Income Tax Appellate Tribunal - Amritsar
Kashyap Charitable & Educational ... vs Assessee on 26 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. A.D.JAIN, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No.202(Asr)/2014
PAN :AABTK8767B
M/s.Kashyap Charitable & Educational vs. Commissioner of Income-tax,
Trust, Jagti Township, Nagrota, (J & K) Jammu.
Jammu.
(Appellant) (Respondent)
Appellant by:Sh.P.N.Arora, Advocate
Respondent by:S.V.K.Singh, DR
Date of hearing:19/02/2015
Date of pronouncement:26/02/2015
ORDER
PER B.P.JAIN,AM:
This appeal of the assessee arises from the order of the Commissioner of Income Tax, J & K ( In short, 'the CIT') dated 04.03.2014 against the order passed u/s 12AA (b)(ii) of the Income Tax Act, 1961 ( In short, 'the Act'). The assessee has raised the following grounds of appeal:
"1. That the order u/s 12AA(b)(ii) of the Income-tax Act, 1961, passed by the Ld. CIT, Jammu, thereby refusing to register the Society is illegal, invalid and void abinitio and the same is liable to be cancelled.
2. That the CIT has miserably failed to appreciate that the Trust/Institution was genuine and registration u/s 12AA(b)(ii) 2 ITA No.202(Asr)/2014 of the Act, should have been allowed as claimed as the Trust/Institution fulfilled all the requirements under the law.
3. That the case was fixed for hearing before the worthy CIT and necessary information was duly filed before him and on the same date the case was finalized. The Ld. CIT did not disclose his mind that he was going to reject the application of the Trust/Institution for grant of registration.
4. That the Ld. CIT did not appreciate that the Trust/Institution fulfilled all the conditions laid down under the law for granting registration u/s 12AA of the Act and the worthy CIT has not been able to place any material on the record for justifying the refusal of registration u/s 12AA(b)(ii). The Ld. CIT has not been able to place any material on the record before coming to the conclusion that the Trust was not genuine. Thus, the order of the ld. CIT is purely based on conjectures, surmises & supposition and the same deserves to be cancelled.
5. That the Ld. CIT, has miserably failed to give an opportunity to the Trust/Institution before refusing to grant registration which is the positive requirement of law and not an empty formality.
6. That the order of the Ld. CIT is illegal, invalid and void abinitio and is liable to be cancelled and the registration as claimed u/s 12AA of the Act, may be allowed for which the appellant is clearly entitled."
2. The brief facts of the case are that the application in Form No.10A was filed by the assessee on 21.05.2012 for registration u/s 12AA of the Act, which was rejected vide order dated 30.11.2012. Not satisfied with the said order of the ld. CIT, the assessee filed the appeal before the ITAT, Amritsar Bench, who vide order dated 04.09.2013 in ITA No.484(Asr)/2012 set-aside the issue in dispute back to the file of the ld. CIT, to decide the same afresh 3 ITA No.202(Asr)/2014 after affording opportunity to the assessee. Accordingly, the AO having jurisdiction over the issue was asked by the ld. CIT to furnish fresh report after examination of the case. The case was fixed from time to time and necessary details were filed before the ld. CIT, which were placed on record. The Ld. CIT rejected the application filed for grant of registration u/s 12AA of the Act and the necessary findings of the ld. CIT given vide para 3.1 to 4.5 are reproduced hereinbelow for the sake of convenience:
"3.1. After going through different clauses of the Trust deed executed on 16th day of March, 2011 it is observed that it has been enshrined in clause (1) of the said deed that " in order to effectuate the said object of creating and establishing a public charitable trust, the settler/founder of the trust have delivered LO and made over to the trustees a sum of Rs.50,000/- with intent to part with all their rights, title and interest claim therein and vest the same in the Trustees to have and to hold the same and the investment or investment for the time being representing i.e. same and all other properties that may for the time being represent the trust Estate together with all the additions and accretions therein and all accumulated income and any grants or funds received from any other source at later date and all other property or properties that may be acquired out of the same or otherwise may hereafter be subject to the trust for the charitable objects and the purposes and used hereinafter expressed with the powers and on the terms and conditions herein contained of and concerning the same. From this clase, it is clear that the said amount of Rs.50,000/- has been contributed by the Trustees as 'Corpus Fund' but while going through the balance sheet as on 31.3.2012, no such 'Corpus Fund' has been created. When the AO during the course of examination of accounts confronted the petitioner, the President of the Trust vide letter dated 28.10.2003, Para -5 stated that "trustees Virjee Mattoo, Avtar Krishan Pandita, Ajay Thakur, Davinder Singh has contributed each towards corpus fund/unsecured loans as per Trust Deed. Due to clerical mistake the amount of corpus fund has