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Income Tax Appellate Tribunal, DELHI BENCH “D” NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI AMIT SHUKLA
PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the assessee against the impugned order dated 28.02.2015 passed by Ld. CIT (Exemption), New Delhi u/s.12AA. In the grounds of appeal
, the assessee has raised the following grounds:- “1. That the learned Commissioner of Income Tax (Exemptions) New Delhi has erred both on facts and in law while rejecting application for grant of registration u/s 12AA and exemption u/s 80G of the Income Tax Act to the Trust.
2. That proper and meaningful opportunity was not provided to the trust while framing order of rejection of application for grant of registration to the trust u/s 12AA of the Act. Thus, the order framed is unjustified illegal and void.”
The applicant-assessee is a Trust which was formed vide Trust deed dated 8th March 2013, by a Settler, Shri Satish Kumar in favour of five trustees. The main objects of the Trust as given in the deed are as under: -
Main objects of the Trust are: In furtherance, but not in limitation, of the foregoing charitable and educational purposes, the Trust shall: (1) be dedicated to promoting and improving emergency medicine and care on a global basis through advocacy, training, and education of physicians and allied health care personnel internationally; (2) alone or in cooperation with other foundations, institutions, associations and other organizations, conduct any and all activities and do any and all acts and things which may be necessary, useful, suitable or proper in connection with or for the furtherance, accomplishment or attainment of such charitable and educational purposes as are lawful for a Trust formed under the Indian laws; to solicit, collect, accept, hold, invest, reinvest and administer (3) any gifts, grants, bequests, devises, benefits of trusts and property of any sort, without limitation as to value or amount, for such Charitable Purposes, and make grants and contributions of income and principal as the Board of Trustees may from time to time determine, to international, national and community-based foundations, institutions, associations and other organizations organized for the same or similar purposes; to borrow money or contract debts and mortgage, pledge, (4) convey, assign in trust or otherwise encumber or dispose of, the property or other assets of the Trust; to purchase, lease or otherwise acquire, to own, hold, use, (5) operate, manage, improve, repair, maintain, control, to sell, assign, transfer, convey, exchange, lease or otherwise dispose of, to mortgage or otherwise encumber, real property, whether improved or unimproved, or structures, buildings, or other improvements thereon, and to construct, improve, alter or remove structures, buildings or other improvements upon real property. (6) To construct and run schools, colleges, and educational institutions for the benefit of the public at large. To provide grants, scholarships, fellowships and other forms of (7) financial assistance to the needy and deserving students for pursuing education, vocational training, skill development etc. (8) To grant financial assistance to any educational institution for granting scholarships, prizes, medals, awards for excellence in studies, sports and scientific research, distribution of books and note books for poor and or deserving students. To provide necessary facilities or to contribute to educational (9) and scientific research development In any place as the trust finds deemed fit. To carry out any activities with the intention of service but not of (10) any profit making. To print, publish, purchase, sell, circulate, distribute or exhibit (11) either free or for a price - books, periodicals, journals, booklets, bulletins, calendars, message-cards, other literature, films, documentaries, records, paintings and photographs which will assist or promote the objects of the Trust. To purchase, sell or otherwise distribute materials and (12) services in the furtherance of the objectives of the Trust. To arrange and organize lectures, debates, discussions, study (13) tours, conferences, or radio-talks for the advancement of the objects of the Trust. To organize and run residential educational program. (14) To establish Training Centres and allied educational (15) institutions. Raise funds through donations and contributions to support all (16) the above activities, and setting up appropriate management structure, including subsidiary units as necessary. Create assets and transport facilities to accommodate any of (17) the above activities.
The Trust was stated to be established for the benefit of humanity at large and class of people mentioned above without discrimination of caste, religion, creed or sex. Looking to its objects which was charitable in nature, trust has applied for registration u/s.12AA before the ld. CIT(E) vide application dated 26.03.2015 and also application for exemption u/s.80G.
4. Ld. CIT (E) on the perusal of the Trust deed noted that there were five initial trustees, and all were Non-Resident Indian, i.e., who have taken the citizenship of the foreign country. According to ld. CIT (E) in terms of Explanation-1 to Section 60 and Section 73 of the “The Indian Trust Act” a non-resident cannot be a trustee of an Indian resident trust unless he is domiciled in India. Based on this reasoning, he has rejected the assessee’s application for grant of registration u/s.12AA and application for exemption u/s.80G. The relevant observation of the ld. CIT(E) reads as under: “3. In this connection, it is pertinent to mention that Explanation 1 to 60 of the Indian Trusts Act provides, inter alia, that a person domiciled abroad or an alien enemy, i.e. a person not domiciled/resident in India or a person belonging to a state which is at war with India, are not proper persons to be trustees and they are not permitted to be trustees of Indian resident trusts. Indian Courts have held that a non- resident cannot be a trustee of an Indian resident trust unless he is domiciled in India. The rationale behind this is that the trustee at all times must be within the reach of Indian courts in order to ensure the enforcement of the terms of the trust. However, if an Indian trust does not have a resident trustee, then a court application would have to be made in order to invalidate the trust. 3.1. Section 73 of the Indian Trusts Act provides that where a person appointed as a trustee is absent for a continuous period of six months, leaves India for a continuous period of six months, or leaves India for the purpose of residing abroad, a new trustee may be appointed in his place by a person nominated in the trust document for that purpose, if any and in the absence of such person, by the settler of the trust, if alive and competent to contract or the surviving/continuing trustee , if any, or the retiring trustee himself with the consent of the court. Also under the Indian exchange control regime, it is not possible for a trust holding immovable property to have a non-resident trustee.
It is mentioned that satisfaction of the Commissioner of Income Tax regarding genuineness of the activities of the organisation seeking registration u/s.12AA is one of the essential conditions for grant of registration u/s 12AA. Both these requirements are cumulative and not alternative. In view of the discussion in the preceding paras and the fact that the five applicant trustees are foreign citizens/national, and non-residents, I am unable to satisfy myself about the structure of the applicant trust which is a condition precedent for grant of registration so that it can be held to be for charitable purpose.”
4.1 Thus, the entire premise for rejecting the assessee’s application was that the applicant-assessee cannot be held to be a valid Trust under the Indian Trust Act, 1882.
Before us, ld. counsel for the assessee submitted that the constitution of the trustees was substituted before filing of ‘Form-10A’ seeking registration u/s.12A, wherein one, Mr. Milakh Raj Arora who was ordinary resident of India was residing in Ludhiana, Punjab on permanent basis and has replaced by one of the non-Indian trustees. The list of the trustees was also enclosed along with copy of ‘Form 10A’ filed before the ld. CIT (E) duly signed by Mr. Milakh Raj Arora. Thus, he submitted that Explanation-1 to Section 60 of the Indian Trust Act does not apply in the present case, as one of the trustees is ordinary resident and Indian citizen. He further submitted that Section 12AA requires that ld. CIT(E) has to satisfy himself about the objects which should be in the nature of ‘charitable purposes’ and also about the genuineness of the activities of the Trust. There is no adverse finding or opinion of the ld. CIT(E) on the objects, therefore, registration cannot be cancelled. In support, he strongly relied upon the decision of ITAT Jaipur Bench in the case of Sidha Sthan Shri Kapleshwar Mahadev Sanyas Ashram Trust vs. CIT(E), & 656/JP/2017 dated 28th September 2007, (2018) 162 DTR (JP) (Trib) 202. He further submitted that all the other trustees otherwise were basically from Indian origin and their parents were staying in India and due to their professional activities they were settled abroad. Thus, trustees who are well reputed and famed doctors are doing genuine work for imparting education in modern medicine and medical science and educating the doctors in global standards in medical fields and medicine. He also pointed out that Pondicherry Government has given grant to the assessee Trust looking to its noble cause. Thus, not only it is a valid Trust but also its objects were charitable and hence registration u/s.12A should be granted.
