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Facts
The appellant trust's registration was rejected by the CIT(E) for alleged violation of Section 11 by utilizing funds outside India. The trust contended that the interpretation of 'otherwise' in its objects clause was misunderstood and that it had valid registration.
Held
The Tribunal held that there was ambiguity in the interpretation of 'otherwise' and that the appellant was not given an effective opportunity to explain its case or file necessary documents. The matter was remitted to the CIT(E).
Key Issues
Whether the CIT(E) properly rejected the registration without affording the assessee an adequate opportunity to explain the ambiguity in the trust deed and present relevant documents. Whether the interpretation of 'otherwise' in the trust deed was correct.
Sections Cited
12AB, 11
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN, JM & SHRI OMKARESHWAR CHIDARA, AM
Aggrieved by the rejection of Registration under section 12AB of the I.T. Act by Ld. CIT(E) the appellant Trust filed an appeal before the ITAT with the following grounds :- 1. The learned Commissioner of Income Tax (Exemptions), Mumbai, erred in holding that the assessee trust intends to apply funds in violation of Section 11 by utilizing them outside India, based on mere surmises and conjectures.
2. The learned CIT (Exemptions) failed to consider that the assessee trust has never utilized nor intends to utilize any funds for purposes outside India and has never donated any money for the foreign education of Indian students.
3. The learned CIT (Exemptions) overlooked the fact that the amendment to the trust deed is being carried out in due course to ensure compliance with applicable legal provisions.
2 Solanki Charitable Trust 4. The learned CIT (Exemptions) failed to consider that the assessee trust qualifies as a small trust, as acknowledged by the Hon'ble Finance Minister in the Lok Sabha while presenting the Budget for FY 2025-26, and should be granted the intended exemptions.
Ld. AR of the appellant filed a paper book during the course of hearing before the ITAT and explained the reason for this delay is due to hospitalisation of Chartered Accountant who is handling the tax matters of the Trust and in evidence thereof, the medical record of CA was enclosed. The Bench is satisfied with the reason for filing the appeal with delay and hence, the same is condoned and appeal is proceeded to be decided on merits.
During the appeal proceeding, the Ld. AR of the appellant Trust has filed certain papers including the objects of Trust. It was contended by Ld. AR of the appellant the CIT(E) has misunderstood clause (xi) of the objects clause which is reproduced as follows :-
“To enter into nay arrangement with the Central Government of any State Government or any Municipality or Corporation or a Body Corporate or any such authority, local or otherwise that may seem conducive to the fulfilment of the objects of the Trust or any of them and to obtain from any such Government or authority rights, concessions and privileges for the purposes of the objects of the Trust.
In this clause, “otherwise” was interpreted by Ld. CIT(E) as payments can be made by Trust outside the country also. The Ld. AR of the appellant contends that the meaning of local is within Maharashtra and “otherwise” means within the country. The second reason mentioned by Ld. CIT(E) for rejection of registration of Trust is that there is no valid registration for A.Y. 2022-23, but the appellant contends that the Trust has got valid registration. No opportunity was given to the appellant to explain their case before rejecting the application for registration, the appellant contended.
3 Solanki Charitable Trust 5. Ld. DR filed a note during the appeal proceedings before the ITAT and argued that the rejection order of Ld. CIT(E) is proper and correct and should be upheld in view of following reasons :- a) The required documents seeking registration in Form 10AB were not filed before Ld. CIT(E). b) Show-cause notice was served on appellant trust where it was mentioned that clause (xi) of the Objects Trust is in violation of section 11 of the I.T. Act, as the Trust intends to apply/receive funds outside India. This clause ought to have been amended by Trust. c) The appellant Trust does not have valid registration for A.Y. 2022-23, but claimed the exemption for A.Y. 2022-23 filing ITR 7 on the basis of provisional registration. d) The Ld. DR has placed reliance on the decisions of Sila for Change Foundation & 4275/Mum/2024 dated 20.12.2024 for the proposition that, by insertion of sub-sections 4&5 of section 12AB inserted by Finance Act 2022 widened the scope of violation by including violations specified in explanation therein. The Ld. DR also relied on Hemlatha Charities Vs. CIT 172 Taxman.com 649 (Mum Trib) for the same proposition. The Ld. DR has placed reliance on the decision of India Brand Equity Foundation Vs. ACIT 23 taxman.com 323 (Del) and DIT Exemption Vs. NASSCOM 21 taxman.com 213 (Del) for the proposition that the amount spent outside India cannot be considered as application of Income.
Heard both sides. There is no ambiguity post 2022 amendment to sub- section of 4&5 of section 12AB that the amounts cannot be spent by Trusts outside the country without proper approvals. The Ld. AR of the appellant claims that the Trust never intended to spend any amount outside the country and the Trust is a very small one. In fact, there is no income during this year also. As there is ambiguity in the word “otherwise” in clause (xi) of 33 of 4 Solanki Charitable Trust Objects Trust, the same may be explained to the Ld. CIT(E) by the appellant trust. The appellant should have been given an opportunity to explain the meaning of “otherwise” because Ld. AR argued that Local or “otherwise” means local means in Maharashtra and “otherwise” means within India. The Ld. AR of appellant has also pleaded that there is valid registration for A.Y. 2022-23 and Ld. CIT(E) should have given by opportunity to explain the same of all the relevant documents were not filed, the appellant should have been given an opportunity to file the same. The arguments and decisions relied on by Ld. DR are not relevant to the facts of this case because neither the Trust wanted to spend or spent the amount outside India, as argued by Ld. AR of the appellant.
After hearing both sides, it is decided to remit the matter to the Ld. CIT(E) to give an effective opportunity to put forth this arguments/contentions and the Trust may be allowed to file any documents required. The Bench is not expressing any view on allowability or otherwise of exemption sought by appellant.
The issues, as mentioned, are remitted to the file of Ld. CIT(E) with a direction to give an opportunity to Trust to explain its case and take a decision as per law.
The appeal of appellant of is allowed for statistical purposes.
Order pronounced in the open court on 05 -05-2025.