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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI B.R.R. KUMAR
O R D E R PER AMIT SHUKLA, JM
The aforesaid appeal is directed against the order dated 29.09.2019, passed u/s 12AA (1)(b) r/w Section 12A of the Income-tax Act, 1961 (the Act for short ) dated 29.09.2019, whereby Ld. Commissioner of Income-tax (Exemptions) [CIT(E)] refused to grant registration to the Trust. Following ground of appeal has been taken by the appellant Trust:-
“On the facts and in the circumstances of the case and in law the order of the learned Commissioner of Income Tax (Exemption), Delhi, rejecting the application for grant of registration made under section 12AA(1)(b) read with section 12A of the Income Tax Act, 1961 is arbitrary, misconceived, fallacious and illegal which must be quashed with further directions to grant the registration as sought.”
Brief facts qua the issue are that the Appellant Trust had filed application on 06.03.2019 in Form 10A seeking registration u/s 12AA of the Act. The Ld. CIT(E) vide letter dated 27.05.2019 asked the Assessee to submit documents in support of its claim for registration u/s 12A and exemption u/s 80G of the Act. In response, the Appellant Trust filed a copy of the Trust Deed and the financial statements for the years 2017-18 and 2018-19 with a note on its activities. The CIT(E) vide notice dated 17.09.2019 asked the Trust to provide provisional financial statement for the year 2019-20 also along with details of the residential status of the Trustee Sh. Sharad Malik and also the details of the meetings of the Trust. Simultaneously, the CIT(E) asked the Trust to show cause as to why in the absence of adequate charitable activities its application for registration u/s 12A of the Act should not be rejected. In answer thereto, it was submitted by the Trust that Sh. Sharad Malik was a Non-Resident Indian. Since he was the sole Trustee, meetings of the Trust were not required to be held.
The Trust informed the CIT(E) that it was created with a limited corpus of Rs. 10,000/- with a further deposition that the property at 6/22, Shanti Niketan, New Delhi would with certain restrictions devolve on the Trust after the demise of the Settlor, Smt. Santosh Bakshi. This was as per the depositions in the WILL of Smt. Santosh Bakshi dated 18.11.2010. The WILL further provided for Sh. Sharad Malik, the son of her brother Sh. Satish Chander Malik, to be an executor of the Trust. The WILL also provided that the property at 6/22, Shanti Niketan, New Delhi could be sold only after the demise of her other brother Sh. Sudershan Kumar Malik, who had been given the right through the WILL to live in that property till his life-time. A copy of the said WILL had been filed with the CIT(E).
The CIT(E) collated the financial details from the statements provided by the Trust:-
S.No. Financial Year Voluntary Charity Contribution Expenses / Donation Rs. Rs. 1. 2017-18 5100 1575 2. 2018-19 5100 1850 3. 2019-20 (as on 125000 100000 15.09.2019)
On an examination of the financial statements the CIT(E) found that no charitable activity had been undertaken by the Trust though during 2019-20 an amount of Rs. 1,00,000/- had been shown as a donation.
The CIT(E) observed that the details submitted by the Trust revealed that Smt. Santosh Bakshi (the Settlor) and her husband Late Vishwa Nath Bakshi owned the property located at 6/22, Shanti Niketan, New Delhi. Her husband passed away on 29.05.1996, where after Smt. Santosh Bakshi became the sole owner of that property. On 18.11.2010 Smt. Santosh Bakshi had executed the WILL which assigned the said property to the Trust after her death but with the further condition that during the lifetime of her brother Sh. Sudershan Kumar Malik, who was then residing with her in the said property, that he would continue to live in that property till his demise. Subsequently, Smt. Santosh Bakshi on 03.01.2012 created the Trust as Settlor to which she appointed Sh. Sharad Malik as the sole Trustee. The Settlor was directed to donate the Shanti Niketan property to the said Trust. It was provided that the proceeds from the sale of the said property were to be used for the purpose of realising the objectives of the Trust. The Settlor, Smt. Santosh Bakshi passed away on 22.12.2012.
In the background of the facts and material as cited above, the CIT(E) opined that as per the Trust Deed the property was to become the Trust property on the demise of the Settlor. On the other hand, as per the WILL (which had been executed prior to the Trust Deed) the property of the Trust, on the demise of the Settlor, would be utilised by her brother Sh. Sudershan Kumar Malik, who is the uncle of the Trustee, during his lifetime. The above condition made the Trust as one for private purpose and not for public charitable purposes which was a precondition for the grant of registration u/s 12A of the Act. The Ld. CIT(E) further observed that the utilization of the said property by Sh. Sudershan Kumar Malik, was in violation of Section 13(1)(c) r/w Section 13(3) of the Act.
In the aforementioned background the Ld. CIT(E) held that the Trust did not satisfy the conditions for grant of registration u/s 12A of the Act as the Trust property had not been utilized for public charitable purposes and it was in violation of Section 13 of the Act. In this way the Trust did not qualify for registration u/s 12AA of the Act and so its application for grant of registration u/s 12A had to be rejected.
The Ld. Counsel for the Appellant Trust submitted that the rejection of the application for registration as filed by the Trust had been wrongly refused on a complete misunderstanding of the sequence of the events leading to the formation of the Trust and the induction of funds into the Trust on the sale of the house Shanti Niketan property. Ld. Counsel submitted that the desire to form a Trust came to the Settlor of the Trust Smt. Santosh Bakshi through the WILL executed by her on 18.11.2010 which declared that she was the sole owner and in possession of the property bearing No. 6/22, Shanti Niketan, New Delhi to which she appointed Sh. Sharad Malik, son of her late brother Sh. Satish Chander Malik to be the Executor and Trustee. She declared that she had vested in the Executor of the WILL with the property at Shanti Niketan to hold it upon Trust, to sell the same, with the power in his absolute discretion to postpone the sale so long as he thought fit, without his being liable for any loss. She further added that the Trustee would not sell the said property during the lifetime of her brother, Sh. Sudershan Kumar Malik, who at the relevant time was living with her in that property. She further provided that the Trustee Sh. Sharad Malik would hold the proceeds of sale of the property which amount with the concurrence of the other close relatives of the family, would be used for the spread of knowledge and education through disbursals to appropriate charities, educational institutions or individuals as they deemed fit and proper. Ld. Counsel has placed a copy of WILL on record.
Smt. Santosh Bakshi followed up her WILL with the execution of a Trust Deed on 03.01.2012 wherein she appointed Sh. Sharad Malik, the executor of her WILL as the Trustee. She had handed over to the Trustee a sum of Rs. 10,000/- as corpus of the Trust. She provided for the Trust to eventually receive donation out of the sale of the property at Shanti Niketan. Impliedly the Trust came to possess the funds from the sale of the property after the death of the brother of the Settlor. Until the Settlor’s brother was alive the devolution of the property to the Trust had been kept in abeyance by the Settlor. Ld. Counsel has placed a copy of Trust Deed on record.
The Ld. Counsel further stated that the property at Shanti Niketan came to be vested with the Trust as a donation only after the occurrence of two incidents, namely, the demise of Sh. Sudershan Kumar Malik and the receipt of the sale proceeds of the property thereafter. Thus, the contention of the Ld. CIT(E) that the relative of the Trustee had stayed in the Trust property was factually incorrect. Though the Settlor’s relative did indeed stay in the demised property the property itself at the relevant time did not belong to the Trust. The house property got vested in the subject Trust only after the death of Sh. Sudershan Kumar Malik on 11.02.2015. Clearly, therefore, Ld. Counsel submitted that all the while Sh. Sudershan Kumar Malik stayed in the property, it had not devolved on the Trust. Devolution was specifically kept pending by the Testamentary Trust Deed. In this way there was no exploitation of the Trust property for any private purposes by anyone related to the Trustee.
Ld. Counsel further informed that after the demise of Sh. Sudershan Kumar Malik on 11.02.2105, the property itself was trespassed, usurped and the property deeds were forged and manipulated for sale by some miscreants. It was only after settlement of all Court cases in this behalf in July 2017 that the property came to the hands of the Trustee for sale. Immediately after the sale of the property carried out in terms of order dated 04.07.2019 of Hon’ble Delhi High Court in CS(OS) 119/2019 under Charitable and Religious Trusts Act, 1920, the entire sale consideration was placed with the Trust for the pursuit of its activities and sole Trustee Sh. Sharad Malik. In this connection the sole Trustee had filed affidavit dated 19.12.2019 before Hon’ble Delhi High Court regarding utilisation of sale proceeds for charitable objects of the Trust. Ld. Counsel has placed the sale deed and the Affidavit on record.
As to the other objection of the Ld. CIT(E) of the Trust not carrying out substantial activities after its incorporation the Ld. Counsel submitted that the activities as carried on were commensurate with the modest funds available with the Trust. It was further stated that any Trust is permitted by law to donate monies for promoting the activities of any other like Trust. Such donations to approved Trusts are treated as application of the income of the Trust exigible to exemption.
Our attention was drawn to the decision of the Apex Court in Anand Social Educational Trust Vs. CIT & Ors. (2020) 426 ITR 340 (SC), wherein the Hon’ble Court had ruled that a newly formed Trust could be registered even though no activities had been carried out by it. Adverting to the decision in the case of DIT Vs. Foundation of Ophthalmic & Optometric Education Research Centre (2013) 355 ITR 361. Ld. Counsel submitted that the non- commencement of charitable activities by the Trust was no justification for the authorities to reject the claim for registration. Ld. Counsel also relied upon the decisions of the Karnataka High Court in Sanjeevamma Hanumanthe Gowda Charitable Trust Vs. Director of Income-tax (Exemptions) (2006) 285 ITR 327 (Kar) and of the Punjab and Haryana High Court in CIT Vs. Surya Educational and Charitable Trust (2013) 355 ITR 280 (P&H) to submit that if the objects envisaged by a Trust were charitable in nature registration could not be refused by the Commissioner on grounds of charitable activities not having been conducted by the Trust.
Ld. Counsel urged that the several objectives envisioned by the Trust were purely charitable and Hon’ble Delhi High Court had also passed orders for sale of Trust property under the Charitable and Religious Trusts Act, 1920 after considering those objectives. The Ld. CIT (E) had not made any adverse comments on any of these aspects in the impugned order. Being so, the refusal to register the Trust on the alleged violation of Section 13(1)(c) r/w Section 13(3) of the Act and also on the impression that the genuineness of the activities were not being satisfactorily explained were both wrong. Since the Trust had thus been wrongly refused registration u/s 12AA of the Act he pleaded for directions to the Ld. CIT (E) to grant registration to the Trust u/s 12A of the Act.
Per contra, the Ld. CIT (DR) vehemently submitted that the registration u/s 12A of the Act had been correctly refused by the Ld. CIT (E) because the property devolved on the Trust no sooner the WILL of Smt. Santosh Bakshi became operative. That property was admitted being put to private use by Sh. Sudershan Kumar Malik a relative of the Trustee. Such use was in clear violation of Section 13(1)(c) r/w Section 13(3) of the Act.
It was further submitted that even otherwise the Trust had not carried out any significant charitable activities during financial years 2017-18 and 2018-19. Even in the FY 2019-20 (upto 15.09.2019) the activity of the Trust was passive in as much as, it had simply donated a sum of Rs. 1 lac to another Trust.
Lastly, it was submitted that on finding that the material on record and the explanations as given by the Trust were unsatisfactory and also that the activities carried out between the financial years 2017-18 up to 15.09.2019 were not inspiring confidence about the genuineness of the activities of the Trust the rejection of the registration application by the CIT(E) was quite in order and which could not be faulted.
According to the Ld. CIT (DR) the cases cited on behalf of the Trust were all distinguishable on facts.
We have considered the revival contentions, the material on record and the case laws cited before us. Ld. CIT (E) has invoked two grounds for refusing to register the Trust.
Firstly, according to the Ld. CIT (E) the relative of the Settlor of the Trust had utilised the Trust Shanti Niketan property for his private use; Secondly, the Ld. CIT (E) observed that the Trust had not carried out any charitable activities during the period of its existence. In our opinion both the contentions leading the Ld. CIT (E) to refuse registration to the Trust are not correct.
The property at Shanti Niketan originally belonged to the Settlor Smt. Santosh Bakshi. In terms of her WILL dated 18.11.2010, Smt. Bakshi had provided for the aforesaid property, in which she resided, to devolve on the Trust after the demise of her brother. The Trust itself had been formed with Rs. 10,000/- by her as corpus. That was the sole investiture to the Trust. The property at Shanti Niketan was not the property with which the Trust was created. The devolution of that property to the Trust was reserved by the Settlor of the Trust for a later occasion. That was to arise after the occurrence of two incidents. The first was the passing away of her brother Sh. Sudershan Kumar Malik who had been given a life time right of residence in it and the second condition Trustee should sell the property. In effect therefore, the property at Shanti Niketan came to be reposed in the Trust only after receipt of its sale consideration. Till the time Sh. Sudershan Kumar Malik was staying in the property, the property had not been bequeathed to the Trust. Consequently there was no exploitation of Trust property for private use by anyone connected with the Trust so as to attract any sort of disqualification.
As to the other objection of the CIT (E) of the Trust not having carried out charitable activities during the period of its existence it needs to be appreciated that any Trust can pursue its activities only if it has funds. The funds came to the possession of the Trust after sale of the property at Shanti Niketan. The apex Court and the High Court of Delhi, Punjab and Haryana, Karnataka have all appreciated this practical aspect of the matter. The apex Court has ruled in Anand Educational Trust vs. CIT & Ors. (Supra) that a newly formed Trust can be registered even though no activities had been carried out by it in the interregnum period. What is essential is that the objects of the Trust are charitable and its activities, if any, are genuine. The activities of the Trust as stated in the Trust Deed fall duly under the definition of Charity as provided u/s 2(15) of the Act. There is no material on record to betray the genuineness of the Trust activities. In point of fact the Trust has with its modest resources donated a sum of Rs. 1,00,000/- to another Trust which is not only registered under the Income-tax Act, 1961 but is also registered under the FCRA. Donations so made testify to the genuineness of the Trust. Moreover, the property of the Trust was sold under orders passed by the Hon’ble Delhi High Court while exercising powers under the Charitable and Religious Trusts Act, 1920, thus treating the Trust as a charitable Trust and also directing utilisation of sale proceeds for charitable objectives of Trust. In this manner the objection as raised by the Ld. CIT (E) on the absence of any significant charitable activities is without merit.
In the circumstances, we find that the reasons canvassed by the Ld. CIT (E) to refuse registration to the Trust are neither factually correct nor are in accordance with the provisions of the Act. The charitable nature of the objects of the Trust has not been called to question. The genuineness of the activities, even though minimal, conforms to charity. We, therefore, direct the Ld. CIT (E) to grant the registration as sought for u/s 12A of the Act by the Appellant Trust. The appeal is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 10/05/2021