KDDL ETHOS FOUNDATION,CHANDIGARH vs. CIT(EXEMPTION), CHANDIGARH

आदेश/Order

Per Sudhanshu Srivastava, Judicial Member:

This appeal is preferred by the assessee against the order dated 11.06.2021 passed by the Ld. Commissioner of Income Tax (Exemptions), Chandigarh [hereinafter referred to as ‘CIT(E)’].

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 2 Tribunal. The Chandigarh Bench of the Tribunal restored the issue to the

file of the Ld. CIT with a direction to pass a speaking order in

accordance with law after giving a reasonable opportunity of being

heard. This order of the Tribunal was passed on 20.04.2018 in ITA No.

1448/Chd/2017. Pursuant to the direction of this Tribunal, the assessee

was issued a questionnaire by the office of the Ld. CIT(E) and the

assessee filed detailed response before the Ld. CIT(A). However, it was

the opinion of the Ld. CIT(E) that since the assessee trust had been

established in order to meet Corporate Social Responsibility (CSR) of

the parent company KDDL Ltd and further since the assessee had routed

the funds received from the parent company to the corpus funds without

any specific direction, the assessee had violated the provisions of

section 11(1)(d) of the Income Tax Act, 1961. The Ld. CIT(E) also

noted that the assessee trust had merely donated funds received from the

parent company in order to discharge obligation of the parent company,

although, giving donations was not one of the objects defined in the

trust deed. It was further held that the assessee trust was merely a

vehicle for discharging the legal obligation of the parent company and

that it had not undertaken any project implementation. The Ld. CIT(E)

proceeded to reject the application for registration once again.

2.1 Now, the assessee has again approached this Tribunal and has

challenged the action of the Ld. CIT(E) in refusing the registration to

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 3 the assessee’s trust u/s 12AA of the Act by raising following grounds of

appeal:-

3.0 The Ld. AR submitted that that the assessee had furnished

voluminous documents before the Ld. CIT(A) to demonstrate that it was

carrying out charitable activities, albeit, also in the form of CSR

activities for its parent company KDDL Ltd. He drew our attention to

the response dated 05.02.2021 which had been submitted before the Ld.

CIT(E), wherein, the assessee had filed a chart for financial years 2017-

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 4 18 to 2019-20 outlining the relevant clauses under which the assessee trust had incurred expenditure towards charitable activities. Our attention was drawn to list of donations made during F.Y. 2017-18 which was enclosed at page 171 onwards of the paper book. Similar list of donations and activities carried out in assessment years 2018-19 and 2019-20 were also filed and our attention was drawn to the various evidences filed in this regard and forming part of the paper book from

pages 172 to 220. The Ld. AR submitted that it is not the case of the Ld. CIT(E) that the objects of the assessee were not charitable in nature and further that it was an incorrect observation of the Ld. CIT(E) that the assessee trust was in- house captive trust of its parent company as the assessee trust had also carried activities beyond the CSR objectives of its parent company. The Ld. AR vehemently argued that the Ld. CIT(E) has not at all considered the activities of the assessee trust and the

evidences which have been filed by the assessee in this regard and that he had only made some observations and drawn erroneous conclusions from the bank accounts of the assessee trust. The Ld. AR also placed reliance on the following judicial precedents:- 1. Roundglass Foundation Vs. CIT(E) reported in [2020] 77 ITR (Trib) 228 (Chandigarh). 2. Nanak Chand Jain Charitable Trust v CIT(E), Chandigarh [2018] 169 ITAD 534 (Delhi-Trib) 3. CIT Vs. J.K. Charitable Trust [1991] 196 ITR 31 (Allahabad) 4. Director of Income-tax (Exemptions) v Bagri Foundation [2010] 192 Taxman 309 (Delhi)

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 5

3.1 The Ld. AR while relying on the above mentioned judicial

precedents vehemently argued that there is no finding by the Ld.

CIT(E) that the assessee trust was not acting in accordance with the

objectives of the Trust or that its activities were not genuine. It was

the argument of the Ld. AR that at the time of granting of registration

u/s 12AA of the Act, the Ld. CIT(E) need not go beyond two

parameters viz. the objects being charitable in nature and the

activities being genuine. It was submitted that the observations made

by the Ld. CIT(E) regarding violation of provisions of section

11(1)(d) of the Act were not relevant for the purpose of grant of

registration and that they were to be examined by the Assessing

officer during the course of assessment proceedings. The Ld. AR

harped on the settled judicial precedent that the charitable purpose

may be served in more than one way. One way could be to directly

contribute for the promotion of its cause, and the other would be to

contribute money to another charitable organization which advances

the cause of furtherance of its objects that further in absence of

allegation of any malafide, the activities of the trust would remain

charitable in nature.

