ASHOK KIRAN CHARITABLE TRUST,BAREILLY vs. THE COMMISSIONER OF INCOME TAX (EXEMPTION), LUCKNOW

PER A.D. JAIN, V.P.:

These appeals are by the assessee against the separate orders of the ld. CIT (E), dated 20.8.2018 and 16.1.2019, respectively, refusing to grant registration under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 to the applicant-Trust. The applicant has raised the following grounds in ITA No.642/LKW/2018, which is filed against the order of the ld. CIT (E) dated 20.8.2018:

Page 2 of 17 1. The Learned Commissioner of Income Tax (Exemptions), Lucknow [here-in-after referred to as the Ld. CIT] grossly erred on facts and in law in rejecting the grant of Registration under section 12AA of the I. T. Act, 1961 and in allegedly holding that the there is no material on record so as to form even the slightest satisfaction regarding the genuineness of the activities carried out by the Trust in the applicant is not engaged in any charitable activity as such despite the fact that all relevant material was placed before him and thus the order being prejudiced and biased against all settled principles of law may kindly be ordered to be set aside and Registration granted to the appellant Trust. 2. On the facts and in the peculiar circumstances of the preset case the Ld. CIT was not at all justified in falsely holding that no books of accounts, vouchers or evidence of charity could be provided by the appellant Trust despite the fact that comprehensive reply along with all supporting material was duly placed before him and despite this the Ld. CIT has passed an order which is against the material available on record in a biased manner which is proved from the fact that on both the hearings i.e. 05-7-2018 and 08-08-2018, complete replies were filed and all relevant details provided as required but still the order was passed without even confronting as to which detail was not available or could not be supplied by the appellant Trust and thus the order is bad in law and void ab-initio and thus may kindly be ordered to be quashed and Registration granted. 3. The Ld. CIT further grossly erred on facts and in law in holding that "There is quite a possibility that upon termination of the lease the applicant society will have the option to transfer back the land and the so constructed property back to the lesser which again creates a probable situation wherein the leased piece of land together with the constructions

Page 3 of 17 on it sourced out of the funds of the applicant trust would ultimately be handed over to one of the members of the applicant society. Therefore, provisions of section 13(1) ad with section 13(3) of the I. T. Act, 1961 are applicable". He has fully ignored clause no.3 of the lease deed, according to which it has clearly and specifically been mentioned in the lease deed that the trust will be entitled to get fair-market value of the building as on the date of termination of lease deed and thus the order needs to be set aside and the Registration be granted to the appellant Society. 4. That the Ld. CIT failed to appreciate that the objects and the activities of the appellant Trust are charitable in nature and for general public utility being imparting of education as has been held by a plethora of case authorities on this aspect and which such fact was already on record and thus the Registration ought to have been granted u/s 12A of the I.T. Act, 1961. 5. The Ld. CIT did not give proper and sufficient opportunity to the appellant Trust to have its say or make necessary compliance to the reasons relied upon by him in rejecting the application u/s 12AA and further in not giving due and sufficient important to the documents produced and submissions made before him and thus the order may kindly be set aside and Registration granted u/s 12AA. The applicant has raised the following grounds in ITA No.158/LKW/2019, which is filed against the order of the ld. CIT (E) dated 16.1.2019:

Page 4 of 17 and in allegedly holding that there is no material on record so as to form even the slightest satisfaction regarding the genuineness of the activities carried out by the Trust as the applicant is not engaged in any charitable activity as such despite the fact that all relevant material was placed before him and thus the order being prejudiced and biased against all settled principles of law may kindly be ordered to be set aside and Registration granted to the appellant Trust. 2. On the facts and in the peculiar circumstances of the preset case the Ld. CIT was not at all justified in falsely fixed neither anybody attended nor any application for adjournment was filed. A reply was sent through speed post on 10-01-2019 which was received in the office of the CIT on 14-01-2019 which has been fully ignored. Through this reply it was informed that a comprehensive reply alongwith all its supporting documents are already in the records of Department, which were filed through letters dt.05-07-2018 and 08-08-2018 and accounts books were also produced on these dates. Still the order in question has been passed after ignoring the replies and complete records available with the Department, thus the order is bad in law and void ab-initio and thus may kindly be ordered to be quashed and Registration granted. 3. That the Ld. CIT failed to appreciate that the objects and the activities of the appellant Trust are charitable in nature and for general public utility being imparting of education as had been held by a plethora of case authorities on this aspect and when such fact was already on record and thus the Registration ought to have been granted u/s 1 2AA of the I.T. Act, 1961. 4. The Ld. CIT did not give proper and sufficient opportunity to the appellant Trust to have its say or make necessary compliance to the reasons relied upon by him in rejecting the application u/s 12AA and further in not giving due and sufficient importance to the documents produced and submissions made before him

Page 5 of 17 and thus the order may kindly be set aside and Registration granted u/s 12AA. 2. Apropos the application dated 28.2.2018 filed by the applicant for registration under section 12A(a) of the Act, the ld. CIT (E), while refusing registration to the assessee, vide order dated 20.8.2018, has observed, inter alia, that on perusal of the material available on record, it was found that a piece of land had been leased out to the applicant-Trust by a member of the Trust; that the said arrangement attracted the provisions of section 13(1)(c) read with 13(3) of the Act; that there was quite a possibility that upon termination of the lease, the applicant-Trust would have the option to transfer back the land and the property constructed thereon to the lessor, which, again, created a probable situation wherein the leased piece of land together with the constructions thereon, sourced out of the funds of the applicant-Trust, would ultimately be handed over to one of the members of the applicant-Trust; that the applicant had failed to show cause any books of account or vouchers in support of its claim; that no evidence of any charitable activity could be showcased by the applicant; that the applicant had merely submitted the Trust Deed and no material had been provided to throw light on the activities, if any, carried out by the applicant, as claimed in the Trust Deed; that the applicant had failed to produce any material which could provide an insight into the activities of the applicant; that there was literally no material available on record so as to form even the slightest satisfaction regarding the genuineness of the activities carried out by the applicant; that neither had the applicant provided any ratification by providing the books of account, nor had any vouchers been provided for the various expenses with respect to various activities as claimed to have been carried out; that no

Page 6 of 17 bank statement had also been provided for verification of the activities of the Trust and so, the genuineness of the activities could not be verified; that no charitable activity had been carried on by the applicant and it had been doing a mere pretense of charity; that the applicant had failed to prove the genuineness of the activities which it claimed to have been carrying on; that in the Memorandum of the Trust, there were several objects; that however, failure of the applicant to corroborate them with satisfactory evidences placed fatal allegation on the genuineness of the activities of the applicant; that this clearly proved that the applicant had done a false declaration with respect to the objects set out in its Memorandum and it was not actually working towards their attainment; that therefore, the activities of the Trust were not in tandem with its Memorandum; that mere recital of the objects or activities without cogent or corroborative evidence was not sufficient by itself to enable the registering authority to arrive at the satisfaction mandated by law; that the applicant had filed only part reply and the documents on record did not suffice to establish the genuineness of the activities; that as such, the findings of fact regarding its charitable activities or rather lack thereof arrived at on the basis of evidence filed and the arguments addressed stood uncontroverted; that this was fatal to the claim of the applicant; that it was clear that the applicant had failed to provide sufficient material to corroborate the charitable nature of the objects and the genuineness of the activities; that despite having been provided timely opportunity, the applicant had not been able to substantiate its claim; that hence, the applicant’s claim, in the absence of sufficient material required for formation of satisfaction, was not acceptable; and that therefore, it was not a fit case for grant of registration.

Page 7 of 17 3. Challenging the impugned order, the ld. Counsel for the assessee has, with reference to the ld. CIT (E)’s objection that a piece of land had been leased out to the applicant-Trust by a member of the Trust, which attracted the provisions of section 13(1)(c) read with section 13(3) of the I.T. Act, contended that the applicant had filed before the ld. CIT (E) a copy of the lease deed, wherein, there is a clear stipulation that in the event of completion of the term of the lease, or on premature termination of lease, the applicant will have the right to recover the appropriate market value of the construction carried out by the applicant on the land, at the relevant time; that so far as regards the observation of the ld. CIT (E) that the applicant had failed to showcase any books of account or vouchers in support of its claim, the applicant’s books of account along with vouchers were produced before the ld. CIT (E), as stated in the applicant’s reply dated 5.7.2018; that concerning the objection that no evidence of any charitable activity had been showcased by the applicant, a Note (APB:18)on the activities of the applicant stood filed along with the application for registration; that the activities of the applicant were also enumerated in paragraphs 3 and 24 of the applicant’s reply dated 5.7.2018; that the audited accounts of the applicant for the years 2016-17 and 2017-18 also made the activities of the assessee evident; that further supporting evidences with regard to the applicant’s activities are also available in the applicant’s books of account and vouchers, which were duly produced before the ld. CIT (E); that so much so, that during the proceedings before the ld. CIT (E), he never expressed any doubt, nor raised any query in this regard; that the applicant is a newly formed Trust and as such, the genuineness of its activities is to be examined with reference to its objects and proposed activities, as held by the Hon'ble Supreme Court in the case of ‘Ananda Social

Page 8 of 17 & Educational Trust vs. CIT’ 426 ITR 340 (SC); that concerning the objection that the applicant had provided only its Trust Deed and no material which could throw some light on the applicant’s activities, the afore-stated material constituted enough material concerning the activities carried out by the applicant; that this being so, the genuineness of the activities of the applicant ought not to have been doubted by the ld. CIT (E); that the ld. CIT (E) further erred in observing that the factum of the applicant’s Memorandum containing several objects, in the absence of supporting material to corroborate them, was fatal to the genuineness of the activities of the applicant, proving that the applicant had made a false declaration with regard to its objects, rendering the applicant’s activities to be not in tandem with its Memorandum, is also devoid of merit, since all possible material available with the applicant had duly been produced before the ld. CIT (E) to corroborate the genuineness of its activities, proving that the assessee had been actually working towards the attainment of its objects and belying the observation that the declaration of the applicant with regard to its objects was a false declaration; that in view of the voluminous material produced before the ld. CIT (E), it cannot at all be said that the activities of the applicant-Trust are not in tandem with its Memorandum; that the observation that the applicant had filed only part reply is also incorrect, inasmuch as in response to the Questionnaire dated 22.5.2018, the assessee filed its complete reply dated 5.7.2018, along with supporting evidences, and had produced its books of account and vouchers along with the said reply; that having perused the applicant’s said reply and supporting evidences, the ld. CIT (E) sought certain clarifications on the applicability of the provisions of section 13(1)(c) of the I.T. Act with regard to the land leased out to the applicant; that the

Page 9 of 17 applicant filed a detailed reply dated 8.8.2018, furnishing along therewith, a copy of its Lease Deed, explaining that the provisions of section 13(1)(c) of the Act were not attracted, since the land on which a building had been constructed, had been taken by the applicant on lease for thirty years and in no case, the structure would be transferred to the land owner without getting the fair market value, as is the stipulation in paragraph 3 of the said Registered Lease Deed; that the applicant was asked to e-file form 10A and submit the financial statement for the year ended on 31.3.2018; that this requirement was duly complied with and reply dated 17.8.2018 was dispatched through speed post, on 18.8.2018, for the date fixed, i.e., 20.8.2018; that therefore, evidently, the applicant had made compliance before the ld. CIT (E) by adequately replying to all the twenty four points/questions raised by the ld. CIT (E) in the Questionnaire issued to the applicant; that the order under appeal has been passed in oblivion of the voluminous documentary evidences placed on record, proving the genuineness of the activities carried on by the applicant in accordance with its objects; that therefore, the impugned order is unsustainable in law, requiring to be cancelled; and that the applicant, in these facts and circumstances, be granted registration, as claimed. 4. Per contra, the ld. D.R. has placed strong reliance on the impugned order. It has been contended that as noted by the ld. CIT (E), the applicant miserably failed to provide sufficient material to corroborate and prove the claimed charitable nature of its objects and the genuineness of its activities; that despite having been provided timely opportunity, the applicant had remained unable to substantiate its claim; that as such, the order under appeal is a well-reasoned order, requiring no

Page 10 of 17 interference at all; and that therefore, the appeal of the applicant be ordered to be dismissed. 5. We have heard both the parties and have perused the material on record. The records of this case, as before the ld. CIT (E) were called for. They have been examined by the ld. D.R., as reported to us by her in the course of the virtual hearing. 6. The following Questionnaire (APB:24 & 25) dated 22.5.2018 was issued to the applicant-appellent:

Page 11 of 17

Page 12 of 17 pointed out by the ld. Counsel for the applicant, on 8.8.2018, the applicant filed a Reply before the ld. CIT (E). A copy of the said Reply is at pages 56 to 72 of the APB. Along with the Reply, the applicant also filed a copy of its Lease Deed, whereby the land in question was taken by the applicant on lease. A copy of the Lease Deed appears at APB:57 – 72. As per paragraph 3 of the said Lease Deed, if at any time, the second party, i.e., the applicant itself ends its tenancy over the land in question, or on expiry of the term of the lease deed, then the second party would be entitled to receive the then prevailing fair market value of the entire construction on the land, belonging to the second party, from the first party and shall leave the said construction on the land itself, and shall not demolish it. For ready reference, paragraph 3 of the Lease Deed (APB:65), which is in the vernacular, is scanned and reproduced hereunder:

Page 13 of 17 that there is any possibility that on the termination of the lease, the applicant will have the option to transfer back the land and the construction existing thereat, to the lessor, or that the leased land along with the construction thereon would ultimately be handed over to one of the members of the applicant-Trust. Rather, as noted above, para no.3 of the Lease Deed is catagoric, when it provides that in case of termination or expiry of the lease, it would be the fair market value of the whole construction, as prevalent at that relevant time, which shall be receivable by the Trust, i.e., the second party to the Trust Deed, that is the lessee, from Dr. Ashok Kumar Agarwal, that is, the first party thereto, or, the lessor. This explicit recital and stipulation is a stark direct contrast in black and white, to the illegal surmisical and conjectural speculation of the ld. CIT (E) that there would be any option available to the applicant-Trust-lessee to transfer the land with the construction thereon, back to the lessor, at the termination of the lease. This observation of the ld. CIT (E) is, therefore, but a result of complete non-reading of the material evidence brought on record by the applicant before the ld. CIT (E), in the shape of the concerned Lease Deed. 9. In item no.20 (APB:25), the Questionnaire states “please produce the copy of the bank statement/passbook as on date”. In response, vide item no.20 (APB:27) of its Reply dated 5.7.2018, the applicant stated that “the Bank Statement is enclosed”. 10. The ld. CIT (E) has next objected that the applicant failed to showcase the books of account, the vouchers and bank statement. In this regard, item no.21 (APB:27) of the Questionnaire states as follows: “Please produce all relevant papers/documents /registers/books of account, bills/vouchers in original for verification.”

Page 14 of 17 11. In response, vide paragraph 21 (APB:27) of its Reply dated 5.7.2018, the applicant stated that “all account books and vouchers are being produced”. 12. A copy of the Bank Statement of the applicant in YES Bank, together with Bank Reconciliation Statement for the year ended on 31.3.2017 was appended with the said Reply. It has been filed at APB: 52-55. Besides this, the applicant also filed a copy of the Bank Statement (APB: 34-38) of Shri Ashok Kumar Agarwal in HDFC Bank Ltd., Bank of Baroda, Central Bank of India and YES Bank, reflecting the loan paid to the applicant Trust; copy of Bank Statement of Ashok Kiran Hospital in YES Bank; copy of the Bank Statement (APB : 45-47) of Dr. Ashok Kumar Agarwal in Central Bank of India and YES Bank; copy of Bank Statement (APB:50) of Ashok Kumar Agarwal (HUF) in YES Bank. The applicant also produced its books of account and vouchers before the ld. CIT (E) along with the aforesaid reply dated 5.7.2018. 13. However, the ld. CIT (E) has failed to take into consideration all these documentary evidences which are patent on his record, as confirmed by the ld. D.R., and has, therefore, arrived at an erroneous conclusion to the effect that no material was produced. 14. The ld. CIT (E) has also observed that no evidence of any charitable activity could be showcased by the applicant. This observation of the ld. CIT (E) also gets negated in view of, firstly, the Note (relevant portion) on Activities (APB:18) filed by the applicant along with the application for registration. This Note reads as follows:

Page 15 of 17 “This trust was created on 17.05.2016 through trust deed executed on the same day and is registered in the office of Sub Registrar Bareilly, The main objects of the trust are described out in clause 9 of the Trust Deed. The Trust has been created exclusively for Charitable Purposes for the benefits of general public. Presently the trust has taken upon objects for imparting education, for which purpose building construction work was started during financial year 2016-17 and after completion of some part of it, the school has been started from class Nursery to Sixth. The building construction is still going on.” 15. Further, in paragraph 3 of its Reply dated 5.7.2018 (APB:26), the applicant stated as follows: “3) We are carrying on an educational institution at Meeranpur Katra, Distt. Shahjahanpu. At present we are running classes Nursery to class VIII and it is projected that year by year we will extend it to class XII.” 16. Then, in paragraph 24 (APB:27) of the said Reply, it was stated that since it is the first year, only building construction was in progress and during financial year 2017-18, the education activities have been performed. 17. Further, the activities of the applicant are also evident from the applicant’s audited accounts for the years ended in 2016-17 (APB:19-23) and 2017-18 (APB:77-82). It is also remarkable, as contended on behalf of the applicant, that during the proceedings before the ld. CIT (E), he did not show any dissatisfaction, nor expressed any doubt, nor raised any query to the applicant concerning the charitable nature of the objects of the applicant and the genuineness of its activities, and it was only in the order under appeal that such objection was raised unilaterally for the first time, to the prejudice of the applicant. 18. Pertinently, as rightly contended, in ‘Ananda Social & Educational Trust vs. CIT’ [2020] 426 ITR 340 (SC), the Hon'ble

Page 16 of 17 Supreme Court has held that in the case of a newly formed Trust, like that of the present applicant, the genuineness of the activities is to be examined with reference to its objects and proposed activities. Ergo too, the ld. CIT (E) has erred in holding against the assessee on this score. 19. The ld. CIT (E) has also erred, in view of the foregoing, in observing that no material but for the Trust Deed was filed. Further, the ld. CIT (E) has also gone wrong in holding that though the applicant’s Memorandum contains several objects, the applicant has failed to corroborate them with satisfactory evidences. This, despite the fact that none of the voluminous documentary evidences, as discussed hereinabove, filed by the applicant, stand controverted by the ld. CIT (E). So much so, though a perusal of the ld. CIT (E)’s record shows these evidences to actually have been filed before him, as fairly confirmed before us by the ld. CIT (DR), the ld. CIT (E) has illegally ignored them and has gone on to observe that no evidence was filed. It is thus clearly a case of non-reading of material documentary evidence brought on record, rendering the Order under challenge thus unsustainable in the eye of the law. 20. In view of the above, we are satisfied that the applicant- Trust is entitled to registration, as claimed. Finding the grievance of the applicant to be justified, the same is accepted. The order under appeal is held to be a result of complete misreading and non-reading of material documentary evidence produced on record, as discussed in the preceding paragraphs. Therefore, the impugned order is unsustainable in the eye of the law. The same is, accordingly cancelled. Consequently, the ld. CIT (E) is directed to grant registration to the appellant-Trust under section 12A of the Act forthwith.

Page 17 of 17 21. In ITA No.158/LKW/2019, the assessee has raised Grounds identical to the ones raised in ITA No.642/LKW/2018 before us and the application dated 28.2.2018 moved by the assessee before the ld. CIT(E) is, mutatis mutandis, identical to the application dated 30.8.2018, i.e., the application for registration under section 12A(a) of the Act. The findings of the ld. CIT (E), while rejecting the application for registration under section 12A(1) of the Act, vide his order dated 16.1.2019, are also identical to the findings as arrived at by him, vide his order dated 20.8.2018. Since we have considered the issue relating to grant of registration to the applicant under consideration, under section 12A of the Act, while dealing with the Grounds raised in ITA No.642/LKW/2018 and have directed to forthwith grant registration to the assessee under section 12A of the Act, the appeal of the assessee in ITA No.158/LKW/2019 has become infructous and hence the same is dismissed as infructous. 22. In the result, the appeal of the assessee in ITA No.642/LKW/2018 is allowed and the appeal of the assessee in ITA No.158/LKW/2019 is dismissed as infructuous. Order pronounced in the open Court on 02/11/2021.

Sd/- Sd/- [T. S. KAPOOR] [A. D. JAIN] ACCOUNTANT MEMBER VICE PRESIDENT DATED:02/11/2021 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR