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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI G. MANJUNATHA & SHRI. ANIKESH BANERJEE
आदेश /O R D E R
PER ANIKESH BANERJEE, JUDICIAL MEMBER:
The present appeal was filed by the assessee before us against the order of the Ld. Commissioner of Income Tax (Exemptions), Chennai (in brevity CIT(E)) bearing order no. C.No. CIT(E)2(2059)/2017-18 u/s. 12AA of the Income Tax Act, 1961 (in brevity ‘the Act’) order dated on 29.06.2018.
:-2-: ITA. No: 2182/Chny/2018 2. The petitioner filed the grounds and additional grounds with a paper book related to the appeal which is kept in record.
The brief fact is that the assessee is running the schools under Tamil Nadu State Board Educational Trust named Sambaviga Educational Trust which was constituted by a trust deed dated 18.11.1999. The assessee filed an application in Form No. 10A for registration u/s. 12AA of the Act on dated 26.12.2017 before the ld. CIT(E). The assessee is running the school, secondary and higher secondary. Shri. A.M. Shekar and Smt. S. Rani both are the trustees of the said trust. The survey was conducted on dated 21.11.2017 in Shri A.M.Shekar’s place. It was found that all the receipts of the school and related documents were channeled through the trustee Shri. A.M. Shekar, who is also working as a secretary of the trust. The reason behind is that due to some internal litigations, the bank account of the trust was closed as per the directions of the court. Even the trust did not filed its return of income as per provisions of section 139(1) and 139(4) of the Act till assessment year 2016-17. The assessee first filed its return for assessment year 2017-18 on 29.03.2018 and declared the financial transactions.
:-3-: ITA. No: 2182/Chny/2018 3.1 The assessee’s application dated 26.12.2017 for registration u/s. 12AA of the Act was rejected by the Ld. CIT(E) in following grounds:- a. The application was made after the date of survey. b. The assessee has no activities related to its object and the school fee was collected by the trustee, Shri A.M. Shekar himself. c. He further mentioned that the genuinity of the trust was not proved.
Against the order of the Ld. CIT(E), the assessee filed an appeal before us.
5. During the hearing, the Counsel of the assessee placed the following issues: “1. During the course of hearing of the above appeal on 08.03.2022, certain points raised by the Ld CIT(DR) could not be properly replied/rebutted and in these circumstances, this written submission is filed. The Hon'ble Bench may kindly take this written submission into the record. 2. The Appellant Trust(Trust) was formed in the year 1999 and the land was purchased in the name of the Trust, building approval, electricity connection, property tax assessment, TN State Board School recognition were obtained in the name of the Trust and bank accounts which are operational till date were also opened in the name of the Trust. On getting appointed as the Managing Trustee/Secretary of the Trust in 2011, Shri A M Sekar approached a Chartered Accountant to file income tax returns for the School/Trust. Under his advice, income tax returns admitting income over expenditure of primary school run by the Trust were filed by Smt Rani w/o Shri A.M. Sekar and the income over expenditure of High School and Higher Secondary School run by the Trust were admitted in the hands of Shri Sekar. 3. Bank accounts of the Trust were frozen in 2015 because of difference of opinion between the trustees, and therefore it was necessitated to deposit all the funds of the :-4-: ITA. No: 2182/Chny/2018 school (Trust) in the name of the secretary Shri Sekar in his SB accounts and taken back for expenses in order to run the school without any interruption. Only after the survey in 2017, the Managing Trustee came to know that the Income tax return has to be filed separately for the Trust and a separate application U/s 12AA has to be filed for getting exemption 4. At the time of hearing on o8.03.2022, the Ld CIT(DR) invited the attention of the Bench to the English translation of the statement recorded from Shri Sekar during the course of survey [Page 8-11 -Paper Book (PB)-2] on 21.1102017 and argued that if one goes through the statement, in particular answer to Q.No.3, it appears that the school was run like a proprietary concern of Sin Sekar and therefore the activities of the Trust were not genuine.
It is submitted that in Q No.3, the question put to Shri Sekar was about the income tax return filed by him; but Shri Sekar has explained the same in his capacity as Secretary. Since he was the Secretary/Managing Trustee, he meant it in his official capacity and not in his personal capacity and the ITO who recorded the statement, phrased the words as if Shri Sekar took away the balance amount of money for his personal usage.
6. A clarity in this regard would emerge if one goes through the following answer to Q No.8; "Out of the excess of income over expenditure of the school every year, I have invested only in school buildings and vehicles. I was under the mistaken notion that if the receipt over expenditure is invested in assets Of the School one need not pay income tax ..... "
7. It is also a fact that Shri Sekar has invested the entire income over expenditure of the school only in the infrastructure of the school and has not misappropriated/misused the funds of the School for his personal benefit and the same was verified by the AO by going through the bills, vouchers, transaction receipts and other documents impounded on the date of survey. After verifying the same, the AO has passed the assessment order wherein the income over expenditure of the Trust was substantially assessed in the hands of the Trust and it was assessed only on protective basis in the hands of Shri Sekar. The relevant portion of the Trust assessment order is extracted here under„ "18. The above submission is carefully considered. Verification Of the income and expenditure account of the assessee shows that the receipts include all the receipts from Nursery, Primary and Higher secondary school. Even though these were offered in the hands Of Sri. A.M.Sekar and his wife Smt. Rani, the expenses relate to the school activities like salary, building construction etc.
From the above it is clear that, during the course of assessment the documents and evidence produced by the assessee to support its claim of receipts and expenditures such as salary, building construction, vehicle maintenance, school books and instruments etc incurred for the trust has been verified. However, the assessee trust has not yet received the approval u/s 12A of the Act, and hence its claim of its income being exempt cannot be accepted. As per the Second Proviso to Section 12A(a), the provision Of Subsection (a) regarding retrospective Registration/exemption are not applicable w.e.f 01.06.2007. Hence, the assessee's stand that its income is exempt is not accepted .... "[Page 20 -21 - Para 18 & 20-PB-5] 8. It is further submitted that the returns filed by Shri Sekar and Smt Rant are non est in the eyes of the law, as, the Trust and the trustees are different entities in the eyes of law :-5-: ITA. No: 2182/Chny/2018 and the trustees are holding the trust property only in a fiduciary capacity and therefore by no stretch of imagination, the income of the Trust can belong to the individual trustees.
9. It is submitted that there is no definition for `genuineness' in the Income tax Act(Act)a However the Allahabad High Court in the case of CIT Vs Chaudhary Son Pal Singh [2018] 401 ITR 509(All) -[Paral2(21 ); Page 117 -PB-2] has held asunder: "The language used in the section only requires that activities Of the Trust or the institution must be genuine, which accordingly would mean they are in consonance with the objects of the Trust and are not mere camouflage but are real, pure and sincere"
10. It is submitted that the activities of the Trust are in consonance with its objects and they are not mere camouflage and they are in fact real, pure and sincere and just because the income over expenditure arising out of such noble activities are declared as income before the income tax department by two of the trustees, one cannot that the activities of the Trust are not genuine.
The other point raised by the Ld.CIT(DR) is that the Trust did not have its own bank accounts and the school fees of about Rs 2 crores were credited in the personal bank accounts of Shri Sekar.
It is submitted that right from the very inception of the Trust, it has opened its own bank accounts and it is in fact operating the same. In 2015, at the instance of Shri R.M.Kasi who was one of the then trustees and father-in-law of Shri.Sekar, all the bank accounts of the Trust were frozen and Shri.Sekar was forced to use his individual bank accounts (until the Madras High Court directed the bank to defreeze the Trust accounts) to facilitate the day to day activities of the Trust like Teacher's salary, Payment of bank dues, bank loan, vehicle EMI etc. It is pertinent to mention here that Shri Sekar has not even taken a single rupee of the Trust for his personal benefit 13. The circumstances under which Shri Sekar was forced to deposit the school fees into his personal bank accounts have been explained by the Auditor during the registration proceedings which are reproduced in the impugned order asunder: " 10.Bank accounts were frozen during the year September 2015, because Of difference Of opinion between the trustees 11.So it was necessitated to deposit all the funds Of the school (Trust) in the name Of the secretary A M Sekar in his SB accounts and taken back for expenses in order to run the school without any interruption. 12.No funds have been drown by Secretary A M Sekar from the school (Trust). Instead, he has paid the money first to the school (Trust) and then got back the same. 13.Account copies are enclosed to prove this fact."
14. The same explanation was given before the AOs who made the assessments in the case of Shri Sekar and the Trust. Both the AOs have accepted this submission and they have not made any adverse comments in the respective assessment orders. Therefore this reason also cannot be one of the reasons to treat the activities of the Trust as not genuine.
The Ld CIT(DR) has also tried to persuade the Bench to show that all the receipts of the Trust were not disclosed to the Department and there was a suppression of receipt of Rs 6.94 crores.
:-6-: ITA. No: 2182/Chny/2018 16. It is submitted that the survey party has not calculated the receipts of the school (Trust) correctly at the time of the survey. This was pointed out by the Auditor before the CIT(E). According to the Auditor, while the survey party has calculated the total receipts at Rs 16,06,51,297 for FYs 20] 2-13 to 2016-17, the Trust has actually returned Rs 24,37,73,644 for these five years. There is no discussion and finding about the discrepancy of this sum of Rs 8,31,22,347 in the assessment proceedings of both Shri Sekar and the Trust9 even though the AO has assessed the forcefully disclosed amount of Rs 6.94 crores in the respective assessment orders of Shri Sekar. Therefore, no credence can be attached to the discrepancy in the turn over. Even with regard to the assessment of Rs 6.94 crores also, it is submitted that the assessments in the hands of Shri Sekar were made only protectively.
Therefore, the so called `confession statement' obtained from Shri Sekar or the `discrepancy in the turnover' also cannot be one of the reasons to treat the activities of the Trust as not genuine.
The Ld CIT(DR) has also argued that the Trust has not maintained the books of accounts and it has not filed the three years' account while seeking registration from the Department.
It is submitted that this submission of the Ld CIT(DR) is factually incorrect as the annual accounts for FYs 2015-16, 2016-17 and 2017-18 (Page 69-92 PB-2) of the Truss were filed along with the application for registration (Page 12-13 PB-2),”
The Ld. DR of the Revenue vehemently argued and pointed out that the trust not filed its return till the assessment year 2016-17. The action was taken after the survey even the trust is not maintaining the bank account for its transactions and it is nothing but a proprietary business which is running by the trustee. So, there is no genuinity of the trust.
During the hearing, the counsel of the assessee pointed out in his paper book no.5 page 21 which is related to assessment order u/s. 143(3)/147 of the Act for assessment year 2013-14 date of :-7-: ITA. No: 2182/Chny/2018 order 30.08.2019 duly passed by the ld. Income Tax Officer, Ward- 3, Karaikudi, which is reproduced as under: “20. From the above it is clear that, during the course of assessment the documents and evidences produced by the assessee to support its claim of receipts` and expenditures such as salary, building construction, vehicle maintenance, school books and instruments etc incurred for the trust has been verified. However, the assessee trust has not yet received the approval u/s 12A of the Act, and hence its claim of its income being exempt cannot be accepted. As per the Second Proviso to Section 12A(a), the provision of Subsection (a) regarding retrospective Registration/exemption are not applicable w.e.f 01.06.2007. Hence, the assessee's stand that its income is exempt is not accepted. As a result, the excess of income over expenditure as per income and expenditure statement amounting to Rs. 1,42,879/- for the assessment year 2013-14 is brought to Tax.”
During the hearing the Ld counsel of the assessee relied on following judgments:
8.1. CIT vs A.S. Kupparaju Brothers Charitable Foundation Trust (Kar) in “ 12. From the aforesaid statement of law, it is clear that once the authors of the trust transfers the title of the property to the trustees and create a trust, they have no right to meddle with the property even if they have created partition deed, rectification 'deed and offered the property as security to the bank to raise funds. As pointed out by the Apex Court in the aforesaid judgment, they are of no consequence and is no more than a scrap of paper. All those transactions are void ab initio and in no way-affects the right of the trust. In all (his, the trust is showing it as a trust property. It is treated as a trust property and it is not the case of any one of she trustees, that any one of the trustees has sold the property to any one. On the contrary, ii is not in dispute that a school is being run. Now it is also not in dispute that after obtaining the requisite permission, an engineering college is being run with 3500 students imparting education. Apart from that they have started severe/ other courses and imparting education. In deciding the genuiness of the trust what is to be seen is whether in terms of the objects set out in the trust deed whether the trust is carrying on its activities or nol. If in the process of carrying on the trust activities if there is any misapplication of the property, misappropriation of funds that would not render the trust itself as non est. If the funds of the trust are misused, income of the trust is misutilised notwithstanding the fact that the certification of registration is granted under Section I2AA, the assessee will not be entitled to the benefit of exemption on that income from the provisions of the Act. The certificate of registration is only an enabling provision to claim exemption. By merely granting a certificate income is not exempted. That is only a first stage to claim :-8-: ITA. No: 2182/Chny/2018 exemption. The Commissioner of Appeals should not have confused these two aspects and seems to think as the trustees and his family members are treating the property as their own and misutilising the property it is not a genuine trust. When once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein, schools and colleges (ere being not and educational institutions are being run as righty held by the Tribunal, nothing wore required ) be established to show that the trust in question is a genuine trust and therefore, the assessee is entitled to the registration under Section 12AA of the Act. As set out above, even if the registration is granted, the exemption from the provisions of the Income Tax Act in particular sections 11 and 12 is not automatic. It is only when the assessee satisfies the requirement of section 13, he would be eligible for exemption. That is a matter to be gone into by the Assessing Authority in respect of the returns filed every year and if according to them there is misappropriation of funds and it is hit by section 13 of the Act, certainly, they can deny the benefit of exemption. But that is not a ground to deny the registration in the instant case under Section 12AA when admittedly the trust has been established to run schools and colleges for imparting education, which is a charitable purpose. In that view of the matter, we do not see any merit in this appeal. The substantial question of law framed in tis appeal is answered in favour of the assessee and against the revenue. Accordingly, the Appeal is dismissed.” 8.2. Sree Anjaneya Medical Trust vs CIT [2016] 382 ITR 399 (ker) “IT: While granting registration to a trust, authorities is empowered to examine only genuineness of trust and its activities; during assessment only eligibility in terms of section 10,11 and 12 is to be verified as to whether or not what was professed was indeed in Deed of trust.” 8.3. CIT(Exemptions) vs Shri Sai Darbar Charitable Trut (Dharmashala) 395 ITR 567 (P&H): 8. Sections 13 comes into play at the time of granting exemption under Section 11 of the Act and not at the time of granting registration under Section 12A of the Act. The only two requirements as stated hereinabove while granting registration under Section 12A of the Act, are with respect to the charitable nature of the objects of the assessee and genuineness of the activities. Since we observe that no adverse remarks have been made by the Commissioner of Income Tax (Exemptions) with regard to the objects contained in Memorandum and as stated hereinabove that the observations of the Commissioner of Income Tax (Exemptions) do not lead to the conclusion that the activities of the assessee are not genuine, we hereby direct the Commissioner of Income Tax (Exemptions) to grant registration under Section 12A of the Act to the assessee.”
:-9-: ITA. No: 2182/Chny/2018 5. Learned counsel for the appellant-revenue has not been able to show that the findings recorded by the Tribunal are in any way illegal or perverse warranting interference by this Court. Consequently, no substantial question of law arises and the appeal stands dismissed.
8.4. CIT vs Chaudhary Son Pal Singh in of 2014 dated 27.11.2017, [2018] 401 ITR 509 (All): “ 21. Section 12AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner of Income-tax, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with 'the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities,, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution. This is more evident if we see the provisions of section 11, which, while exempting the income given in its various sob-clauses from being included in the total income of the previous year of the person in receipt of the income, for example, in sub-clause (1) says "income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not In excess of, fifteen per cent, of the income from such property.”
13. We are in agreement with the aforesaid view.
In that view, the questions of Saw are answered accordingly. The matter is remitted to the Commissioner of the Income-tax to decide the petitioner's application for exemption afresh, in accordance with law keeping the scope of inquiry limited to the provisions under section 12AA of the Act- In view of the above, the is allowed. No order as to costs.
We have deliberated at length on the issue under consideration in the backdrop of the observations of the CIT(E). We find that the :-10-: ITA. No: 2182/Chny/2018 provisions of Sec. 12AA which contemplates the procedure for registration, reads as under: “The [Principal Commissioner or] Commissioner, on receipt of an application for registration of a society or institution made under clause : (a) [or clause (aa) of sub-section (1)] of section 12A shall:- (a) Call for such documents or information from the society or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the society or institution and may also such inquiries as he may deem necessary in this behalf; and (b) After satisfying himself about the objects of the society or institution and the genuineness of its activities, he :- (i) Shall pass an order in writing registering the society or institution; (ii) Shall, if he is not so satisfied, pass an order in writing refusing to register the society or institution........” The aforesaid provisions mandates examination of two basic conditions for grant of registration to an assessee under Sec. 12AA viz. (i) examination of objects of the society or institution; and (ii) satisfaction of the registering authority about the genuineness of the activities of the society or institution on the basis of inquiries.
We heard both the parties. The assessee, trust is running the schools and the main object of the assessee is running the :-11-: ITA. No: 2182/Chny/2018 educational institution. The identification of the trust is not in question. The activity of the trust is running the school. But the Ld. CIT(E) rejected the application on a ground that the genuineness of the charitable trust is under question. But the Ld. CIT(E) has not pointed out on what material it came to a conclusion that genuineness of the charitable trust is in question.
10.1 Section 12AA of the Act mostly focused on the two issues (i) the genuinity of the trust (ii) the activity of the trust is similar with the main object of the trust as discussed above. The assessee in its paper book has annexed the approval of Tamil Nadu School Education under Govt of Tamil Nadu which was granted by the Additional Directorate (Higher Secondary Tamil Nadu School Education). The Nursery, Primary and Higher Secondary schools are running under the Trust. Mere, application was made after survey or earlier the fees were collected by the secretary of the trust should not be the reason for rejecting application made U/s 12AA of the Act. The ld CIT(E) correctly pointed out that the assessee had the lack of genuinity. But it was before the application of registration. But after the application made U/s 12AA of the Act, no such irregularities were found out by the revenue authority.
:-12-: ITA. No: 2182/Chny/2018 11. The different financial statements are filed with the paper book and the trust invested in fixed assets for running the institutions. The Income Tax assessments of the assessee were made by the revenue in different years. The copies of the orders are annexed in Paper Book-5 of assessee in page no 1-236. It is very clear from the assessment orders that the existence, activity & genuinity are not in question.
12. Considering, our above observation & ratio of judgments, the application filed by the assessee Trust for grant of registration under Sec. 12AA of the IT Act is restored to the file of the CIT(E) for fresh adjudication in terms of our aforesaid observations.
In the result, the appeal of the assessee is allowed under statistical purpose. Order pronounced in the court on 16th March, 2022 at Chennai.