On the other hand, learned CIT-DR relied upon the order of the ld. CIT(E) and submitted that all the trustees were NRIs; and in terms of Sections 60 and 73 of the ‘Indian Trust Act, 1882’, they cannot be held to be as proper persons/trustees for the purpose of Indian Trust Act. He further submitted that out of the 4 trustees three of them are citizens of America which is evident from passports appearing in the paper book and other is Australian. Thus, there is no question of grant of registration u/s.12A.
We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. The sole reason for denying the registration u/s.12AA by the ld. CIT (E) is that the trustees are the non-resident and therefore, under the provisions of ‘Indian Trust Act, 1882’ they cannot be held to be a valid trustee; and when the trust and its structure itself is not proper, therefore, the condition precedent for grant of registration is not fulfilled.
We will first examine the relevant provisions of the ‘Indian Trust Act, 1882’. First of all, Section 10 of the Indian Trust Act provides for who can be the trustees. The relevant section reads as under: -
“10. Every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract. No one is bound to accept a trust. A trust is accepted by any words or acts of the trustee indicating with reasonable certainty such acceptance. Instead of accepting a trust, the intended trustee may within a reasonable period, disclaim it, and such disclaimer shall prevent the trust property from vesting in him. A disclaimer by one or two more co-trustees vests the trust-property in the other or others and makes him or them sole trustee or trustees from the date of the creation of the trust. Illustrations (a) A bequeaths certain property to B and C, his executors, as trustees for D.B. and C Prove A’s will. This is in itself an acceptance of the trust, and B and C hold the property in trust for D. (b) A transfers certain property to B in trust to sell it and to pay out of the proceeds A’s debts. B accepts the trust and sells the property. So far as regards B, a trust of the proceeds is created for A’s creditors. (c) A bequeaths a lakh of rupees to B upon certain trusts and appoints him his executors. B serves the lakh from the general assets and appropriates it to the specific purpose. This is an acceptance of the trust.”
8.1 The aforesaid section clearly provides that every person capable of holding property may be a trustee, but where trust involves the exercise of discretion, he (trustee) cannot execute it unless he is competent to contract. Thus, a person who may be trustee must be capable of holding a property of which the Trust is declared and must be competent to deal with the property as required by the Trust or as directed by the beneficiaries. The Ld. CIT (E) in his order has also mentioned that under the Indian exchange control regime, it is not possible for a trust holding immovable property to have a non-resident trustee. However, he is not specified under which Indian control regime there is such a bar. On the contrary, provision of Section 6(5) of FEMA 1999, a person resident outside India can hold, own, transfer or invest in Indian currency, security or any immovable property situated in India, if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. Thus, there is no specific bar under Section 10 of the Trust Act for an appointment of NRI as trustee of an Indian Trust.
8.2 However, certain restriction of appointment of NRI as trustee has been given in the Act, for example Section 73 which provides as under: - 73. Whenever any person appointed a trustee disclaims, or any trustee, either original or substituted, dies, or is for a continuous period of six months, absent from India or leaves India for the purpose of residing abroad, or is declared an insolvent, or desires to be discharged from the trust, or refuses or becomes, in the opinion of a principal Civil Court of original jurisdiction, unfit or personally incapable to act in the trust, or accepts an inconsistent trust, a new trustee may be appointed in his place by—
(a) the person nominated for that purpose by the instrument of trust (if any), or (b) if there be no such person, or no such person able and willing to act, the author of the trust if he be alive and competent to contract, or the surviving or continuing trustees or trustee for the time being, or legal representative of the last surviving and continuing trustee, or (with the consent of the Court) the retiring trustees, if they all retire simultaneously, or (with the like consent) the last retiring trustee. Every such appointment shall be by writing under the hand of the person making it. On an appointment of a new trustee, the number of trustees may be increased. The Official Trustee may, with his consent and by the order of the Court, be appointed under this section, in any case in which only one trustee is to be appointed and such trustee is to be the sole trustee. The provisions of this section relative to a trustee who is dead include the case of a person nominated trustee in a will, but dying before the testator, and those relative to a continuing trustee include a refusing or retiring trustee if willing to act in the execution of the power.”
Section 73 thus, deals with the appointment of a new trustee on death, or is absent from India for the period of more than 6 months or domiciled outside India, etc. This section merely provides that a new trustee may be unfit to be appointed in case the said person is domiciled abroad for a period of six months continuously; or leaves India for the purpose of residing abroad, etc. In such a case, it is considered that there is a personal incapacity to act in a Trust by such person. This inter-alia means that he is considered to be unfit for the office of the trustee and the said section presume that vacancy has occurred and the provision authorizes the appointment of a new trustee in his/her place. This provision also does not forbid the appointment of NRI, albeit acts as an impediment to their appointment. Section 73 per se cannot invalidate a Trust, but rather provides bar for appointment of non-resident as a trustee.
8.3 Similarly, Section 60 r.w.s. Explanation-1 of the Indian Trust Act reads as under: - “60. The beneficiary has a right (subject to the provisions of the instrument of trust) that the trust property shall be properly protected and held and administered by proper persons and by a proper number of such persons. Explanation I—The following are not proper persons within the meaning of this section:— A person domiciled abroad; an alien enemy; a person having an interest inconsistent with that of the beneficiary; a person in insolvent circumstances; and, unless the personal law of the beneficiary allows otherwise, a married woman and a minor.”
The aforesaid section provides that beneficiary has a right to proper trustees. This section is based on a principle that the trust whose property depends for its continuance upon the faith and integrity of the trustee should be allowed for all practical means to secure himself against the occurrence of any act of misconduct. The first of the right of a beneficiary securing himself against the occurrence of any act of misconduct is his right to have the custody and administration of the estate confided to the care of proper persons. The ‘proper persons’ have been defined whereby a person domicile abroad, etc. have been held to be not a proper person. This section provides for removal of the trustee by the beneficiary of the trust if he is not a proper person as given in Explanation-I. However, this section again does not in any way impose restriction on the author as he may very well appoint a person who is considered not proper under this Act. Beneficiary may first choose to have not a ‘proper person’ as long as the condition precedent in Section 10 is not violated. This section only provides a right of the beneficiary to have proper trustees, but it does not impinge upon the validity of the Trust and nowhere the Indian Trust Act provides that if the trustee is not a ‘proper person’, then the entire Trust can be declared as invalid.
In our humble opinion, provisions of Section 60 and 73 of the ‘Indian Trust Act, 1882’ as relied upon by the ld. CIT(E) to hold that assessee Trust is not a valid Trust, and therefore, cannot be granted registration u/s.12AA cannot be held to be a valid reason. As pointed out by the learned counsel before the ld. CIT (E) in the application filed in ‘Form 10A’, assessee-applicant Trust has already given the list of the trustees and one of the trustee was citizen of India and domiciled in India, and therefore, it cannot be held that simply because other four trustees were non-resident and the assessee trust is not a valid trust. We accordingly, hold that assessee is a valid trust under the Indian Trust Act, 1882.
Now coming to the ‘objects’ as given in the ‘Trust Deed’, prima facie, it appears that all the objects are ostensibly for the charitable purposes. However, the ld. CIT(E) has not examined the objects and the genuineness of the activities of the assessee trust which is required to be examined while considering the registration u/s 12AA, and therefore, in all fitness of mater, we deem it proper that this matter of registration should be restored back to the file of the ld. CIT(E) who shall examine the ‘objects’ of the Trust as well as genuineness of its activities; and if the assessee trust’s ‘objects’ are charitable and is actually carrying out charitable activities for the benefit of public at large, then registration u/s.12AA should be granted. Consequently, the application for exemption u/s.80G should also be examined in that light. With this direction, appeal of the assessee is treated as allowed for statistical purpose.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 14th September, 2018.