been shown clubbed within unsecured loan. "The matter was again verified 4 ITA No.202(Asr)/2014 with reference to the balance sheet prepared as on 31.3.2013 and duly signed by Chartered Accountant on 9.9.2013. In this balance sheet also, no such 'Corpus Fund' has been shown and total amount of Rs.2,17,000/- has been reflected on the liability side under the head 'Unsecured loan' and details of which have been given in the Schedule forming part of the balance sheet and in the said Schedule the particulars of the persons from whom the unsecured loans have been raised has been given. The petitioner has also submitted the confirmation letters before the undersigned on 30.11.2012 wherein it has clearly been mentioned that they have given unsecured loan without any interest to M/s. Kashyap Charitable and Educational Trust, thus there is also no mention about 'Corpus Fund'. This clearly flouts the above clause of the Trust Deed and itself leads to the conclusion that the trustees are not sincere in running the Trust in its proper prospective as envisaged in the Trust Deed. This shows that at its inception stage, the trustees have violated the said clause of the Trust Deed, itself is ample proof to lead to the conclusion that trustees are not seriously discharging their functions in accordance with the terms of the Trust deed and hence on this account alone, the appellant's request for registration is rejected.
3.2. In clause (xxi) and (xxii) of the Trust Deed, it has been provided that:
(xxi) That in case need amendment in the trust can also be incorporated;
(xxii) That the trust shall have the right to deal with the property of the trust and in case of need the trust property can be disposed off and alienated, the trust can purchase property for proper functioning of the trust, if need so arises.
As per clause 15 of the Trust Deed, it has been declared that the Trust is ' irrevocable' when both the clauses i.e. (xxi), (xxii) and (15) are read together it is clear that there is total conflict. The trust by its very nature needs to be irrevocable. A revocable trust is one that can be changed at any time through an amendment including the trustees, the beneficiaries. Being a revocable trust, the entire agreement can be changed y a trust amendment and a restatement. The funds and assets of a revocable trust still belong to the settler. So a trust claiming to be public charitable trust and seeking registration u/s 12A of the Act, 5 ITA No.202(Asr)/2014 has to be an irrevocable trust. As per Income tax office Manual too, registration is to be granted only to irrevocable trust. As per scheme of Income tax Act, the benefit of tax exemption is to be granted to irrevocable public charitable trust. Granting 12A registration and other consequent tax benefit to revocable trust will defeat the very purpose of granting tax benefit to such charitable institution as the tax benefit will actually go to the settler of the trust. But in the case under reference, though in clause-15, it has been mentioned in the Trust Deed "Irrevocable", but the various other clauses of the Trust Deed does not support this clause that is why there is conflict amongst various clauses of the Trust Deed and hence on this account alone, the applicant's request for registration is rejected. 3.3. As per 'Agreement of Rent Deed' executed on 23rd of Nov., 2013 between Ms. Urvashi Anand W/o Late Sh. Deepak Anand and Veer Ji Matoo General Secretary of Kashyap Charitable and Educational Trust, it has been stated that "whereas Mrs. Urvashi Anand had helped the trust in providing a space to accommodate the students of the Kashyap public School free of cost for the period of three years w.e.f. April, 2012. There was agreement between Mrs. Urvashi Anand and General Secretary to teach her kids privately at her home as home tuition.... Whereas General Secretary will not charge any tuition fee from them for the period of three years and will remain custodian for the property." . From this agreement, in fact, the applicant has tried to justify its claim of registration by showing activities under all limbs of the definition of charitable purposes as given in section 2(15) of the Act, thereby trying to justify non payment of rent for use of accommodation by providing service to the landlady. As already stated these claims being unsubstantiated are rejected. Though there is no strict requirement of the trust having carried out any activity before it is granted registration, the unsubstantiated claim show that applicant's activities are not genuine and also are not as per its main objects.
4. A reference is made to the provisions governing the grant of registration u/s 12AA of the Act, which reads as under:
"1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) of section(1) of section 12A, shall-6 ITA No.202(Asr)/2014
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.
Thus, it is laid down in the Act that the Commissioner of Income Tax, before granting registration u/s 12AA is to satisfy himself about the objects of the trust or institution and genuineness of its activities. Therefore, in view of the finding that the activities of the applicant trust are not genuine, registration u/s 12A is not permissible.
5. In view of the above facs, application filed for grant of registration u/s 12A of the Income tax Act, 1961 is hereby rejected as discussed in above paras, therefore, I refuse to register the Trust in terms of the provisions of section 12AA(b)(ii) of the Income-tax Act, 1961 and the application of the applicant is accordingly rejected."
3. The Ld. counsel for the assessee, Mr. P.N.Arora, Advocate, submitted a chart with regard to the objection of the ld. CIT and the explanation given before the ld. CIT and his arguments which are placed on record. As regards the first objection of the ld. CIT that as per trust deed, the settlers/trustees had contributed a sum of Rs.50,000/- for 'Corpus Fund', which in fact is unsecured loan as per copy of balance sheet as at 31.03.2012 and as at 31.03.2013. The order of the ld. CIT was passed on 04.03.2014. It was 7 ITA No.202(Asr)/2014 argued by the ld. counsel for the assessee that four trustees, namely, Virjee Mattoo, Avtar Krishan Pandita, Ajay Thakur and Davinder Singh each have contributed towards Corpus Fund as per Trust Deed but due to clerical mistake, the said corpus fund was wrongly clubbed with the unsecured loan and accordingly was depicted as unsecured loan in the balance sheet as at 31.03.2012 & as at 31.03.2013. The complete details were given before the AO that the said trustees have contributed the money as corpus fund as well as unsecured loan to the said trust. The letter and the details produced before the AO and the ld. CIT(A) are available at PB 93 to 95. The necessary details of the corpus fund contributed by the trustees and the unsecured loans given to the trust is as under:
Name Corpus Fund Unsecured Total
Loan
Veerji Matto R/o H.No.80- 15000 15000
2B/B Roop Nagar Enclave
Jammu.
Ajay Thakur R/o 66/7, 15000 2000 17000
Vishwa Bharti Colony
Akalpur Jammu
Davinder Singh R/o Gujral 15000 2000 17000
Enclave Gol Gujral Talab
Tillo Jammu
Avtar Krishan Pandita R/o 5000 12000 17000
Kailash Vihar Kothia Natara
Barnai Jammu
Total 50000
8 ITA No.202(Asr)/2014
4. The necessary confirmation form the said trustees are available at PB 142, 145, 148 & 147 confirming of contributing towards the corpus fund to the trust. Therefore, in the facts and circumstances, the ld. CIT(A) is not justified in concluding that the assessee trust had violated clauses of the trust deed and the application for registration should have not been rejected.
5. As regards the irrevocable provisions in the trust deed placed at pages 18 to 39, the objection of the ld. CIT was that clause No.3(xxi) and 3(xxii), if read with clause 15 are contradictory and therefore, the trust is irrevocable trust and therefore, cannot be granted registration u/s 12AA of the Act. In this regard, the ld. counsel for the assessee argued that from the reading of the said clauses, there is no ambiguity in the various clauses of the trust deed as mentioned by the ld. CIT, which can prove that the trust is irrevocable trust. As regards the clause 3(xxi), the trust has the power to make amendment in case of need does not prove the trust as irrevocable trust. As regards clause 3(xxii) where the trust has right to deal with the property of the trust and in case of need the trust property can be disposed of and alienated and it can purchase property for proper functioning of the trust, if need so arises. The said clauses do not contradict irrevocable clause 15 of 9 ITA No.202(Asr)/2014 the Trust Deed at page 38 of the PB. Therefore, the ld. CIT is not justified in rejecting the application for grant of registration on this point.
6. As regards the objection of the ld. CIT(A) with regard to agreement of rent executed on 23.11.2013 between Mrs. Urvashi Anand and Veerji Mattoo, General Secretary of the trust, the Ld. CIT is not justified in concluding that assessee's activities are not genuine and are not as per main objects. It was argued by the ld. counsel for the assessee that the said land- lady is not related to any of the trust members and the purpose is to provide education to the students without charging tuition fee at a space provided free of rent to teach students of the assessee-trust. In a way she provided the education free of cost which is strictly according to the objects of the trust and intent and purpose of the charitable activity and there is no violation of section 2(15) of the Act. The ld. CIT(A) has mis-conceived such charitable activity as non-charitable one, inspite of the fact the balance sheet and profit & loss account for the year ending 31.3.2012 and 31.3.2013 were on record and none of the expenditure have been brought on record as of non- charitable purpose. Accordingly, the ld. counsel for the assessee prayed to cancel the order of the ld. CIT and direct the ld. CIT to grant registration, as applied.
7. The Ld. DR, on the other hand, relied upon the order of the ld. CIT. 10 ITA No.202(Asr)/2014
8. We have heard the rival contentions and perused the facts of the case. As regards the first objection of the ld. CIT that as per trust deed, the trustees have contributed Rs.50,000/- to form a corpus fund and said trustees have agreed to act as trustees after contributing such sum as corpus fund. At the outset, in the trustee deed itself signed by all the trustees, a sum of Rs.50,000/- has been contributed by four trustees as corpus fund, is not under dispute by the ld. CIT. It is also not in dispute that the assessee has shown the said sum of Rs.50,000/- as part of the unsecured loan of Rs.2,17,000/- during the year ending 31.3.2012 & 31.03.2013. But at the same, the explanation was submitted that due to clerical mistake a sum of Rs.50,000/- contributed as corpus fund has wrongly been clubbed with unsecured loan. The necessary confirmations in the from of certificate from all the four trustees have been placed on record before the Ld. CIT, as mentioned hereinabove, which is not disputed by the ld. CIT. It is a fact that out of the four trustees, three trustees have contributed towards corpus fund as well as unsecured loans. This fact is also not disputed by the ld. CIT. In fact, the ld. CIT at page 2 mentions that the said trustees have contributed towards corpus fund/unsecured loan. Therefore, when the trustees have contributed towards corpus fund, is not under dispute, it is not fair and not justified for the ld. CIT to conclude that the trustees have not contributed 11 ITA No.202(Asr)/2014 towards corpus fund but towards unsecured loan only and there is violation of the trust deed. In the facts and circumstances, clause 2 of the trust deed where the trust deed itself shows contribution of Rs.50,000/- as corpus fund and the certificate of all the four trustees for contribution towards corpus fund and findings of the ld. CIT at page 2 & 3 of his order that trustees have contributed towards corpus fund as per clause 2 of the trust deed placed at PB 39 and therefore, on this account, the ld. CIT is not justified in refusing grant of registration u/s 12AA of the Act.
9. As regards the irrevocable clause, referred to in clause 3(xxi) where the assessee is empowered in trustee deed (PB 25 to 28) that in case of need amendment in the trust can be incorporated and in clause 3(xxii), the assessee trust has right to deal with the property of the trust and in case of need the trust property can be disposed of and alienated and the trust can purchase property for proper functioning of the trust, if need so arises, does not prove irrevocability of the trust and does not contradict clause 15, the irrevocablity clause of the trust at PB 38 and therefore, on this account as well the ld. CIT(A) is not justified in concluding and refusing to grant registration u/s 12AA of the Act.
10. As regards the agreement of rent deed executed between Mrs. Urvashi Anand and Veer Ji Mattoo General Secretary of the trust, where 12 ITA No.202(Asr)/2014 Mrs. Urvashi Anand has provided space to accommodate teaching the students of the assessee trust rather proves a charitable act, which does not contravene any of the provisions of section 2(15) of the Act and accordingly, the ld. CIT is not justified in concluding and refusing registration u/s 12AA of the Act. Moreover, as per balance sheet and income and expenditure account at PB 15 & 16 for the year ending 31.3.2012 & 31.3.2013, none of the expenditure and activities have been shown to be of non-charitable purpose by the ld. CIT. It was stated by the ld. counsel for the assessee that rectification of the said amount has been done in the balance sheet of the year ending 31.3.2014 after the order of the ld. CIT passed on 28.02.2014, though the same is not on record. In the facts and circumstances of the case, the Ld. CIT is not justified in refusing to grant registration u/s 12AA of the Act and accordingly, we cancel the order of the ld. CIT and direct the Ld. CIT to grant registration as applied in Form No.10A dated 21.05.2012. Accordingly, all the grounds of the assessee are allowed.
11. In the result, the appeal filed by the assessee in ITA No.202(Asr)/2014 is allowed.
Order pronounced in the open court on 26th February, 2015.
Sd/- Sd/-
(A.D.JAIN) (B.P. JAIN)
13 ITA No.202(Asr)/2014
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 26th February, 2015
/SKR/
Copy of the order forwarded to:
1. The Assessee:M/s. Kashyap Charitable & Educational Trust, Nagrota, Jammu.
2. The CIT, Jammu.
3. The SR DR, ITAT, Amritsar.
True copy By order