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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
ORDER Per:Anikesh Banerjee, JM:
The instant appeal of the assessee is directed against the order of the ld.
Commissioner of Income Tax (Exemptions), Chandigarh,[in brevity the ‘CIT (E)’] order 24.03.2021, order passed u/s 12A of the Income Tax Act 1961, [in brevity the Act].
The assessee has taken the following ground: “
1. That the Id.CIT(E) has misdirected himself in law and on facts in arbitrarily rejecting the assessee's application for registration u/s. 12A, on issues not relevant for grant of registration, more so when the genuineness of the activities of the trust, otherwise exempt u/s.10(23C)(iiiae), have not been doubted.
2. That the ld.CIT(E), grossly erred to hold that the assessee was liable to pay tax on corpus donations in AY 2018- 19 & 2019-20, and till such payment of tax, application for registration could not be considered.
3. That ld.CIT(E) also erred in denying the grant of registration, for the alleged FCRA violations.
4. That the order under appeal is against law and on facts of the case.”
2. The assessee is a trust and applied for registration for granting exemption u/s 12A. The registration was applied under provision of 12AA before the ld.CIT(E).
The ld. CIT(E) rejected the application on the ground that for corpus funds received before the exemption and there is absence of FCRA Certificate which is clear violation of FCRA norms related to foreign donation. There is allegation against the assessee for amount of Rs. 57,74,845/- as Corpus Fund in its Balance Sheet for F.Y. 2018-19 which was supposed to take as income in the FY 2018-19 as per the ld. CIT(E). The assessee filed requisite documents before the ld. CIT(E).
Considering the same the registration filed u/s 12AA is rejected. Being aggrieved assessee filed an appeal before us.
The ld. counsel for the assessee first invited our attention in page no. 5 of the order of ld. CIT(E) which is reproduced as below:
“6. After considering the submissions on record, it is observed that the applicant has shown an amount of Rs. 57,74,845/- as Corpus Fund in its Balance Sheet for F.Y. 2018-19 in the name of corpus donation. The Trust has diverted these receipts in the name of corpus to the Balance Sheet which, rather, should have been taken as income in the Income & Expenditure account for the F.Y. 2018-19.
As per the provisions of the Income Tax Act, 1961, corpus donation/grants would be exempt only under Section 11(1)(d) and an assessee can claim benefit u/s 11 only when such assessee is registered u/s 12A or 12AA. This assertion is not only backed by the statute but also by the decision of Hon’ble Supreme Court in the case of CIT vs. U P Forest Corporation, 230 ITR 945 (SC) [1998] and decisions of various other Hon’ble High Courts like: (A) New Life in Christ Evangelsit Association vs. CIT reported in 246 ITR 532 (Madras) [2001 ];(B) CIT vs. Red Rose School reported in 212 Cl'R (All) 394;(C) M. Visvesvaraya Industrial Research & Development Centre vs. ITAT reported in 251 ITR 852 (Mumbai) [ 2001];(D) CIT vs. Otacamund Gymkhana Club reported in 110 ITR 392 (Madras) [1977] and(E) Gouri Shankar Deity vs. Union of India 145 ITR 67 (MP) [1984]. Before the period of grant of registration, all voluntary contributions (including the ones with specific direction that they shall form part of the corpus) are the income of a charitable, religious or charitable cum religious trust. Therefore, in the present case, the corpus fund shown by the applicant on record during FY 2018-19is the income of the applicant and, thus, the trust/society becomes liable to pay tax for that year. Further, the ITR for A.Y. 2019-20 corresponding to F.Y. 2018-19 filed by the applicant does not include the income shown as corpus during the year and, therefore, no tax against the said income has been paid. The applicant should have added the amount shown against corpus/restricted funds during the year into its income and then it should have filed the correct ITR and paid taxes. Unless the legitimate tax against the income, as discussed above, is paid, the application for registration u/s 12AA of the Act cannot be considered. The trust has illegally taken the benefit of provisions of the Income Tax Act for getting tax exemption benefits and has tried to subvert the Income Tax laws.
Apart from the Corpus issue as stated above, the applicant has also received foreign donations to the tune of Rs. 58,22,742/- in absence of any FCRA Certificate, which is clear violation of FCRA norms. The application for FCRA registration filed by the applicant, rejected by the Ministry of Home Affairs, Foreign Division (FCRA Wing). Further, the Ministry of Home Affairs, Foreign Division (FCRA Wing) in the rejection order has mentioned that receipt of foreign contribution without valid permission from MHA is a serious violation of FCRA 2010 and may attract appropriate penal action if found. This act of the applicant is unacceptable 8. In light of the above discussion, I do not find the applicant trust eligible for getting registration u/s 12AA of the Act and, therefore, the present application for registration u/s 12AA of Income Tax Act, 1961 is hereby rejected.”
3.1 The ld. counsel for the assessee further placed that the ld. CIT(E) had not pointed out any objection related to the main object of the trust and the activities of the trust related to main object. The assessee filed application to FCRA against the foreign investment but the registration application was rejected. This is not a reason withhold the application of registration related to section 12AA of the Act.
The ld. counsel further relied on the order of the jurisdictional High Court and Coordinate Bench of ITAT, Amritsar. The relevant part of the Hon’ble Punjab and Haryana High Court in the case of CIT (Exemptions) vs. Shanti Devi Educational Trust in order dated 23.02.2017 has held as under: “9. Considering the above submission, we find from the first appellate order that the assessee is running three educational institutions namely Shanti Devi Law College, Shanti Devi School of Nursing and (iii) Shanti Devi Institute of Management and Technology. It had received donation of agriculture land by a registered gift deed dated 4.12.2006 from Smt. Vasu Devi and three others measuring 202 kanals and 3 marls. The lands were valued at ` 1.01 crore as per official circular rate of ` 4 lacs per killa and stamp duty and registration expenses of ` 3.10 lacs were born by the trust. The trust made entries in its books of account crediting the corpus fund and debiting the loan account with the notional value of land at ` 1 crore. The assessee further received corpus donation of ` 15 lacs from three concerns. During the year under consideration, the only receipt of trust was of ` 5450/- from bank interest and there was net loss of ` 2100/-. There are certain undisputed facts that the registration under section 12AA of the Act has been granted to the assessee by the learned CIT w.e.f 1.4.2009 which is before the date of the assessment order passed on 30.12.2011 and obtaining registration under section 12AA is not mandatory for claiming the exemption under section 10(23C) (iiiad) of the Act. As per this section, any income received by any person on behalf of any university or other educational institution existing solely for educational purposes and not for the purpose of profit is exempt if the aggregate annual receipt of such university or educational institute do not exceed the amount of annual receipt as may be prescribed. The learned CIT(Appeals) has upheld the denial of exemption by the Assessing officer on the basis that no educational institute have been started by the assessee during the year but at the same time, he has not denied this material fact that it is the first year of the trust and only land has been received as corpus donation and the construction of building 6 of 8 etc. has to be commenced. The Delhi Bench of the ITAT in the case of Nitya Educational Society vs. JCIT (supra) has held that objects of the assessee institute and their genuineness have been looked into by the prescribed authority while granting registration under section 12AA of the Act though such registration has been granted w.e.f 30.3.2009. The mechanism provided in section 12AA of the Act for grant of such registration suggests that the learned CIT must have conducted an inquiry about the genuineness of the activities of the trust and it also suggests that aims and objects contained in the Memorandum of Association are genuine and charitable in nature. In that case, society was in existence but actual educational activity has not taken place. The ITAT held that the assessee still would get the benefit of section 10(23C)(iiiad) of the Act. In the case of Pawan Hans Swami Uma Bharti Mission vs. ACIT (supra), it has been held by the Delhi bench of the ITAT that only annual receipt of school or university would be considered for deciding the exemption limit under section 10(23C) (iiiad). Total income of society running that school or university is not to be considered under that section. Income from interest and FDRs was an additional income of society and cannot be considered to be part of annual receipt of the school. It was held that the assessee was eligible for exemption under section 10(23C)(iiiad) of the Act as annual school receipts did not exceed ` 1 crore. In the case of CIT vs. Doon Foundation (supra), it has been held that if the assessee had taken steps towards the running of a full fledged teaching course then it would be construed that educational institution had been established and it will be entitled for exemption. In the present case before us, objects of the assessee trust being charitable have not been objected nor has it been a case of the revenue that the donation in the shape of land or amount have been utilized for any other purposes except on the objects of the assessee trust. Of course, no educational institution has been started by the assessee during year but at the same time, this fact has not been doubted or denied that assets and funds 7 of 8 received by it in donation were meant for achieving its objects. Under these facts and circumstances in totality, we are of the view that the learned CIT(Appeals) was not justified in upholding the action of the Assessing officer on the basis that no registration under section 12AA of the Act was available to the assessee trust for the year under consideration and as such corpus donation are liable to be included as income. We thus while setting aside the orders of the authorities below in this regard direct the AO to delete the addition treating the assessee as registered trust with charitable objects. The ground Nos. 3 to 5 involving the issue are thus decided in favour of the assessee and are allowed as such. The ground No.1 is general in nature and the issue raised in ground No.2 questioning the validity of initiation of the proceedings under section 147 of the Act has become infructuous in view of the finding on the main issue raised in ground Nos. 3 to 5 of the appeal." Also, the ld. Counsel relied on the relevant part of the order of ITAT-Amritsar Bench in the case of T.R. Gupta Public Charitable Trust vs. CIT(Exemptions) in order dated 20.09.2022 is extracted as below:
“6. We have heard both the parties, perused material available on record and gone through orders of the authorities below. Our observation is that the Corpus donations received by the Trusts, which is not registered u/s.12A/12AA of the Act, are not taxable as they assume the nature of 'Capital receipt' the moment the donations are given to the "Corpus of the Trust". We find the provisions of section 2(24)(iia)/12(1)/11(1)(d)/35/56(2) are relevant for deciding the current issue. It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, the corpus specific Voluntary Contributions are outside the scope of income as defined in section 2(24)(iia) of the Act due to their "Capital nature". But it is a case of un-registered Trust. Despite the detailed deliberations made by the Ld. DR, we find the principles relating to judicial discipline assume significance and the priority. It is also decided issue that there is need for upholding the favourable view if there exist divergent views on the issue. As discussed in the preceding paragraphs above, there are multiple decisions in favour of the assessee. The two issues must be settled during registration U/s 12AA which are genuinity of trust & activities are related to main object of trust. The two limbs must be considered during registration. The ld. CIT(E) is silent about the second issue. The first issue is adjudicated in favour of assessee-trust. The order passed by revenue is quashed accordingly.” 4. The ld. CIT DR only relied on the order of the ld. CIT(E).
We heard the rival submission and relied on the documents available in record. The assessee is a charitable trust and applied for registration u/s 12AA. The ld. CIT(E) had not pointed out any lacuna related to the main object of the trust and activity related main object. The genuineness of the assessee also is not in question. The two issues must be settled during registration U/s 12AA which are genuinity of trust & activities are related to main object of trust. The two limbs must be considered during registration.Only mere receiving of the corpus fund and rejection of application of FCRA should not be the ground for rejecting the registration u/s 12AA. We respectfully relied on the order of jurisdictionalHigh Court in case ofShanti Devi Educational Trust, supra& in the case of T.R.
Gupta Public Charitable Trust, supra. We set aside the order of the ld. CIT(E) and directed the authority to allow the registration of the assessee as per Act. In the result, the appeal of the assessee bearing 6. allowed.
Order pronounced in the open court on 01.03.2023