M/S EMBASSY CHARITABLE TRUST ,BANGALORE vs. COMMISSIONER OF INCOME TAX (EXEMPTIONS) , BANGALORE

There is a delay of about 52 days in filing both these appeals by the Assessee. In an application for condonation of delay in filing the appeals, it has been explained that the impugned orders were served on the Assessee on 28.9.2018 and therefore the appeals before the Tribunal against those orders ought to have been filed within 60 days of receipt of order in terms of Sec.253 of the Act. It appears that the Assessee was not aware of the fact that the impugned orders were appealable and approached a consultant to make another application for grant of registration u/s.12AA and 80G of the Act. He advised that appeal can be filed against the impugned orders before the Tribunal. Thereupon, these appeals were filed by the Assessee before the Tribunal on 18.1.2019 resulting in a delay of 52 days in filing the appeals.

We have considered the reasons given in the petition for condonation of delay in filing appeals which is duly supported by an affidavit of P.R. Ramakrishnan, one of the Trustee of the Assessee. Under similar circumstances, delay in filing appeal was condoned by the Hon’ble Madras High Court in the case of United Christmas Celebrations Committee Charitable Trust Vs. ITO (2017) 83 taxmann.com 293 (Madras) & Hosanna Ministries Vs. ITO (2017) 80 Taxmann.com 173 (Madras). We are of the view that the delay in filling the appeal is not deliberate or wanton, but due to bona fide circumstances set out above. We therefore condone the delay in filing the appeals.

First we shall take up for consideration appeal of the Assessee against refusal of registration u/s.12AA of the Act.

The assessee is a Trust which came into existence pursuant to a registered Deed of Trust dated 21.2.2018 executed by M/s. Embassy Property Developments Private Limited. The main objects for which the Trust was created for the purpose of advancement of educational objects or purposes. Clause 2(b) of the Trust Deed provides that the Trustees at their discretion use the fund wholly or in part or parts on such public educational purposes including spiritual activities which are beyond any specific religion, research in human consciousness, well being and education of mentally retarded children adults, research in collective and community living in harmony, unity and peace and any purpose that the law and provisions of Income Tax Act, 1961 regard as educational purpose.

The Assessee made applications on 20.3.2018 for grant of registration u/s.12A of the Act in Form No.10A and for grant of approval u/s.80G of the Act in Form No. 10G. The CIT(E) by letter dated 29.8.2018 called upon the Assessee to produce certain documents such as proof of charitable activities having been carried out since inception of the trust, bank account statement, list of donors and deficiencies regarding certain clauses in the Trust Deed which may require modification. The Assessee duly complied and filed the necessary details. Necessary amendments to the Trust Deed were carried out and the amended trust deed was also filed.

The CIT(E) in the impugned order rejecting application for grant of registration u/s.12A of the Act observed that the Author of the Trust was a property developer and engaged in commercial activities. According to the CIT(E), clause 3 (i) & (ii) of the Trust Deed provided that the trust shall erect, construct and maintain township and housing and therefore the trust was not formed with charitable motive, but with commercial intention. On the above reason given for rejection of registration, the learned Counsel for the Assessee has pointed out that the relevant clause has to be read in conjunction with the preamble in clause-3 of the trust deed which clearly lays down that the above activities were to be carried out in furtherance of the object of providing education. The CIT(E), in our view, has overlooked the fact that all activities spring from and are to be read in conjunction with clause 2 (b) of the Deed of Trust, which we have extracted in the earlier part of this order.

Another reason given by the CIT(E) for rejecting application of the Assessee for grant of registration u/s.12A of the Act was that clause 3 (v) of the trust deed permitted the Assessee to establish, promote any industrial and commercial activity with a condition that the proceeds from such activities should be utilized for supporting educational activities. According to the CIT(E), the above clause showed that the objects of the Assessee were not charitable within the meaning of Sec.2(15) of the Act. The learned counsel for the Assessee has drawn our attention to a decision of the Hon’ble Madras High Court in the case of DIT(E) Vs. JITO Chennai chapter (2012) 17 taxmann.com 261 (Madras) wherein the Hon’ble Madras High Court upheld the order of the Tribunal which held that registration cannot be refused on the ground of incidental objects to attainment of main objects being commercial in nature.

The next reason given by the CIT(E) for denying benefit of registration was that under clause-5 of the Deed of trust the Trustees had powers to sell and convert trust funds into any other property provided the trustees are authorized to hold such property in accordance with the objects of the Trust. Such a clause gives absolute powers to the Trustee which will result in trust engaging in non-genuine activities. On the above objection, the learned counsel for the Assessee has rightly submitted that the said clause gives power to the trustee only for the objects of the trust and at the stage of registration it cannot be said that there was a possibility of misuse and therefore registration cannot be granted.

We are of the view that none of the reasons given for refusing registration to the Assessee are acceptable. The objects of the Assessee are charitable in nature being solely for the purpose of education and all activities spring from and are to be read in conjunction with clause 2 (b) of the Deed of Trust, which we have extracted in the earlier part of this order.

The Hon’ble Karnataka High Court in the case of DIT(E) Vs. D.R. Ranka Charitable Trust (2018) 100 taxmann.com 371(Karn) has laid down that at the time grant of registration u/s.12A the charitable object of the Assessee and genuineness of its activities has to be seen and it is only in assessment the actual activities, whether charitable or not, has to be seen. Similarly, in the case of CIT Vs. A.S. Kuppuraju brothers Charitable Foundation Trust (2012) 17 taxmann.com 242 (Karn) it was held that registration cannot be refused on the ground that the main purpose of creation of the trust was for some ulterior purpose. The above decisions support our conclusions that the Assessee should be allowed the benefit of registration u/s.12A of the Act. Moreover, grant of registration u/s 12A of the Act, does not automatically enable an assessee to claim exemption u/s 11 & 12 of the Act. The AO even in a case, where a trust or charitable organization for which registration u/s 12A of the Act subsists has to go in to the question, as to whether the income has been applied for charitable purposes and to the extent contemplated by Sec.11 & 12 of the Act. Even in a case, where the trust or charitable organization applies its income for charitable purposes, but does not have registration u/s 12A of the Act, such trust or charitable organization cannot claim the benefit of Sec.11 & 12 of the Act. Thus, this appeal by the assessee is allowed.

As far as Assessee u/s.80G of the Act. The only reason for not according approval was that the Assessee’s application or grant of registration u/s.12A was not granted. Now that the registration u/s.12A of the Act has been directed to be allowed, as a consequence the approval u/s.80-G of the Act should also be allowed. We hold and direct accordingly.

In the result, both the appeals are allowed.