4.0 Per contra, the Ld. CIT DR vehemently supported the orders

of the Ld. CIT(E) and submitted that the assessee trust had not

applied its income as per the objectives of the trust and donation to

other trust was not an object of the assessee trust. The Ld. CIT DR

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 6 also placed reliance on the order of the Amritsar Bench of the ITAT in the case of Goenka Charitable Trust Vs. CIT(E) Chandigarh reported in [2018] 89 taxman.com 31 (Amritsar-Trib.), wherein, the Ld. CIT(E) refused registration u/s 12AA of the Act by holding the assessee to be captive in-house trust. The Ld. CIT DR submitted that the Ld. CIT(A) had rightly rejected the assessee ’s application for registration u/s 12AA of the Act

5.0 We have heard the rival contentions and have also perused the material on record. We have also gone through the detailed note which had been prepared by the assessee on the activities of the assessee’s trust for the period from 3.2.2016 to 31.3.2020. This note is placed at pages 129 of the paper book and is also part of the Annexure 8 of the submissions filed before the Ld. CIT(E). For a ready reference, we are reproducing this note here-in under:-

Initially the Trust has contributed Rs 4,75,000/- as donation to the IIMPACT, a charitable L- initiative started by the alumni of Indian Institute of Management, Ahmedabad for the Education of Girl Child across various locations in India by sponsoring Five Learning Centers @ 95000/- per learning center per year (Educating 30 Girls per Learning Centre) Thus educating 150 girl child in a year. The IIMPACT is located at M-2/3, Ground Floor, DLF Phase-2, Gurgaon 122002 and Its Website is www.iimpact.net for further details. (Section 2(15)- Education Promotion)

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 7 Than the Trust Contributed Rs 2,50,000/- to Youth Technical Training Society (YTTS) a Society registered with Mission to help the underprivileged for promoting education, including special education and employment enhancing vocation training skills specially among children, women elderly and disabled persons on long term basis by executing a Agreement for the above purpose. The donation was given vide cheque no. 292572 dated 11.07.2016 drawn on IDBI Bank with payees account endorsement only (Section 2(15)-Education Promotion)

Then the Trust contributed Rs 1,00,000/- (Cheque No. 292573 dated 11.08.2016) to Heart to Heart Service Society of Inner wheel Club of Chandigarh for the poor and needy patients in the PGI/General Hospitals Sector - 16/Other Govt Hospitals through the distributions of costly medicines required in the major ailments as recommended by the Doctors. (Section 2(15)-Medicai Relief)

Then the Trust contributed Rs 30,000/- (Cheque No. 292574 dated 07.09.2016) to Multiple Sclerosis Society of India for supporting the eradication of Sclerosis disease from India and helping the underprivileged children to fight with the life-threatening disease. Multiple sclerosis is disabling disease of the central nervous system that disrupt the flow of information within the brain and between the brain and body. (Section 2(15)-Medical Relief)

Then the KDDL Ethos Foundation contributed Rs 90,000/- ( Cheque No. 029576 dated 11.01.2017) for installing the Three Automatic Electric sanitary Napkin incinerator and sanitary Napkins Vending Machines installed in Government Model Senior Secondary Schol!,Sector-18, Sector 20 and Sector 35 Chandigarh for the Girl Child students for cleanliness drive under Swatch Bharat India

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 8 Program of the Prime Minister. (Section 2(15)-Relief to the Poor& medical Relief)

5.1 The objects of the trust, as have been reproduced by the Ld. CIT(E) in the impugned order are also worth reproducing herein under;- 1. Eradicating hunger, poverty and malnutrition, promoting healthcare including preventive health care and sanitation including contribution to the Swachh Bharat Kosh set up by the Central Government for the promotion of sanitation and making available safe drinking water;

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 9 6. Measures for the benefit of armed forces veteran, war widows and their dependents;

11.Slum area development.

5.2 A perusal of the activities which have been carried out by the assessee trust since its inception as well as the objectives of the trust which have been reproduced above have not been doubted by the Ld. CIT(E) and the only objection of the Ld. CIT(E) for refusing the registration u/s 12AA of the Act to this trust is, apparently, that the assessee trust is in-house captive trust of its parent company M/s KDDL Ltd. and further the assessee has not spent money in accordance with the objectives of the trust. It is also the view of the Ld. CIT(E) that making donation to another trust would not come under charitable activities. We have given a thoughtful consideration to the entire issue at hand and we note at the cost of repetition that it

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 10 is not the case of the Ld. CIT(E) that the objectives of the assessee

trust are not charitable in nature. It is also not the case of the Ld.

