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ITA Nos. 6201& 6202/Del/2013 IME Trust

2. That learned Commissioner of Income Tax failed to appreciate the fact on the record that assessee in an educational trust whose activities are charitable and refused regn. u/s 12AA even without finding "objects" of the trust as not genuine and hence order is inherently illegal.

6. The learned Authorized Representative of the assessee submitted that while granting the registration Commissioner of Income Tax is required to examine whether the objects of the trust are charitable in nature and about the genuineness of the activities of the trust. He further submitted that the learned Commissioner of Income Tax has not given any adverse findings in respect of either the charitable objects of the trust or about the genuineness of the activities and the Commissioner of Income Tax has only concluded that the affairs of the trust was not maintained in a transparent and logical manner. Further, the ITA Nos. 6201& 6202/Del/2013 IME Trust learned Authorized Representative submitted that there was nothing wrong in extending loan to the trust by managing trustee or transferring land by one of the trustees to the trust through registered sale deed and having sale consideration at arm's length price. Learned Authorized Representative also drawn our attention to the object clauses of the trust deed placed at page no. 3 of the assessee's paper book and the application of the funds at page 7 to 9 of the assessee's paper book. The learned Authorized Representative also submitted that the subordinate officer in his report has not found anything adverse in the activities of the trust and he recommended for grant of registration. In support of his proposition that at the time of registration of trust only genuineness of objects are to be examined, he relied on the judgement in the case of CIT Vs RS Bajaj Society (2014) 42 taxmann.com 573 ( Allahabad) and other cases submitted in the form of paper book.

8. We have heard the rival submissions and perused the material on record. It is settled law that for grant of Registration under Section 12AA of the Act, the Commissioner of Income Tax is required to satisfy the twin conditions of charitable nature of the objects of the trust and genuineness of the activities carried out, but where the trust is new, the Commissioner of Income Tax cannot reject registration merely on the ground that no activity have been carried out. The assessee trust was constituted on 02.11.2011 and thereafter the assessee has commenced the activity of purchase of land for the purpose of achieving one of its objects of education. In the present case the first condition of charitable nature of object has not been disputed by the Revenue. In respect of the second condition, the learned Commissioner of Income-tax given finding that the trust has not maintained its affairs in transparent and logical manner and transaction made by the trust for purchase of land were highly disproportionate to the known funds available with the trust. The learned CIT(DR) has interpreted the said transaction of purchase of land from one of the relatives of the trustee as a colorable transaction. The learned Authorized Representative has denied such allegations of CIT(DR). We are also in agreement with the argument of the ld AR. It was apparent that the assessee trust has purchased land for commencing of its activity of education. We don't find anything wrong in buying land by the trust from one of the relative of the trustee unless some undue advantage has ITA Nos. 6201& 6202/Del/2013 IME Trust been passed on to the seller or the trust is adversely affected by the transaction. Further, we find nothing wrong in extending loan to the trust by the trustees. In the case in hand, the trustees or their relatives have extended loan and transferred land at arm's length price as trustees and their families to fulfill the desire of charitable activity have extended loans or transferred the property to the trust. By these actions of the trustees or their relatives, the trust is not at disadvantage or the transactions are not prejudicial to the interests of the trust. Thus, we find that the finding of the ld CIT that trust has not maintained its affairs in transparent and logical manner and transaction made by the trust for purchase of land were highly disproportionate to the known funds available with the trust are completely devoid of merit and deserve to be rejected. Further, interpretation of the fact and circumstances of the assessee as a colorable transaction by the ld CIT DR, is also without correct appreciation of facts and circumstances. The ld CIT DR contended that in view of the purchase of land and extending loan by trustee shows that the trust and family members of the trust are acting as one entity is not convincing. In India, generally, the families keep the affairs of the trust with them so that they can advance the purpose of charitable nature for which the trust is established. But, if the family or any trustee abuse his power and authority and take undue and unlawful advantage from the trust, in that circumstances, it may be called as a colourable device, but in the facts of the case till the stage there is nothing, which could constitute a colorable transaction. A colourable transaction is a transaction, which is ITA Nos. 6201& 6202/Del/2013 IME Trust apparently a valid transaction but really unlawful and illusory. We don't find any such circumstances in the present case. In the case of ACIT vs. Biraj Investment Pvt. Ltd reported in (2012) 210 TAXMAN 0418 , the Hon'ble High Court of Gujarat has held that sale of shares at loss by the assessee, was not a colourable transaction. The relevant part of the judgment is reproduced as under: