SHRI MUKUND BHAVAN TRUST,PUNE vs. CIT(E), PUNE

It has been explicitly mentioned in the Trust Deed that the main purpose of creation of the trust as per the preface mentioned in the initial paragraphs of the trust deed is to facilitate Vedic and religious education to such students who accept the elements of Vamashram. In general terms the four Varnas are Brahmins (priests and teachers), Kshatriyas (rulers and warriors). Vaishyas (farmers and merchants), and Shudras (laborers and artisans) The four ashramas are Brahmacharya (student), Grihasthashram (householder) Vanaprasthashram (retirement from house hold activities), and Sannyasashram (renouncing material world), which is a materialistic arrangement for one social group to dominate another, and by reinforcing identity based on bodily categories. Thus, the entire concept itself is against the social development and not for any charity of the people at large at all. 2 Further verification shows that the Trust Deed contains the following conditions/provisions (i). While creating the trust, vide Para 2 of the Deed, the settlor has imposed restrictions on the trust properties transferred by him to the trust for donating the same to any other person and has further imposed a condition that some part of these trust properties are to be allowed to be utilized by the settlor and his heirs without any rent or other charges for such use of the trust properties. (ii). The objects viz. 4(a) provides for vedic and religious education only to such students who accept the elements of Varnashram as per their rights specified under Varnasharam. Object 4(b) further provides for religious education of such students through the daily pooja and other religious celebrations of Shri Mukund Bhagwanta. Object No.4(d) provides for library of books, daily, weekly, monthly magazines etc but with a restriction that they should be religious one. The note extended to the objects from 4(a) to 4(e) further specifically provides that the beneficiaries shall be with preference to Marwadi Brahmins and then to Vaishyas of Maheshwari Caste and if none from these castes is available, to other brahmin and Vaishya castes

The assessee in response to the same filed a detailed reply on each of the issues on 26.12.2023. However, the Ld. CIT(E) was not satisfied with the arguments advanced by the assessee. Relying on various decisions including the decision of Hon'ble Supreme Court in the case of New Noble Educational Society vs. CCIT (2022) 143 taxmann.com 276 (SC) he cancelled the registration granted earlier u/s 12A on 25.08.1975 and consequent registration u/s 12AB r.w.s. 12A(1)(ac)(i) of the Act dt 24.09.2021 for the reasons which have been summarized by him and which read as under: “15. Now, I proceed to conclude the discussion made above I find it appropriate to re-iterate that while doing so I find force from the decision of Hon'ble Apex court in the case of Dilip Kumar(supra) wherein the Hon'ble Court has propounded the idea of strict interpretation of statute Further, in order to benchmark the scope of genuineness, I have derived inspiration from the decision of the Hon'ble Supreme Court in the case of Andhra Chamber of Commerce in (1965) 55 ITR 722 (SC) wherein their lordships have found that "The word charity connotes altruism in thought and action. It involves an idea of benefiting others rather than oneself.

Aggrieved with such order of Ld. CIT(E), the assessee is in appeal before the Tribunal by raising the following grounds: 1. (a) The learned CIT(E) erred on law and on facts in not granting sufficient opportunity of hearing and thus violating the principle of natural justice. (b) In so doing, the learned CIT(E) erred in law and on facts -

The Ld. Counsel for the assessee at the outset submitted that the trust was established in the year 1930 and was granted registration u/s 12A on 25.08.1975 and u/s 12AB(1)(ac)(i) of the Act on 24.09.2021. He submitted that the trust is regularly assessed to tax with most of the years being assessed u/s 143(3) and nowhere the activities of the trust have been treated as non-genuine. Further, there is no change in the trust deed since 1930 and the assessee has not taken any donation from the public. He submitted that the notice for cancellation was issued on 05.12.2023 in response to which the assessee made its submissions on 10.12.2023 (received by the CIT(E) on 26.12.2023) and the Ld. CIT(E) passed the order on 30.06.2024 cancelling the registration without giving any further opportunity of hearing to the assessee in between the period from 05.12.2023 to 30.06.2024. The Ld. Counsel for the assessee submitted that though the principle of res judicata does not apply to tax proceedings, however, the rule of consistency is well accepted in various judicial precedents. Since in the instant case there is no change in the trust deed or the activities of the trust and the registration was granted twice and in none of the years activities have been changed, therefore, to re-examine the same trust deed by the Ld. CIT(E) is not justified.

The Ld. Counsel for the assessee referring to the copy of notice dated 05.12.2023 and the impugned order cancelling the registration submitted that a reading of the notice vis-à-vis the order of the Ld. CIT(E) makes it evident that he has raised the issues in the order at paras 10 to 10.16 regarding the income and expenditure of the assessee and at paras 14 to 14.2 regarding donating to other trusts and not carrying out charitable activity itself, which were not even put to the assessee. Therefore, this being not a part of the show cause notice the assessee had not replied to the same. Referring to the order of the Ld. CIT(E), he submitted that a reading of the said order makes it clear that the Ld. CIT(E) has not even considered the submissions of the assessee nor dealt with the judicial precedents. Referring to para 7(c) of the submissions at page 12 of the paper book and para 5(b) and 5(c), he submitted that the Ld. CIT(E) has not even dealt with the judicial precedents relied on by the assessee. This clearly shows the lack of any opportunity of hearing given by the Ld. CIT(E).

So far as the allegation of the Ld. CIT(E) that the trust was established for a particular caste who had belief in Hindu Varnashram, which was in direct violation of the provisions of section 13(1) of the Act considered to be a violation of clause (e) of section 12AB(4) is concerned, he drew the attention of the Bench to provisions of section 13(1)(b) which reads as under: “13(1)… (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste”

He submitted that the Ld. CIT(E) conveniently ignored this provision. Since the assessee in the instant case was established in 1930 which is much prior to the commencement of this Act i.e. 1961 Act, therefore, the allegation of the Ld. CIT(E) that the assessee has violated the provisions of section 13(1)(a) r.w.s. 12AB(4)(e) is not in accordance with law.

He submitted that the Ld. CIT(E) has not examined any activity but made out a case based on the objects of the trust deed which is a fatal flaw in the conclusion. Further there is no specific previous year referred to by the Ld. CIT(E) which is an imperative for the purposes of section 12AB(4). The Ld. Counsel for the assessee relying on various decisions placed in the case law compilation submitted that the reason for rejection of registration on account of establishment of the trust for a particular caste who had belief in Hindu Varnashram is not justified.

So far as the allegation of the Ld. CIT(E) that the assessee is a private trust is concerned, he submitted that the Ld. CIT(E) picks out a statement out of clause 9 of the trust deed without reading the entire clause and context. He drew the attention of the Bench to clause 9 of the trust deed (page 83 of paper book) which reads as under: “(9) Trustees should make expenditure for the work of the Institute proportionately to the Income of the Institute. No expenditure should be made out of permanent funds. Trustees do not have right to take loan. This Institute is private. I do not have any objection if anybody helping Institute considering my objective as mentioned above or for any specific work. Trustees can take such help or there is not any objection in co operating with any Institute which is taking into consideration my objectives. I will do every possible help from my side time to time, for the progress of the institute.”

He submitted that in the context of funds for the trust, the author says that there has to be no borrowing and that how support can be selectively taken reminding that the trust is otherwise to be operating on its own steam. Referring to the submissions made before Ld. CIT(E), the Ld. Counsel for the assessee drew the attention of the Bench to para 7(b) and 7(c) of the submissions made before the Ld. CIT(E) at page 12 of the paper book which read as under: “7.(b) Nothing could be further from the truth. There is nothing either in the trust deed nor in the activities of the trust that can lead us to this inference. 7.(c)The distinction between a private & public endowment is that whereas in the former, the beneficiaries are specific individuals, in the latter they are the general public or a class thereof. (Deokinandan V. Murlidhar (SC) 1957 AIR 133 (04.10.1956) (while deciding whether a Thakurdwara of Sri Radheshyamji is a private temple or public one in which all Hindus are entitled to worship) For a trust to be considered public, they should be constituted for the benefit of the public. A trust would be private if the beneficial interest in vested in absolutely one or more individual who are uncertain and who will be competent to control, modify or determine that trust. A public trust is for the benefit of the members of an uncertain & fluctuating body and the trust itself in of permanent and indefinite character. (Farman All Khan v Mohd. Raja Khan (ALC) AIR1950 All 62 Para 18).”

He submitted that the Ld. CIT(E) does not controvert the above submissions of the assessee. The reasoning by the Ld. CIT(E) is fraught with numerous flaws. He submitted that the objects of the trust deed have to be read as a whole and the Ld. CIT(E) cannot engage in cherry-picking to suit his observation and conclusion.

Referring to the decision of Hon‟ble Gauhati High Court in the case of Arunachal Pradesh Forest Corporation Ltd reported in 290 ITR 139 (Gau), he submitted that a literal interpretation of the objects, as has been attempted by the Ld. CIT(E), is not a judicial approach.

So far as the allegation of the Ld. CIT(E) that the assessee true was not registered under the Bombay Public Trust Act and therefore, is in violation of provisions of section 12AB(1)(b)(1)(B) of the Act thereby constituting a specific violation under clause (f) of the Explanation to subsection 12AB(4) of the Act is concerned, he submitted that if this was a mandate u/s 12A, then it would have been so specified as is the case u/s 80G(5)(v) which requires a mandate of constituting as a public charitable trust registered under Society Regulation Act. He submitted that the procedure for fresh registration introduced w.e.f. 01.04.2021 for applications made under section 12A(1)(ac) is provided in section 12AB. He submitted that sub section 12AB(4), inter alia, provides for noticing of specific violations during any previous year. The Explanation thereunder defines specified violation which means, inter alia, under clause (f) the trust or institution has not complied with the requirements of any other law as referred to in 12AB(1)(b)(i)(B) (which is compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects).

Referring to the budget speech of the Hon‟ble Finance Minister in 2019, he submitted that the Hon‟ble Finance Minister also spells out the intent by stating that it is proposed to provide for cancellation of registration of the trust or institution under the Act for violation of such provision of any other law, where an order holding that such violation has occurred is either not contested or has become final. In the present case, there is no such order against the assessee for such non- compliance.

He submitted that the present trust has been a trust in operation since 1930 and has been registered under the Income Tax Act since 25.08.1975 and never has this issue been questioned including while granting registration on 24.09.2021. He submitted that the case of New Noble referred to by the Ld. CIT(E) is not applicable as it was a case of fresh registration while in the case of the assessee it is a case of cancellation of registration based on no change in facts. Further, in the case of New Noble (supra) it was a case of registration u/s 10(23C) of the Act whereas in the case of the assessee it was a case of registration u/s 12AB. Further, the case of the New Noble was a pure educational trust, which could have a State law which directly applies to education. He submitted that the question before the Hon‟ble High Court was "whether registration under AP Charities Act was a pre- requisite for registration or approval under the Income Tax Act" while the present case is not one of pre-requisite but a post registration alleged imperative. Referring to the decision of the Hon'ble Supreme Court in the said case, he submitted that the Hon‟ble Supreme Court has clearly spelt out that compliance under other laws can weigh in deciding approvals under section 10(23C). Referring to various decisions, he submitted that the Ld. CIT(E) is not correct in cancelling the registration on this issue.

So far as the allegation of the Ld. CIT(E) that the assessee trust has made substantial investment of funds in modes other than prescribed under section 11(5) which is a specific violation under clause "e" and "f" of the Explanation to subsection 12AB(4) of the Act is concerned, he submitted that the investment is only specific to section 11(2), which fact is neither examined nor ascertained nor any finding given on that count. He submitted that the breach is also not pointed out as any year specific, which is the requirement of the section 12AB(4). He submitted that the breach is not fatal to registration. Referring to various decisions including the decision of Hon‟ble Bombay High Court in the case of DIT (Exemptions) vs. Sheth Mafatlal Gagalbhai Foundation Trust reported in 249 ITR 533 (Bom) and the CBDT Circular No.387, dated 07.06.1984 copy of which is placed at pages 58 to 59 of the paper book, he submitted that only that part of income can be taxed at maximum marginal rate.

So far as the allegation of the Ld. CIT(E) that the assessee trust is involved in activities on commercial basis earning rental income which cannot be said to be incidental to the main objects which is a specific violation under clause "b" of the Explanation to subsection 12AB(4) of the Act is concerned, he submitted that the Act lays emphasis on income derived from property. If rental income is derived from property owned by the Trust, there is no reason to call it activity on commercial basis. He submitted that the Ld. CIT(E) has incorrectly appreciated the principle of computing income on commercial basis with that of commercial activity. Referring to the assessee‟s own case for assessment year 2012-13, he submitted that similar issue was raised in assessment year 2012-13 and the Tribunal negated the contention of the Revenue, copy of which is placed at pages 19 to 29 of the paper book. He submitted that there is no reason to characterize the rental income from property held in trust as income from business and attempt to invoke clause (b) of Explanation to section 12AB(4). He submitted that it is income derived from property held under trust wholly for charitable purposes.

So far as the allegation of the Ld. CIT(E) that the assessee trust has not conducted activities over the years related to the main object of the trust but donated substantial amount to other trusts and therefore such set up to earn income cannot be said to be inspired by benevolence and raises serious doubt over its genuineness which is a specific violation under clause "e" of the Explanation to subsection 12AB(4) of the Act is concerned, he submitted that the Courts have time and again held that it is not necessary for the trust itself to carry out charitable activities and that it is permissible to donate to other charitable trusts. He submitted that in any case breach of trust which does not affect the vires of validity of the trust cannot lead to denial of benefits of section 11 and cancellation of registration. For the above proposition, he relied on the decision of the Hon‟ble Jharkhand High Court in the case of CIT vs. Karimia Trust reported in 302 ITR 57 (Jha) where it has been held that the breach of the conditions of the trust deed, if any, committed by the assessee trust will not disentitle it from getting the benefits which it has been getting in the past, exemption u/s 11 cannot be denied to the assessee trust on the part of alleged violation of provisions of section 13(1)(bb).

The Ld. Counsel for the assessee while concluding his arguments submitted that the assessee has been granted approval and recognition u/s 12A which has not been usurped in any of the years of its existence. He submitted that though the principle of res judicata does not apply to tax matter, in questions of fundamental nature or questions which do not vary each year or questions on which the right of parties to be taxed are based, the principle of res judicata to that extent would apply. He submitted that in any case, rules of finality and rule of consistency do apply to tax proceedings. For the above proposition, he relied on the following decisions: i) South India Trust Association vs. Telugu Church Council (1996) 2 SCC 520 ii) Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) iii) Parashuram Pottery Works Ltd. vs. ITO (1977) 106 ITR 1 (SC) iv) Excel Industries Ltd. 350 ITR 295

He submitted that once registration has been granted after satisfying about the genuineness of the activities of the trust, the same cannot be cancelled on the basis of the same set of provisions of the trust deed which were examined earlier. For the above proposition, he relied on the decisions of Hon‟ble Madras High Court in the case of CIT vs. Sarvodaya Ilakkiya Pannal reported in 343 ITR 300 (Mad) and Hon‟ble Jharkhand High Court in the case of Sri Ramjanki Tapovan Mandir vs. CIT & Anr. reported in 451 ITR 458 (Jha). He also relied on the following decisions:

He accordingly submitted that the Ld. CIT(E) was not justified in cancelling the registration of the trust u/s 12A of the Act.

The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(E). He submitted that the Assessing Officer has no power to verify the objects / genuineness and the power vests only with the CIT(E). He submitted that the Ld. CIT(E) has considered each and every aspect of the submissions made by the assessee and has passed a speaking order. Therefore, the same should be upheld and the grounds raised by the assessee be dismissed.

We have heard the rival arguments made by both the sides, perused the order of the Ld. CIT(E) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case is a trust registered in the year 1930 and was granted registration u/s 12A on 25.08.1975 and u/s 12AB(1)(ac)(i) of the Act on 24.09.2021. The trust is regularly assessed to tax with most of the years being assessed u/s 143(3) and in none of the years, the activities of the trust have been treated as non-genuine and there is no change in the activities of the trust from the date of grant of registration till now. We find the Ld. CIT(E) issued a notice for cancellation on 05.12.2023 asking the assessee to explain as to why the registration of the trust should not be cancelled, the contents of which have already been reproduced at para 5 of this order. We find the assessee made its submissions dated 10.12.2023 received by the Ld. CIT(E) on 26.12.2023 and the Ld. CIT(E) passed the order on 30.06.2024 cancelling the registration granted u/s 12A on 25.08.1975 and consequent registration u/s 12AB(1)(ac)(i) of the Act on 24.09.2021.

It is the submission of the Ld. Counsel for the assessee that the trust was registered in the year 1930 and has been granted the approval and recognition u/s 12A which has not been usurped in any of the years of its existence. It is his submission that once registration has been granted after satisfying about the genuineness of the activities of the trust, the same cannot be cancelled on the basis of the same set of provisions of the trust which were examined earlier. It is also his submission that the trust is regularly assessed to tax with most of the years being assessed u/s 143(3) and nowhere the activities of the trust have been treated as non-genuine. It is his submission that the Ld. CIT(E) without calling for certain details has passed the order doubting the activities of the trust as non-genuine which is not justified. Further, it is also his submission that the Ld. CIT(E) without appreciating the submissions made by the assessee and the relevant provisions of the Statute has cancelled the registration which is not in accordance with law.

We find some force in the above arguments of the Ld. Counsel for the assessee. The first issue i.e. the assessee was established for a particular caste i.e. Marwari Brahmin and Maheshwari Vaishyas who had belief in Hindu Varnashram, as such the assessee trust is in direct violation of the provisions of section 13(1) of the Income Tax Act, 1961 considered to be a violation of clause (e) of section 12AB(4) is concerned, we find it is an admitted fact that the trust came into being in the year 1930 and was granted approval on 25.08.1975 and again on 24.09.2021. We find the provisions of section 13(1)(b) of the Act read as under: “13(1)… (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste”

A perusal of the same would show that the provisions of section 11 not to apply in certain cases if such trust has been created or established before the commencement of this Act to any income thereof, if the trust or institution is created or established for the benefit of any particular religious community or caste. Since in the instant case the trust was already created in the year 1930 i.e. much prior to the Income Tax Act, 1961, therefore, the Ld. CIT(E) in our opinion was not justified in holding that the assessee has violated the provisions of section 13(1)(b) of the Act. Further, it is also an admitted fact that the trust was granted registration by the Commissioner u/s 12A of the Act on 25.08.1975 and u/s 12AB(1)(ac)(i) of the Act on 24.09.2021. The trust is also regularly assessed to tax with most of the years being assessed u/s 143(3) and nowhere the activities of the trust have been treated as non-genuine. Therefore, following the rule of consistency even in tax proceedings would demand that if there are no changes of facts as compared to earlier years, a different view cannot be taken. In our opinion, adopting a different view inconsistent to the one taken in earlier years on the same set of facts would be merely a change of opinion, especially when a particular view has been taken right since inception to date spanning several years. For the above proposition, we rely on the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) wherein the Hon'ble Supreme Court has observed as under: “16. We are aware of the fact that strictly speaking res judicata does not apply to Income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year". ….. Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the Judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.”

We find the Hon'ble Supreme Court in Parashuram Pottery Works Ltd. v. ITO [1977] 106 ITR (SC) has held as under:

We find the Hon'ble Supreme Court in the case of Excel Industries Ltd reported in 358 ITR 295 (SC) has observed that "the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it.”

In view of the above discussion, we hold that the Ld. CIT(E) is not justified in cancelling the registration on the ground that the trust is created for a particular community.

So far as the objection of the Ld. CIT(E) that the assessee is a private trust as per the trust deed and therefore, the trust cannot be registered under the Income Tax Act and the trust is involved in specific violation under clause "e" of the Explanation to subsection 12AB(4) of the Act is concerned, we find the provisions of section 12AB(4)(e) read as under: “12AB(1)…. ….. (4)…. Explanation.- (a)….. ….. (e) any activity being carried out by the trust or institution,— (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered.

As mentioned earlier, the trust was registered during the year 1930 and was granted registration u/s 12A of the Act on 25.08.1975 and u/s 12AB(1)(ac)(i) of the Act on 24.09.2021. It is also an admitted fact that the trust was being assessed to tax with most of the years being assessed u/s 143(3) and nowhere the activities of the trust have been treated as non-genuine. It is not a case of the Revenue that the assessee has changed its objects / activities from the date of grant of registration till date. Under these circumstances and in view of the decisions relied in the preceding paragraphs relating to rule of consistency, we are of the considered opinion that the Ld. CIT(E) was not justified in holding that the assessee trust is found to be involved in specific violation of clause (e) of Explanation to subsection 12AB(4) of the Act.

So far as the next objection of the Ld. CIT(E) that the assessee is not registered with the Charity Commissioner under BPT Act is concerned, it is an admitted fact that the assessee truest has not been registered under the BPT Act. However, it is also an admitted fact that the trust was enjoying the benefits of sections 11 to 13 of the Act in the past years and there was no requirement of registration under that Act. We find the Hon‟ble Bombay High Court in the case of CIT vs. Agricultural Produce and Market Committee, Hinganghat & Ors. reported in 291 ITR 419 (Bom) has held as under: “24…. The contention of the Revenue that the assessees are not registered as trust and hence not entitled for registration is also without any merit, because, there is no requirement under the Act that an institution constituted for advancement of any object of general public utility must be registered as a trust.”

We further find merit in the submissions of the Ld. Counsel for the assessee that if this was a mandate u/s 12A, then it would have been so specified as is the case u/s 80G(5)(v). We find the provisions of section 80G(5)(v) read as under: “80G(1)…. …. (5)….. (i)….. …….

We find the procedure for fresh registration (introduced w.e.f. 01.04.2021) for applications made under section 12A(1)(ac) is provided in section 12AB. We find sub-section 12AB(4), inter alia, provides for noticing of specific violations during any previous year. The Explanation thereunder defines specified violation which means, inter alia, under clause (f) - the trust or institution has not complied with the requirements of any other law as referred to in 12AB(1)(b)(i)(B)- (which is compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects) and the order, direction or decree, by whatever name called, holding that such non- compliance has occurred, has either not been disputed or has attained finality. In the present case, there is no such order or decree.

We find the Budget speech of Hon‟ble Finance Minister in 2019 also spells out the intent by stating that it is proposed to provide for cancellation of registration of the trust or institution under the Act for violation of such provision of any other law, where an order holding that such violation has occurred is either not contested or has become final. In the present case, there is no such order.

We further find the word used is "such requirements". The requirements have to be material for the purpose of achieving its objects. "Material" has been defined in the Legal Glossary as of such significance as to be likely to influence the determination of a cause. Registration under BPT Act is not material. If the mandate was as considered by the CIT(E), then the trust shall operate in breach as there would be a number of statutes whether Central, State or Local where the trust may never be registered. Further, a trust operating in multiple States may find itself liable to register in each such State. This in our opinion is not envisaged by the provisions. The present trust has been a trust in operation since 1930 and has been registered under the Income Tax Act since 25.08.1975 and never has this issue been questioned including while granting registration on 24.09.2021.

So far as the decision in the case of New Noble (supra) referred to by the Ld. CIT(E) is concerned, the same in our opinion is not applicable as that was a case of fresh registration while this is a case of cancellation of registration based on no change in facts. Further, that was a case of registration u/s 10(23C) while the instant case is a case of registration u/s 12AB. New Noble and it was a case of a pure educational trust which could have a State law which directly applies to education whereas in the instant case it is not so. We find the question before the Hon HC was "whether registration under AP Charities Act was a pre-requisite for registration or approval under the Income Tax Act" while the present case is not one of pre-requisite but a post registration alleged imperative. It is not a case of one arm of law being utilized to defeat another arm of law as no advantage is being taken under any other law of the fact that it is registered under Income Tax law. We find Hon'ble Supreme Court clearly spelt out that compliance under other laws can weigh in deciding approvals under section 10(23C). In view of the above discussion, we are of the considered opinion that the Ld. CIT(E) is not justified in cancelling the registration for not being registered under the Charity Commissioner under the BPT Act.

So far as the allegation of the Ld. CIT(E) that the assessee trust has substantial investment of funds in modes other than prescribed under section 11(5) which is a specific violation under clause (e) and (f) of the Explanation to subsection 12AB(4) of the Act is concerned, we find the Ld. CIT(E) has not pointed out the breach for any year specific, which is the requirement of the section 12AB(4). In our opinion, the onus is on the Revenue to bring on record cogent material to establish that the trust is hit by section 13 of the Act. The Revenue has not stated that the deposits are not prescribed u/s 11(5) of the Act and that income has been earned by the trust on such deposits during the year. A perusal of provisions of section 13(1)(d) of the Act would show that it provides for taxing the non-exempt portion of income to tax. It does not refer to the entire income of the trust. This position has been made clear by the CBDT vide Circular No.387 dated 06.07.1984 where at para 28.6 of the said Circular lays down that maximum marginal rate shall apply only to that part of the income which has forfeited exemption under the said provision and not to the entire income.

We find a similar issue had come up before the Hon‟ble Bombay High Court in the case of DIT (Exemptions) vs. Sheth Mafatlal Gagalbhai Foundation Trust reported in 249 ITR 533 (Bom) wherein the Hon‟ble Bombay High Court held that in case of contravention of section 13(1)(d) maximum marginal rate of tax u/s 164(2), proviso is applicable only to that part of income of the trust which has forfeited exemption and not to the entire income. The relevant observations of the Hon‟ble High Court read as under:

Since the Ld. CIT(E) in the instant case has proposed to cancel the registration relying on the basis of section 12AB(4) without referring to violation in any specific previous year, therefore, he is not justified without pointing out as to in which specific previous year the assessee has violated the provisions. Therefore, we find merit in the arguments of the Ld. Counsel for the assessee that there are no tangible reasons for cancelling the registration on this ground.

So far as the next allegation of the Ld. CIT(E) that the assessee truest has over the years not conducted activities related to the main object of the trust but donated substantial amount to other trusts and therefore such set up to earn income cannot be said to be inspired by benevolence and raises serious doubt over its genuineness which is a specific violation under clause "e" of the Explanation to subsection 12AB(4) of the Act is concerned, we find the Courts have time and again held that it is not necessary for the trust itself to carry out charitable activities and that it is permissible to donate to other charitable trusts.

We find the Hon‟ble Delhi High Court in the case of CIT vs. Shri Ram Memorial Foundation reported in 269 ITR 35 (Del) has held that the donation by a charitable trust to another charitable trust with condition that the amount will form part of corpus of the donee trust is application of income by the donor trust within the meaning of section 11(1)(a) eligible for exemption u/s 11 of the Act.

We find the Hon‟ble Gujarat High Court in the case of CIT vs. Sarladevi Sarabhai Trust (1988) 172 ITR 698 (Guj) has held that when a donor trust which is itself a charitable and religious trust donates its income to another trust, provisions of section 11(1)(a) can be said to have been met by such donor trust and the donor trust can be said to have applied its income for religious and charitable purposes, notwithstanding the fact that donation is subjected to any conditions that donee trust will treat the donation as to its corpus and can only utilise the accrued income from the donated corpus for religious and charitable purposes, and that the question whether gifted income is to be utilised by donee trust fully for its religious and charitable purposes or whether donee trust had to keep intact that corpus of the donation and has to utilise only the income therefrom for its religious and charitable purposes, would not make the slightest difference, so far as entitlement of the donor trust for exemption under section 11(1) goes.

We find even the CBDT itself has issued a clear cut guideline vide instruction No. 1132 dt. 5th Jan., 1978 to all the CITs that a charitable trust will not lose exemption under s. 11 if it passes a sum of money to another charitable trust for utilisation by donee trust towards its charitable purposes and that shall be proper utilisation of money by donor trust for charitable purposes. The said instruction squarely covers the facts of the present case.

We find the Hon‟ble Calcutta High Court in the case of CIT vs. Hindusthan Charity Trust reported in 139 ITR 913 (Cal) has held that the donation made to another trust which was charitable was eligible for exemption u/s 4(3)(i) (1922 Act).

We find the Hon‟ble Bombay High Court in the case of CIT vs. Trustees of the Jadi Trust (1982) 133 ITR 494 (Bom) has held that handing over of income of charitable trust to another charitable trust is application for charitable purposes eligible for exemption u/s 11. We find para 16 of the order reads as under: “16. So far as the provision of s. 11 of the Act which was in force at the material time is concerned, we do not think that the legal position is in any way different. As already pointed out when a trust which holds property for charitable or religious purposes hands over a donation to another trust which is also a trust made for the application of its funds for charitable or religious purposes there can hardly be any doubt that it would amount to an application of income for charitable or religious purposes by the donor trust. As already pointed out it would be permissible for a trust either to directly apply the income for charitable purposes or to a charitable work in the field as put by Slade J., or the same funds or income could be utilised through the medium of another charitable institution which applies its funds or income to charitable purposes. The Tribunal is, in our view, right in holding that the assessee was entitled to the relief under s. 11 (1)(a) of the IT. Act, but the propriety of the direction given by the Tribunal need not be dealt with in this reference.”

In view of the above discussion and decisions cited (supra), we are of the opinion that the Ld. CIT(E) is not justified in cancelling the registration on this ground.

So far as the objection of the Ld. CIT(E) that the assessee is found to be involved in activities on commercial basis earning rental income which cannot be said to be incidental to the main objects which is a specific violation under clause "b" of the Explanation to subsection 12AB(4) of the Act is concerned, we do not find any merit in the above allegation of the Ld. CIT(E). A perusal of the Act would shows that it lays emphasis on income derived from property. If rental income is derived from property owned by the Trust, there is no reason to call it activity on commercial basis. In our opinion, there is no reason to characterize the rental income from property held in trust as income from business and attempt to invoke clause (b) of Explanation to section 12AB(4). In our opinion, it is the income derived from property held under trust wholly for charitable purposes. Further, as mentioned earlier, the assessee was getting rental income since past so many years and the registration granted earlier had never been cancelled on this issue. Therefore, following the rule of consistency as mentioned in the preceding paragraphs, we are of the considered opinion that the Ld. CIT(E) is not justified in cancelling the registration on this ground.

In view of the above discussion, we are of the considered opinion that the Ld. CIT(E) is not justified in cancelling the registration u/s 12A and 12AB(1)(ac)(i) of the Act. We, therefore, set aside the order of the Ld. CIT(E) and direct him to grant registration u/s 12A and 12AB(1)(ac)(i) of the Act. The grounds raised by the assessee are accordingly allowed.

In the result, the appeal filed by the assessee is allowed.