CIT(A) that the activities undertaken by the assessee were not

genuine. As far as the issue of being in-house captive trust is

concerned, it is seen that the Ld. CIT(E) has noted that the parent

company i.e M/s KDDL Ltd. is closely linked to the assessee trust

and further Shri Rajender Saboo and Mr. Yashovardhan Saboo were

the settlers of the assessee trust who were also directors of the

KDDL Ltd. It is observed by the Ld. CIT(E) that, therefore, the

assessee trust was a family trust. We find that identical issue was

earlier dealt by the ITAT Delhi Bench in the case of Nanak Chand

Jain Charitable Trust v CIT(E), (supra). Later on, an identical issue

was decided by Coordinate Bench of the Tribunal (ITAT –

Chandigarh Bench) in the case of Roundglass Foundation Vs. CIT(E)

(supra), wherein, it has been held that merely because the assessee

trust had been found by another company for complying with CSR

requirements, it cannot be denied registration u/s 12AA of the Act

unless the genuineness of the activities of the assessee’s trust or its

charitable objects are doubted. We also note that ITAT Delhi Bench

in the case of Nanak Chand Jain Charitable Trust v CIT(E), (supra)

considered the objection of the Ld. CIT(E) in that case that the

activities of the assessee trust were not in consonance with the

provisions of Companies Act 1956. The Delhi Bench went out to

hold that there was no requirement to see whether the activities of

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 11 the assessee trust were in sync with the Companies Act or not. The

Ld. CIT(A), in the present appeal, has also made similar observations

and we are of the view that the facts in this appeal are identical to

the facts in the case of Nanak Chand Jain Charitable Trust v CIT(E),

(supra) as well as in the case of Roundglass Foundation Vs. CIT(E)

(supra)

5.3 At this juncture, it will be relevant to extract the operative

portion from the order of the ITAT, Chandigarh Bench in the case of

Roundglass Foundation Vs. CIT(E) (supra), which reads as under:-

“6. A perusal of the impugned order of the Ld. CIT (E) reveals that the Ld. CIT (E) nowhere in the impugned order has pointed out that the appellant company has not been acting as per its objectives or that the activity of the appellant company was not genuine vis a vis its objects. The main plea taken by the Ld. CIT (E) is that the said company is an arm of another company namely M/s Round Glass Wellbing Private Limited for the purpose of carrying out their CSR liability. That otherwise the main control over the appellant company is of M/s Round Glass Wellbing Private Limited. However, there is no allegation or observation by the Ld. CIT(E) about the charitable nature of its objects and activities thereof. So far as the grant of registration to a company who is deemed to be under the control of another company and who has formed such company for complying their CSR required under the company’s Act, the issue has been settled by the Coordinate Delhi Bench of the Tribunal in the ‘Nanak Chand Charitable Trust vs CIT (Ex.)’ (2018) 91 traxmann.com 197 dated 9.2.2018, wherein, it has been held that merely because the assessee trust /company has been formed by another company for complying the CSR requirements, it can not be denied registration u/s 12AA unless the genuineness of the activities of assessee trust or

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 12 its charitable objects is doubtful. The relevant part of the order of the Hon'ble Delhi Bench of the Tribunal (supra) is reproduced as under:- “9. We have heard both the parties and perused the material available on record. It is pertinent to note that the reasons (i) and (ii) given by the CIT (exemption) is that the main aim appears to be forming a trust merely for complying to CSR requirements. When a trust is created for the purpose of carrying out CSR activities, the registration under section 12AA of the Income Tax Act, 1961 cannot be denied. Vide notifications dated 27/02/2014 the ministry of Corporate affairs in the rules framed for the purpose of CSR has implicitly provided for forming the dedicated trust under sub rule 2 to rule 4. It has been stated as under:

"(2) The board of a company may decide to undertake it is CSR activities provide by the CSR committee, through the registered trust or a registered society or a company established by the company or its holding or subsidiary or associate under section 8 of the Act or otherwise."

Even Companies Act provide for compliance of CSR provision through" a dedicated trust or society. Just because the trust has been formed for complying CSR requirements it cannot per se be the reasons for denying registration under Section 12AA of the Income Tax Act. As regards the reasons (iii) given by the CIT (exemption) that the object of trust are to be noted whereby apart from the CSR activities, the Activities in the nature of eradicating hunger and poverty, promotion of education, promoting gender equality etc. are also provided. These activities are in the nature of public charity. Further, the CSR Activities itself are in the nature of public charitable activities. As regards the reasons (iv) given by the CIT (exemption), no activities in sync with the requirement of the Companies Act has taken place in the trust so far. For the purpose of granting registration under Section 12AA only two factors are to be seen by the CIT (E) which are the objects of the trust being charitable in nature and the genuineness of activities.

There is no requirement to see where the activities are in sync with Companies Act or not. Reasons (v) given by the CIT

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 13 (exemption) that the activities so far further show that the trust is relinquished its function as the primary implementation agency and undertaking its own programs to impact direct beneficiary by the transferring its funds to other society. Even the funds given to another charitable society for the purpose of charity are considered as application of income for the purpose of exemption under Section 11 of the Income Tax Act, 1961. At the time of granting the registration under Section 12AA of the Income Tax Act, 1961, the CIT (exemption) need not go beyond two parameters that the object being charitable in nature and activities being genuine. All other activities are the matters to be taken care ol by the Assessing Officer at the time of assessment for granted exemption under section 11 of the Act. Reasons (vi) given by the CIT (exemption) that it also militates against the legal principal that social enterprises cannot be a direct recipients of money from corporate as it is a profit making Company. This reasons by the CIT (exemption) is not in conformity with any of the provisions of the Income Tax Act. A profit making Company can grant certain donation to the charitable trust, how can the activities of the trust become not charitable with this act. The fact that the CSR expenditure are not allowable expenditure under section 37 of the Act is relevant only for the taxability of the company incurring such expenditure. From the perception of the assessee trust the amount received as donation whether will be eligible for exemption under section 11 depends on the application of such fund for the charitable activities by the trust only. The CIT is empowered to satisfy himself only about two factors i.e. the objects of the trust and the genuineness of the activities of the trust or institution and such powers does not extend to the eligibility of the trust/ institution for exemption u/s 11 r.w.s 13 of the Income Tax Act, 1961 which falls in the domain of the AO. Once the CIT has not doubted about the genuineness of the activities of the assessee nor doubted its charitable object, his powers under section 12AA end. The case laws relied by the Ld. AR are applicable in the present case. The case laws relied by the Ld. DR are not applicable as the factual malrix in those cases are totally different. Thus, the order passed u/s 12AA and u/s 80G(5)(vi) of the Income Tax Act, 1961 are set aside. We direct the CIT to grant the registration u/s 12AA of the Act and also the approval u/s 80G(5)(vi) of the Act to the assessee.

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 14 10. In result, both the appeals of the assessee are allowed.

5.4 During the course of proceedings before us, the Ld. CIT DR,

although has vehemently supported the orders of the Ld. CIT(E), has

not brought any judicial precedent to our notice which is contrary to

the above stated judicial pronouncements. He has only relied on an

order of ITAT, Amritsar Bench in the case of Goenka Charitable

Trust Vs. CIT(E) Chandigarh (supra). However, with due respect, it

is our considered opinion that the view taken by the ITAT Amritsar

Beach in the case of Goenka Charitable Trust Vs. CIT(E) Chandigarh

(supra) does not have the binding force for us as it was rendered in

an earlier date i.e. 2018, whereas, the order of the ITAT Chandigarh

Bench in the case of Roundglass Foundation Vs. CIT(E) was

pronounced in 2020 i.e. at a later date. Further, we also note that

ITA No. 209-Chd-2021 KDDL Ehtos Foundation, Chandigarh 15 the ITAT Chandigarh Bench is the jurisdictional Bench of the ITAT

for the assessee and, therefore, for that reason also, the order

rendered in that case will have to be applied in the case of the

assessee. Therefore, in overall view of the facts of the case and

considering the very important fact that the Ld. CIT(E) has neither

disputed the charitable nature of the objects of the assessee trust, nor

has doubted the genuineness of the activities carried out by the

assessee trust, the assessee trust deserves to be granted registration

u/s 12AA of the Act. Accordingly, we set aside the order of the Ld.

CIT(E) and direct him to grant registration to the assessee trust.

6.0 In the final result, the appeal of the assessee stands allowed.

Order pronounced on 28.02.2022.

Sd/- Sd/- ( N. K. SAINI) (SUDHANSHU SRIVASTAVA) Vice President Judicial Member Dated : 28.02.2022 “आर.के.”

आदेशक���त+ल,पअ-े,षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु.त/ CIT 4. आयकरआयु.त (अपील)/ The CIT(A) 5. ,वभागीय��त�न1ध, आयकरअपील"यआ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File

आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar