SHREE SEO CHAND DHARMARTH SANSTHAN,NEW DELHI vs. CIT(EXEMPTION), NEW DELHI

The present appeals have been filed by the assessee against the orders ld. CIT(Exemption), New Delhi dated 29.09.2019 refusing to grant registration u/s 12AA of the Income Tax Act, 1961 and also u/s 80G.

The assessee, a charitable trust filed an application in Form No-10A & 10G seeking registration u/s 12AA and for grant of approval of exemption u/s 80G of Income Tax Act, 1961 respectively on 08.03.2019.

The same has been rejected by the CIT(Exemption) vide order dated 29.09.2019 on the ground, & 9185/Del/2019 2 Shree Seo Chand Dharmarth Sansthan “That the rental income earned from the shops are not charitable in nature as the surplus is not being used towards other objects of the trust but deposited in banks for earning interest.”

The facts relevant for adjudication of the case are that the assessee, a charitable trust, is settled and registered on 4th May, 2018 by Smt. Ganga Devi Gupta w/o Sh. Chander Bhan Gupta with aim & objects specified in the trust deed.

Besides others charitable objects these were the specific objects:-

The said Dharamshala was constructed on the land in the year 1964 to 1966 by four brothers namely Late Shri Narsi Dass, Late Shri Het Ram, late Shri Gopi Chand and late Shri Kishori Lai, all sons of Late Sh. Seo Chand.

All the aforesaid brothers since expired and both sons of Late Shri Narsi Dass also expired. The land in revenue records is still in the name of above four brothers. Steps were taken for mutation of the land in favor of the trust in revenue records as per applicable law but the matter of mutation is pending with Government Department/local authority i.e. Patwari / Sarpanch.

The legal heirs, who happens to be trustees, have submitted their relinquishment in favour of Charitable Trust i.e. land and building of Charitable Dharamshala to the trust by way of executing notarized undertaking/ declaration. The trust has taken symbolic possession of the land and building, executed rent agreement with the tenants to earn rental income from the shops appurtenant to the building. All rooms / hall comprising part of the building were and are used as rest house / Dharamshala. There are no charges from the occupants/ users of room or shelter of Dharamshala.

The trust earned rental income from the shops and incurred expenses for the maintenance of Dharamshala i.e., Salary of caretaker, Electricity bill and other cleaning and maintenance charges. Whereas shop maintenance expenses, if any, are met by the occupants of the shops. Besides the symbolic possession of Land & Building by the trust (since the legal heirs have already relinquished their rights, interest in favour of the trust by way of legal documentation & notarized where as mutation is pending in the revenue records), the cash balance is deposited by the trust with the Bank Account No. 013005000393, with The Panipat Urban Co-Operative Bank Ltd., Plot no.2/22, Sharma Nagar, Janta Bazar, Jind-126102.

Part of the funds were utilized from the cash for day to day maintenance of the trust and surplus amount was converted into Fixed Deposit receipts along with the funds donated in the corpus of the trust. Some amount was spent from the bank account for maintenance of Dharamshala duly supported by the bills, vouchers etc.

The CIT(Exemption) issued notice dated 23.09.2019 to explain that, “...since all the expenses of the trust are for Dharamshala which is property of its trustee and is violation of the section 13(1)(c) of the I. T. Act, 1961, why the application for registration u/s 12A and approval 80G should not be rejected...."

The assessee trust submitted reply of show cause notice explaining that the trust has become the owner of the land and building of charitable Dharamshala and the trustees have no interest, claim and right in the aforesaid immovable property and bank or cash balance of the trust. The CIT (E) after going through the reply of trustees dt.26/09/2019 rejected the registration application on different ground i.e. "That the rental income earned from the shops are not charitable in nature as the surplus is not being used towards other objects of the trust but deposited in banks for earning interest.”

The CIT (E) has also rejected the registration application vide order dated 06.10.2020. The CIT(E) has not considered the provision of s Income Tax Act in relation to transfer of property.

We find that on perusal of the Income & Expenditure account for the period 31.03.2019, it is observed that the trust has claimed following expenses:

The ld. CIT(E) held that the assessee trust in its submission dated 19.08.2019 has stated that it has receive rental income from the shops at the premises of Dharamshaia. Apart, from this rent income from shops it has not reported any other donations or receipts. The ld. CIT(E) held that receipt of rents not charitable in nature as the surplus is not being used towards other objects of the trust but deposited in banks for earning interest. The ld. CIT(E) held therefore, that in the light of above facts, the conditions for granting registration u/s 12AA is not satisfied and the application filed by the applicant for grant of registration u/s 12A was rejected.

The observation of the ld. CIT(E) that receipt of rents not charitable in nature as the surplus is not being used towards other objects of the trust but deposited in banks for earning interest is incorrect based on the facts on record as mentioned in the table above. Since, the rent receipts were the prima facie reason to reject the registration by the ld. CIT(E) which was found to be incorrect, we hereby direct the ld. CIT(E) to examine this fact afresh along with other objects of memorandum and grant registration u/s 12AA and u/s 80G to the assessee. & 9185/Del/2019 6 Shree Seo Chand Dharmarth Sansthan 17. In the result, the appeals of the assessee are allowed. Order Pronounced in the Open Court on 18/05/2022.