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Facts
The assessee, a charitable trust, applied for permanent registration under Section 12A of the Income-tax Act but was rejected by the Ld. CIT(E). The rejection was based on an alleged contravention of Section 36A of the Maharashtra Public Trusts Act, 1950, related to borrowing by trustees without prior sanction. The appeal was filed with a delay of 17 days, which was condoned.
Held
The Tribunal held that the procedural breach concerning the borrowing from trustees was a curable defect and not material for achieving the trust's objectives. The Tribunal found that the Ld. CIT(E) had not adequately considered the trust's actual activities and objectives. The Tribunal decided to set aside the impugned order and allow the appeal.
Key Issues
Whether the failure to obtain prior sanction under Section 36A of the Maharashtra Public Trusts Act, 1950, for loans from trustees is a ground to deny registration under Section 12A of the Income-tax Act, 1961.
Sections Cited
12A, 12AB, 36A, 12AB(1)(b)(i)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
The instant appeal of the assessee is directed against the order of the Learned Commissioner of Income-tax (Exemptions), Pune, [for brevity, ‘Ld.CIT(E)] passed under section 12A of the Income-tax Act, 1961 [for brevity the “Act”], date of order 19/03/2024. 2. The appeal was filed with a delay of 17 days. The assessee filed a duly sworn in affidavit dated 25/06/2024 and explained the delay for filing the appeal.
Mulbhut Adhikar Karya Sanstha We found that there is sufficient cause for the delay in filing the appeal. The Ld.DR has not made any objection against the condonation petition of the assessee. Accordingly, the ordinate delay of 17 days is condoned and the matter is taken for adjudication.
The assessee is a charitable trustand the object is relief to the poor, education, medical relief, conservations of environment and ecology, etc. The assessee has obtained the provisional registration under section 12AB of the Act and finally, the assessee applied for permanent registration under section 12A(1)(ac)(iii) of the Act and the said application was duly rejected by the Ld.CIT(E). The aggrieved assessee filed an appeal before us.
The Ld. CIT(E) examined the objects of the assessee trust and noted that the sole ground for rejecting the application for registration pertained to the alleged contravention of Section 36A of the Maharashtra Public Trusts Act, 1950. Specifically, it was observed that compliance with another legal requirement necessary for achieving the trust’s objectives had not been adequately demonstrated. As a result, the CIT(E) concluded that the assessee had violated the provisions of Section 12AB(1)(b)(i) of the Act. The assessee trust is currently engaged in a building construction project and requires regular funding for ongoing operational activities. In instances where donations are insufficient, the trust obtains interest-free, unconditional loans from its trustees. These advances are subsequently repaid when sufficient funds become available. The details of such loans and advances from trustees (maintained as an Imprest Account) are provided at pages 7 to 8 of the APB.
Mulbhut Adhikar Karya Sanstha The Ld. CIT(E) observed that Section 36A(3) of the Maharashtra Public Trusts Act, 1950, prohibits trustees from borrowing money—whether through mortgage or otherwise—on behalf of the trust without the prior sanction of the Charity Commissioner and subject to the conditions and limitations imposed by the Commissioner in the interest of the trust. The Ld. CIT(E) accordingly held that the assessee failed to obtain the requisite prior approval for such borrowings, thereby violating the statutory requirement.
The Ld. DR argued and supported the order passed by the Ld. CIT(E).
We have considered the submissions of both parties. We find that while the trust’s own funds are restricted in terms of utilization by the trustees, there is no bar on the trustees advancing their own funds for the benefit of the trust. The assessee adopted a common and bona fide practice wherein, in the event of a temporary fund shortfall, the trustees advanced interest-free and unconditional funds through an imprest account, which were later reimbursed when donations became available.The Ld. AR placed reliance on the decision of the Coordinate Bench of the ITAT, Nagpur Bench, in the case of Shri Vyankanath Maharaj Shikshan Sanstha, Murtizapur vs. ITO in pronounced on 21/03/2015. The relevant paragraphs 10 to 13 of the said order are extracted below:– “10. The trust or institution is required to comply with any State or Central Law, Rules under a statute and Notifications issued under a Law e.g. Maharashtra Public Trust Act, 1950, Societies Registration Act, 1860, Foreign Contribution Regulation Act, 2010 etc. and Rules made under those Acts. The expression "any other laws" will not include Income-tax Act, 1961. In past it was Mulbhut Adhikar Karya Sanstha held that compliance of Rights to Education Act, CIT(E) v/s Kids-R-Kids International Education & Social Welfare Trust [2018] 99 taxmann.com 384 (P & H) (HC); Shri Gian Ganga Vocational & Educational Society v/s CIT [2013] 35 taxmann.com 17/143 ITD 297 (Delhi) (Trib.), Education institution run without obtaining requisite permission, Society is not registered under a particular State statute - Shri Krishna Education & Welfare Trust v/s CIT [2009] 27 SOT 331 (Delhi) (Trib.), charging excess fees in violation of feeprescribed by the Government - R. K. Educational Society v/s CIT [2015] 56 taxmann.com 154/68 SOT 113 (URO) (Visakha.) (Trib.), some part of the land on which a university setup was not owned as per certain Government notification - Indian Medical Trust v. PCIT [2018] 99 taxmann.com 273/173 ITD 508 (Jaipur) (Trib.), etc., are not relevant while the grant of registration, so long as objects are charitable. But post amendment registering authority is required to satisfy himself about the compliance with other statutes which are material to achieve its objects. Trust or institution may have multiple objects. Some of the objects may not be perused immediately. Non-compliance of certain laws relating to such objects may not be a hindrance to grant of registration. Especially when the Registering Authority has been granted with the power to cancel registration, when the trust or institution has not complied with the requirement of any other law. If Trust or Institution hasn't started the activity, then the requirement should be deemed to be complied with and the registering authority ought to be considered as satisfied with the genuineness of activities - Hardayal Charitable & Educational Trust v/s CIT [2013] 32 taxmann.com 341/214 Taxman 655 (All.) (HC), DIT v/s Foundation of Ophthalmic and Optometry Research Education Centre [2012] 25 taxmann.com 376/210 Taxman 36 (Delhi) (HC).
The Trust has subsequently applied for approval of Commissioner, Amravati Division, on 23/02/2024, vide Circular no.607, dated 29/04/2024, Charity Commissioner, State of Maharashtra, Mumbai, has directed to register cases under section 36A(3A) of Maharashtra Public Trusts Act, 1950, at the Divisional Level.
We have given our thoughtful submissions to the facts and have dispassionately heard all the arguments. The procedural breach is venial and not material for the purpose of achieving its objects. Moreover, the loan has not been taken by way of encumbrance of assets from any particular deficiency. The learned CIT(E) has been given onerous responsibility to grant Mulbhut Adhikar Karya Sanstha registration under section 12AB of the Act and registration and cancellation can be proceeded with only after affording a reasonable opportunity of being heard. The reply of the Trust that loan has been subsequently repaid has been glossed over and a mere procedural irregularity, which is curable defect has been amplified to deny registration. Moreover, once provisional registration has been granted under section 12AA, under section 12AB(4) of the Act, the learned CIT(E) is perfectly empowered to cancel such registration, if specified violation has taken place. Clause (f) of Explanation clearly lays down the requirement of order; direction or decree, holding such non–compliance has remained undisputed or has attained finality. Such circumstances are non–existent in this case. Accordingly, the provisional registration needs to be converted to final registration. We direct accordingly. Consequent upon our directions based on the findings cited supra, we set aside the impugned order passed by the learned CIT(E) by allowing all the grounds raised
by the assessee.
13. In the result, assessee’s appeal stands allowed.”
Upon perusal of the order passed by the Ld. CIT(E), we observe that no findings have been recorded with respect to the actual activities of the trust or the underlying intent and objectives, which are essential criteria for granting permanent registration under Section 12A of the Act.In our considered opinion, the matter is required to be remanded to the file of the Ld. CIT(E) with a direction to grant permanent registration to the assessee after verifying the necessary documents in accordance with the provisions of the Act. The issue concerning Section 36A of the Maharashtra Public Trusts Act, 1950 has already been duly considered by the Bench and is found to be irrelevant for the purpose of granting registration under the Act.