. A perusal of t he fact s depi ct s that t he Trust wa s c reat ed on 23.6.2010 and appli cati on under Secti on 12A(1 ) (aa ) o f the Act was m oved on 19.7.2010 and t he sam e was rej ected on 26.11.2010. Thi s Court i n ITA No.710 of 2010-Commi ssi oner of Incom e Tax-II, Chandi garh Vs. M/s Surya Educati onal & Chari t able Trust , deci ded on 5.10.2011 has held t hat t he appli cati on for regi st rati on i s requi red to be made wi t hin one year of t he creati on of t he Trust and t here i s no requi rem ent t hat t he Trust or t he i nsti tuti on should have st art ed all i ts envisaged acti vi ti es i n t he fi rst year i t self. Under Secti on 12AA of the Act sati sfacti on regardi ng the genui neness of t he acti vi ti es of t he Trust i s to be seen and the st age for appli cati on of i ncom e i s yet t o arri ve i .e. when such Trust or Insti t ution fi les i t s ret urn. Relevant porti on of t he j udgm ent reads as unde r:-
"We have hea rd learned counsel for t he appellant, but fi nd no m eri t i n the present appeals. As per Secti on 12AA of t he Act, an applicati on for regi st ration of t he Trust and Insti tuti on i s requi red t o be m ade wi thin one year from the dat e of creati on of the Trust or t he Establi shment of such Insti tuti on. The pro cedure for regi st rati on of t he Trust or Insti tuti on i s prescri bed unde r Secti on 12AA of the Act . In t erm s of Clause (a ) of Secti on 12AA of t he Act, the Commi ssi oner i s t o sati sfy hi mself about t he genui neness of t he acti vi ti es of t he Trust on such i nqui ri es as he may deem necessary. Sub-secti on (1A ) and (2 ) of Secti on 12AA of t he Act, are procedural i n nat ure, whe reas S ub-secti on (3 ) of Secti on 12AA of the Act, empowers t he Commi ssi oner to cancel t he regi st ration of t he Trust or Insti tuti on, i f he i s sati sfi ed t hat the acti vi ti es of such Trust or Insti t uti on are n ot genui ne or are not carri ed out i n accordance wi t h t he obj ect s of the Trust or Insti t uti on.5
Secti on 11 of the Act cont em plat es that the i ncom e as speci fi ed t herei n shall not be i ncluded i n t he t ot al i ncom e of t he previ ous yea r of t he person i n recei pt of t he i ncome deri ved from t he propert y held under t he Trust wholly for chari t able or reli gi ous p urposes, whe reas Secti on 12 of the Act, deals wi t h the cont ri buti ons recei ved by the Trust or an Insti t uti on, est abli shed for chari t able and reli gi ous purpose s, recei vi ng cont ri buti on, shall not be an i ncom e i n t erm s of Secti on 11 of the Act . The benefi t of Secti ons 11 and 12 of the Act, are avai lable only i f such Trust or Insti tuti on i s regi st ered under Secti on 12AA of t he Act .
On the other hand, Secti on 10(23C) of t he Act are t he provi si ons of the Act i n substi t uti on of the earli er provi si ons of Secti on 10(22 ) of t he Act as t o whi ch i ncome shall not be i ncluded i n computi ng t he t ot al i ncom e of any person. Therefore, t he provi si ons of Secti ons 11, 12 or Secti on 10(23C ) of t he Act, deal wi th t he i ncom e of a Trust or of t he Insti t uti on and the ci rcum st ances as to when such i ncom e i s t o be excluded fo r com puti ng t he tot al i ncome, but t he basi s of such benefi t i s the regi st rati on under Secti on 12AA of the Act . Unless a Trust or Insti t uti on i s regi st ered unde r S ecti on 12AA of t he Act, such Trust or Insti tuti on shall not be enti tled t o exclude from i t s t ot al i ncom e, deducti ons or cont ri buti ons or from ot her sourc es. Therefore, t he pri nci ples lai d down for excludi ng t he i ncom e from consi derati on under S ecti on 10(22 ) now 10(23 )(C ) or Secti ons 11 and 12 are not appli cable whi le consi deri ng t he appli cati on for regi st rati on under Secti on 12AA of t he Act . The appli cati on for regi st rati on i s requi red t o be m ade wi t hi n one year of the creati on of t he Trust . Secti on 12AA of t he Act, requi res sati sfacti on i n respect of the genui neness of t he acti vi ti es of t he Trust, whi ch i ncludes t he acti vi ti es whi ch t he Trust i s undert aki ng at present and also whi ch i t may cont emplat e to undert ake. The i nserti on of subsecti on (3) t o Secti on 12AA of t he Act, clari fi es the sai d fact, when i t em powers t he Commi ssi oner to cancel t he regi st rati on i f t he acti vi ti es of t he Trust are not carri ed out i n accordance wi t h such obj ect s.
Therefore, the object of Secti on 12AA of t he Act, i s to exami ne t he genui neness of t he obj ect s of t he Trust , but not the i ncom e of t he Trust for chari table or reli gi ous purpose s. The st age for appli cati on of i ncom e i s yet to arri ve i .e. when such Trust or Insti tution fi les i t s ret urn. Therefore, we fi nd t hat the j udgm ent s referred t o by the learned co unsel for t he appellant are not appli cable to t he fact s of t he present case ari si ng out of t he questi on of regi st rati on of the Trust and not of asses sm ent .
In vi ew of t he above, we do not fi nd that any subst anti al questi on of law ari ses for consi deration i n the present appeals. Hence, t he sam e are di smi ssed."6
7. The sai d vi ew has been followed by t hi s Court i n ITA No.881 of 2010 The Commi ssi oner of Incom e-t ax, Bathi nda Vs. M/s Ba ba Deep Si ngh Educati onal Soci et y, SCF 23, Bharat Nagar, Bat hi nda deci ded on 13.10.2011 whe rei n i t was held a s under :-
"In vi ew of above fact s and ci rcum stances, i t would be clear t hat respondent -soci et y whi ch was a dmi ttedly runni ng a Polyt echni c College and the acti vi ti es were i nt erwoven for furt heri ng t he proj ect s and acti vi ti es pert ai ni ng to educati on, t he Tri bunal ri ght ly di rect ed t hat regi st rati on should be grant ed t o t he respondent -soci et y wi t h the ri der t hat the sam e could always be cancelled i f i t cam e to t he notice of t he CIT t hat the soci et y was not carryi ng on t he acti vi ti es as per i t s obj ect s. The Commi ssi oner whi le proces si ng the appli cati on unde r Secti on 12AA of t he Act was not t o act as an Assessi ng Aut hori t y and t hus, t he Tri bunal has ri ght ly allowed t he appeal fi led by t he soci et y i n t he fact s and ci rcum st ances of t he present case."
8. Accordi ngly, i n vi ew of t he aforesai d pronouncem ent s of t hi s Court whi ch are full y appli cable i n t he present case, t he submi ssi on of t he counsel for t he revenue that the Trust was not set up for chari t able purposes and i t was uti li zi ng i t s i ncom e not for t he sai d purpose cannot be exami ned at t hi s st age as only obj ect s of t he Trust had to be consi dered by t he Commi ssi oner. The Trust was i n nascent st age and was yet t o work t owards i t s obj ect s. No error could be poi nt ed out i n the order of t he Tri bunal wa rranti ng i nt erference by t hi s Court . Accordi ngly, no subst anti al questi on of law a ri ses for det ermi nati on by thi s Court and consequent ly, t he appeal i s di smi ssed."
From the above, it is clear that the objects of Section 12AA is to examine the genuineness of the objects of the Trust or Society, but not the total income or the Trust or Society available for charitable purposes. Application of income has to be seen at the stage of assessment when the Trust or Society files its return of income. I t is not the case of Ld. CI T that the objects of Society are not charitable. Furthermore, in the instant case the Society was in nascent stage and it is not required under law that the Society should have started all its envisaged activities in the first year itself. In our considered view, the decision of the Hon'ble Jurisdictional 7 High Court referred to above is squarely applicable to the facts of the present case. Respectfully, following the judgement of Hon'ble Jurisdictional High Court in the case of CI T v B.K.K. Memorial Trust (supra), we hold that the Commissioner of I ncome Tax could not have refused grant registration u/s 12A / 12AA of the Act to the assessee society for the reason that it had not carried out any charitable activities.
Further we find that the Ld. CI T had refused registration also for the reason that the assessee had not applied 85% of its receipts for charitable purpose nor accumulated the same for application in future years, as per the provision of section 11 of the Act. The provision of section 12AA are very clear, as per which the only mandate given to the CI T before granting registration is to satisfy himself abou t the genuineness of the objects of the Trust and the activities of the Trust. Ld. CI T has only to see whether the objects of the Trust are charitable or not and the activities are genuine. The purpose being to establish the identity of the Trust to enable it to claim the benefits u/s 11 & 12 of the Act. The fulfillment of conditions of sec tion 11 is a separate issue which is to be considered when return is filed by the assessee and examined by the AO. The Hon'ble Allahabad High Court in the case of Hardayal Charitable & Educational Trust Vs. CI T(2013) 355 I TR 534 held that the question of exemption of application of income was an issue to be considered on examining the claim of the assessee in the return filed, and could not be a consideration for granting/refusing to grant registration u/s 12AA. The Hon'ble High Court held at para 22 of its order as follows: 8
"22. The question of the exemption of the application of income received by way of donation, is a separate issue and which may be required to be considered, when the return is filed by the trust and is examined by the Income-tax Officer. The question as to whether the donations by the societies was the expenditure of the trust for charitable and religious purposes will be examined at the time of examining the return."
Similar view has also been held by the Rajasthan High Court in the case of CI T Vs. Vijay Vargiya Vani Charitable Trust (2014) 369 I TR 360 (Raj) wherein it held as follows:
"8. In our view, the object of Section 12AA is to examine genuineness of the objects of the trust but not the income of the trust for charitable or religious purpose. The Commissioner cannot sit in the chair of Assessing Officer to look into amount spent on charitable activities at the time of creation of the Trust. The stage for reviewing the application of income has not arrived when such trust or institution files application for registration of the trust/society.
9. In our view, the Trust can move the application immediately at the time of formation then there is no prohibition under the Act seeking registration. In our view as observed earlier the only thing to be looked into at the time of granting of registration is that the object of the Trust for which it was formed have to be seen and examined,the CIT's satisfaction about genuineness of the activities of the Trust is not a criteria as the trust is yet to commence activities. Asking about charitable activities at the nascent stage would amount to putting a cart before the horse."
Following the above decisions, we hold that the Ld. CI T could not have refused registration to the assessee u/s 12A for not complying with the condition of application / accumulation of income as specified in section 11 of the Act.
Further we find that the Ld. CI T has refused registration on the recommendation of the AO, without disclosing the complete contents of the report and without confronting the same to the assessee. This we hold is against the principle of natural justice. The Hon'ble Apex Court in the case of Kishinchand Chellaram Vs. CI T (1980) 125 I TR 713, has held that no evidence can be used agains t the assessee without confronting the same to it. The Ld. CI T could 9 not therefore have refused registration to the assessee on the basis of recommendation of the AO.
7. In view of the above we direc t the Commissioner of Income Tax to grant Registration to the assessee society u/s 12AA of the Act.
8. In the resul t appeal of the assessee is allowed.
Order pronounced in the Open Court on 07/01/2016 Sd/- Sd/-
(H.L. KARWA) (ANNAPURNA MEH ROTRA) VICE PRESIDENT ACCOUNTANT MEMBER Dated : 07/01/2016 AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR