YUVAK KALYAN SANGH,SINDHUDURG vs. CIT EXEMPTION, PUNE

However, the Ld. CIT(E) was not satisfied with the arguments advanced by the assessee and rejected the application for grant of registration u/s 12A of the Act and cancelled the provisional registration granted earlier u/s 12AB by observing as under: “6. The contentions and submissions made by the trust in response to the queries raised are duly considered. However, after thorough examination of the facts and circumstances of the case, the same are not found to be acceptable for the following reasons 6.1 Advance from Smt. Sushma Naik: The trust submitted a confirmation letter from Smt. Sushma Naik, confirming that she had provided an advance of Rs. 50 Lakhs to the trust with the intention of having the pharmacy college run by the trust named after her late husband's name However, the trust as well as Smt. Naik has failed to provide any documentary evidence or legal agreement that supports the claim of an understanding between the trust and Smt. Sushma Naik regarding the naming of the pharmacy college after her late husband. Without such evidence, the claim remains unsubstantiated. Further, the purported advance, which was stated to be refundable, was linked to the intention of naming the college. This condition raises questions about the true nature and purpose of the advance, and the trust has not offered any satisfactory explanation for this condition. It is pertinent to note that the advance of Rs 50 Lakhs has been outstanding since FY 2018-19 and as per Smt. Sushma Naik's confirmation letter, it remains unpaid till date. This raises concerns regarding the true nature of the transaction, especially given the existence of fixed deposits worth more than Rs 22 Lakhs appearing in the financial statements of the trust. It is not uncommon to give and take donations and to name the school/college/institute after the name of the donor's beloved person. However, in the instant case, both the trust and Smt. Naik are claiming said amount as advance which is refundable. In the light of these facts, the assessee has failed to prove the genuineness of the transaction 6.2 Advance reclassified as loan from Yovak Kalyan Patsanstha: The trust has contended that the advance of Rs 57 Lakhs received from Yovak Kalyan Patsanstha was initially intended as a temporary advance to be repaid within a year which was subsequently reclassified as a loan. Any form of loan, whether short-term or long-term, should be accurately reflected in the financial statements as a loan from the outset. The trust's inconsistent reporting raises questions about its financial transparency. It is also noticed that many payments made out of these borrowed funds were directed to related entities associated with Late Vijay Naik and Smt. Sushma Naik. However, the trust has failed to provide documentary evidence to substantiate the nature and purpose of these transactions, which further raises concerns about financial dealings within the trust The trust's assertion that it intended to repay the amount within a year does not absolve it from the statutory requirement of seeking permission under Section 36A(3) of the Maharashtra Public Trust Act, 1950, for borrowing money on behalf of the trust. The trust's failure to comply with this provision further raises questions about its adherence to legal requirements of other laws applicable in its case Furthermore, the fact that the trust made a time deposit of Rs. 10.50 Lakhs without utilizing this amount for the intended object raises additional concerns about the veracity of the trust's claims. 6.3 In light of the aforementioned issues and deficiencies in the trust's responses, it appears that the transactions in question may have been executed as "colorable devices" to exploit favorable provisions meant for charitable trusts. As stated in the landmark judgment of the Hon'ble Supreme Court in the case of 'McDowell and Company Ltd vs. Commercial Tax Officer, 154 ITR 148, tax planning must be within the framework of the law, and colorable devices cannot be a part of legitimate tax planning.

Aggrieved with such order of CIT(Exemption), the assessee is in appeal before the Tribunal by raising the following grounds: 1. On the facts and circumstances of the case and in law the Ld. CIT (EXEMPTION), PUNE erred in rejecting the application of the appellant for registration u/s 12AB on the allegation that the appellant trust has failed to prove the genuineness of its activities and also compliance to requirements of any other law for the time being in force. The appellant craves leave to add to, amend, alter, delete or modify all or any of the above ground of appeal or raise a new ground of appeal before or at the time of hearing.

The Ld. Counsel for the assessee at the outset referring to the decision of the Hon’ble Bombay High Court in the case of Director of Income Tax (Exemption) vs. G.K.R. Charities (2013) 32 taxmann.com 208 (Bom) submitted that the Hon’ble High Court in the said decision has held that non-compliance with provisions of Trust Act in earlier years could not obstruct claim of exemption u/s 11. Referring to the reply given to the Ld. CIT(E), copy of which is placed at pages 50 to 54 of the paper book, he submitted that the trust has taken loan of Rs.50 lakhs from Smt. Sushma Naik and the assessee has filed a copy of confirmation letter from her with supporting documents. Similarly, an advance of Rs.57 lakhs taken from Yovak Kalyan Patsanstha was utilized for construction of college building. He submitted that all these transactions were done through proper banking channel and were duly reflected in the books of account. Further, the assessee has also applied before the Charity Commissioner regarding permission to avail the loans and advances from Smt. Sushma Naik and Yovak Kalyan Patsanstha. He submitted that if there is some lacuna, that can be rectified subsequently also. He submitted that since the Ld. CIT(E) has not verified all these details, therefore, he has no objection if the matter is restored to the file of the Ld. CIT(E) for deciding the issue afresh in light of the decision of Hon’ble Bombay High Court in the case of Director of Income Tax (Exemption) vs. G.K.R. Charities (supra) and other various documents already on record.

The Ld. DR on the other hand submitted that the assessee has not only violated the provisions of section 12AB(4)(f) of the Act but has also not carried out any charitable activity. The assessee has not filed proper reply and evidences before the Ld. CIT(E). He submitted that the Ld. CIT(E) has given an observation that it is a colourable devise. He accordingly submitted that the order of the Ld. CIT(E) 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 CIT(E) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. A perusal of the order of the Ld. CIT(E) shows that the assed did not clarify properly regarding the advance of Rs.50 lakhs from Smt. Sushma Naik and no documentary evidence or legal agreement which supports the claim of an understanding between the trust and Smt. Sushma Naik regarding the naming of the pharmacy college after her late husband’s name. Similarly, the assessee did not provide any documentary evidence to substantiate the nature and purpose of the transaction with Yovak Kalyan Patsanstha. It is the submission of the Ld. Counsel for the assessee that if there is any lacuna in the taking or accepting the advances or loans, the same can be rectified subsequently. It is also his submission that the assessee has already applied before the Charity Commissioner regarding the acceptance of loans and advances from Smt. Sushma Naik and Yovak Kalyan Patsanstha and the same is pending and no adverse action has been taken by the Charity Commissioner. It is also his submission that in light of the decision of the Hon’ble Bombay High Court in the case of Director of Income Tax (Exemption) vs. G.K.R. Charities (supra), non-compliance with provisions of Trust Act in earlier years could not obstruct claim of exemption u/s 11.

We find some force in the above arguments of the Ld. Counsel for the assessee. We find in the case of Director of Income Tax (Exemption) vs. G.K.R. Charities (supra), the first substantial question of law raised by the Revenue was as under: (a) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in allowing the claim of the assessee for exemption u/s. 11 of the Act ignoring the fact that the assessee failed to get the permission of the Charity Commissioner to raise loans for the trust in violation of provisions of section 36(3) of the Bombay Public Trust Act without considering the decision of the Bombay High Court in CIT v. Pruthivi Trust reported in 124 ITR 488?

We find the Hon’ble High Court decided the issue in favour of the assessee and rejected the grounds raised

Further, as stated by the Ld. Counsel for the assessee, the assessee has already applied before the Charity Commissioner for permission to avail loans and advances. However, no action has been taken till now. We find it is the allegation of the Ld. CIT(E) that the assessee has failed to provide any documentary evidence which supports the claim of understanding between the trust and Smt. Sushma Naik regarding the naming of pharmacy college after her late husband’s name. Similarly, it is also his allegation that the trust failed to provide any documentary evidence to substantiate the nature and purpose of the transaction with Yovak Kalyan Patsanstha. It is the submission of the Ld. Counsel for the assessee that given an opportunity, the assessee is in a position to substantiate its case by filing the requisite details before the Ld. CIT(E) to his satisfaction. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(Exemption) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details to his satisfaction and decide the issue as per fact and law. The assessee is also hereby directed to submit the details as called for by the Ld. CIT(E) on the appointed date without seeking any adjournment under any pretext, failing which the Ld. CIT(Exemption) is at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes.