COMMISSIONER OF INCOME TAX RAJKOT I vs. KAPAYA AATHKOTI MOTI PAKSH STHANAKVASHI SANGH

O/TAXAP/884/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 884 of 2014

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX RAJKOT I....Appellant(s) Versus KAPAYA AATHKOTI MOTI PAKSH STHANAKVASHI SANGH....Opponent(s) ================================================================ Appearance: MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 5

O/TAXAP/884/2014 JUDGMENT

Date : 18/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1. Admit. This Appeal u/s.260A of the Income­tax Act, 1961 is filed against the judgment and order dated 11.04.2014 passed by the   Income   Tax   Appellate   Tribunal,   Rajkot   in   I.T.A. No.462/RAJ/2013 whereby, the appeal filed by the assessee was allowed. 2. Briefly stated, the facts are that the assessee had applied for registration u/s.12A of the Act on 13.03.2013. In response thereof, Notice was issued to the assessee for necessary verifications. The assessee submitted its books of accounts and other documents vide letter   dated   23.09.2013.   After   verifying   the   documents,   it   was allegedly found that the assessee was not fulfilling the conditions laid down for registration u/s. 12A of the Act and accordingly, order came to be passed rejecting the application of the assessee for registration u/s.12A of the Act. 3. The assessee preferred appeal before the Appellate Tribunal against the aforesaid order. The Appellate Tribunal allowed the appeal   vide   impugned   judgment   and   order   dated   11.04.2014. Being dissatisfied with the same, the Revenue has preferred the present appeal. 4. In this appeal, the following substantial questions of law are formulated for our consideration; Page 2 of 5

O/TAXAP/884/2014 JUDGMENT (1) Whether on the facts and in the circumstances of the case, the ITAT is justified in law and on facts in holding that giving donation to other trust out of trust fund can be termed as genuine activity towards its object and same is charitable activity as defined u/s.2(15) of the Act? (2) Whether on the facts and in the circumstances of the case,   ITAT   is   justified   in   law   and   on   facts   in   giving registration u/s.12(A) of the Act to the assessee trust? 5. We have heard learned counsel for both the sides and have perused the record of the case. The questions of law raised in this appeal is already concluded by the decision of Apex Court in the case of Commissioner of Income­tax v. Sarladevi Sarabhai Trust No.2,   [1988]   172   ITR   698   and   more   particularly,   on   the observations made in Para­9 of the said decision, which reads as under; “”9. Mr. Patel for the assessee further submitted that even apart from the aforesaid legal position, this question is also fully covered by the instruction issued to all Commissioners by   the   Board   on   05.01.1978   to   which   we   have   made   a reference earlier. Full text of the said Instruction No.1132 reads as under: “A question has been raised regarding the availability of exemption in the hands of charitable trusts of amounts paid as donation to other charitable trusts. The issue has   been   considered   by   the   Board   and   it   has   been decided that as the law stands at present, the payment of   a   sum   by   one   charitable   trust   to   another   for Page 3 of 5

O/TAXAP/884/2014 JUDGMENT utilization   by   the   donee­trust   towards   its   charitable objects is proper application of income for charitable purpose in the hands of the donee­trust and the donor trust will not lose exemption under section 11 of the Income­tax Act, 1961 merely because the donee trust did not spend the donation during the year of receipt itself. The above position may kindly be brought to the notice of all officers working in your charge.” This instruction shows that apart from the legal position that may be emanating from various provisions of the Act, the Board   itself   has   issued   a   clearcut   guideline   to   all   the Commissioners that a charitable trust will not lose exemption under section 11 if it passes a sum of money to another charitable   trust   for   utilization   by   donee   trust   towards   its charitable purposes and that it shall be proper utilization of money by donor trust for charitable purpose. We agree with Mr. Patel for the assessee that the said instruction squarely covers the facts of the present case. It cannot be disputed that donor trust had made payment of the sum of money covered by donation to another charitable trust, viz., donee­trust and also it was for utilization by the donee­trust for its charitable purposes. Utilization does not mean that the entire amount has to be spent forthwith and that it cannot be kept as corpus and its recurring” income utilized for charitable purposes. In any case, so far as donor­trust is concerned, once it makes payment of the donated amount to the donee­trust which is a religious   and   charitable   trust   which   has   to   utilize   the donation   for   its   own   purposes,   it   would   be   a   proper application   of   the   income   for   charitable   and   religious purposes.”” 6. Insofar as question no.2 is concerned, the same is already concluded   by  a  decision   of  this Court   rendered  in  Tax  Appeal No.918/2011 decided on 10.12.2012. The observations made in Para­5 of the said decision are relevant for our purpose and it reads as under; Page 4 of 5

O/TAXAP/884/2014 JUDGMENT “5. It can thus be seen that under Section 12AA of the Act, the Commissioner has to satisfy himself about the objectives of the trust and the genuineness of its activities. For such purpose, he has the power to call for such documents or information   from   the   trust   as   he   think   are   necessary. However, this does not mean that if the activities of the trust have   not   commenced,   the   Commissioner   has   authority   to reject its application for registration on the ground that the Trust failed to convince him about the genuineness of the activities. That is what unfortunately the Commissioner did in the present case. In that view of the matter, we see no error in the Tribunals impugned order reversing the order of the Commissioner. It is of course true that even if the activities of the   trust   have   not   commenced,   if   the   Commissioner   has sufficient material in his command, he may still come to the conclusion that he is not satisfied about the objectives of the Trust or the genuineness of its activities. We understand the decision of the Tribunal accordingly.” 7. In view of the above, both the questions of law raised in this appeal are answered in favour of the assessee and against the Revenue. Since the questions of law are already concluded by the aforesaid decisions, no elaborate reasons have been assigned for disposing of this appeal. 8. Accordingly, the appeal is dismissed. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 5 of 5