AASHRAY MAZE GHAR,,JALGAON vs. COMMISSIONER OF INCOME-TAX, (EXEMPTION),, PUNE

In the instant case, the appeal was filed by the assessee against the order passed by the learned Commissioner of Income Tax (Exemptions), Pune dated 31.08.2019 rejecting the application for registration under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 (hereinafter referred as “the Act”)

The assessee has raised the following grounds of appeal:

The assessee, a trust registered under the Bombay Public Trust Act, 1950, established on 10-03-2016 bearing no. F-18232/JALGAON, filed an online application for registration under section 12AA(1)(b)(ii) of the Act on 12-02-2019 with the ld. CIT (Exemptions). The ld. CIT (Exemptions) issued a letter to the assessee calling for certain queries regarding its application for registration under section 12AA of the Act vide letter dated 06-03-2019 which was not complied in full by the assessee. Precisely, the necessary details were not furnished by the assessee as given here under:

In view of the above, the ld. CIT (Exemption) rejected the application moved by the assessee for registration under section 12AA of the Act by observing that the activities of the assessee are not charitable.

The learned AR before us filed a paper book running from pages 1 to 97 and submitted that the beneficiaries of the trust are a section of the public and not the specific individuals as alleged by the ld. CIT (Exemptions). The learned AR in support of her contention drew our attention on the back side of page 11 of the paper book where clause 18 of the trust was exhibiting the beneficiaries. However, the learned AR at the time of hearing fairly agreed that the assessee in the letter dated 03.04.2019 to the ld. CIT (Exemptions) has wrongly mentioned clause 2 of the Memorandum of Association showing the beneficiaries. As such, beneficiaries are appearing in clause 18 of the trust deed wherein it was clearly mentioned that the funds and the properties of the trust shall be used towards the fulfillment of the objects of the trust. As

The learned AR further contended that in the event of winding up of the activities of the trust, the properties of the trust can be donated to other trust as per clause 26 of the memorandum of association. The learned AR in support of her contention drew our attention on the back side of page 12 of the paper book where clause 26 was containing such information. However, the learned AR at the time of hearing further fairly agreed that the assessee in the letter dated 03.04.2019 to the ld. CIT (Exemptions) has wrongly mentioned clause 2 of the trust deed showing the ‘winding up’ clause. As such, winding up clause is appearing in clause 26 of the trust deed wherein it was clearly mentioned that the properties of the trust can be donated to other trust in pursuance to the procedure for winding up as per sections 13 and 14 of the Societies Registration Act, 1860. As per the learned AR, it was the typographical error which should have been ignored and the entire trust deed should have been considered by the ld. CIT (Exemptions) while seeing the application for registration under section 12 AA of the Act.

The learned AR without prejudice to the above also contended that the ld. CIT (Exemptions) cannot reject the application in the absence of winding up clause in the deed of trust as there is no such requirement under the provisions of section 12AA of the Act. The learned AR in support of her contention relied on the judgment of Hon’ble Bombay High Court in the case of CIT (Exemptions) Vs. Setco Foundation in Income Tax Appeal No. 926 of 2016 dated 21.01.2019.

The learned AR further brought to our notice that the necessary changes as suggested by the ld. CIT (Exemptions), though not required, have been made in the trust deed and accordingly, filed the changed memorandum which are placed on pages 48 to 89 of the paper book.

On the other hand, the learned DR submitted that the assessee in its letter dated 03.04.2019 to the ld. CIT (Exemptions) has mentioned that that the assessee is the educational and charitable trust and running primary, high school and college whereas the assessee in the submission to the tribunal vide letter dated 12.02.2020 has submitted that it is providing education to the children who are not intellectually capable and mentally handicapped. Accordingly, the learned AR submitted that there is a mismatch in the submission of the assessee before the ITAT vis-a-vis before the learned ld. CIT (Exemptions). Therefore, the same requires verification by the learned CIT (Exemptions). Accordingly, the learned AR pleaded before us to restore the matter to the ld. CIT (Exemptions) for the verification.

The learned DR also submitted that the assessee has filed the amended Memorandum of Association of the Society after making the necessary changes which requires to be examined by the ld. CIT (Exemptions).

The learned AR in her rejoinder submitted that all the necessary details are already appearing in the trust deed and therefore, the same should not be set aside to the file of ld. CIT (Exemptions). However, in the event, the bench set asides the issue to the file of the ld. CIT (Exemptions) then some direction for completing the formalities within the specified time can be given to the ld. CIT (Exemptions).

We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we find that the ld. CIT (Exemptions) had not doubted on the objects of the society whether the society was formed to undertake charitable activities or not.

Moving further, we note that the ld.CIT (Exemptions) has rejected the application under section 12AA of the Act due to two reasons. Firstly, there was no clause in the trust deed / memorandum of association that the beneficiaries are the class / section of public and not the specific individuals.

Regarding the specific clause of the beneficiaries in the trust deed / memorandum of association, we find important to refer the objects of the trust as mentioned in clause 18 which reads as under:

On perusal of the objects of the trust, it is transpired that the activities of the trust are for the purpose of the education which comes within the definition of charitable activity as provided under section 2(15) of the Act.

We also find that there was specific clause in the Memorandum of Association specifying that in the event of winding up of the activities of the trust, the properties held by the trust shall be transferred to other trust having similar objects. The relevant clause 26 of the trust deed reads as under:

Thus, what is transpired that necessary clauses are very much appearing in the memorandum of association as highlighted by the ld. CIT (Exemptions) in his order. Thus, it can be inferred that all the compliances as required by the ld. CIT (Exemptions) have been duly complied by the assessee.

A question/aspect also arises whether the ld. CIT (Exemptions) has verified the clauses as discussed above. From the finding of the ld. CIT (Exemptions), it is transpired that he has not verified the above clauses.

Thus, it cannot be said that the assessee failed to furnish the details as desired by the assessee during the proceedings before him. Accordingly, we are of the view that inaction by the Revenue on the details furnished by the assessee should not cause any prejudice to the assessee.

In addition to the above, we also note that the Hon’ble Bombay High Court in the case of CIT (Exemptions) Vs. Setco Foundation (supra) has held that it is not necessary to have the winding up clause in the trust deed. The relevant extract of the order reads as under :

In view of the above, we find that the finding of the ld. CIT (Exemptions) is contrary to the facts available on record. Accordingly, it is inferred that the assessee has complied the conditions imposed under the provisions of section 12AA of the Act for granting the registration. Accordingly, in view of the above and after considering the facts in totality, we set aside the issue to the file of the ld. CIT (Exemptions) with the direction to grant registration to the assessee under section 12AA of the Act as per the provisions of law. Hence, the grounds of appeal of the assessee are allowed for the statistical purposes.

In the result, the appeal filed by the assessee is allowed for the statistical purposes.