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Facts
The assessee, Tulsi Foundation, applied for registration under Section 12AB of the Income Tax Act, 1961. The CIT(E) rejected the application, citing the absence of a dissolution clause in the trust deed, alleged non-genuine activities due to transactions with related parties, and commercial nature of objects.
Held
The Tribunal noted that the CIT(E) rejected the application primarily on grounds of absence of dissolution clause, genuineness of activities, and commercial objects. The Tribunal found that the issues raised by the CIT(E) might be curable if the assessee is given another opportunity.
Key Issues
Whether the CIT(E) was justified in rejecting the application for registration under Section 12AB of the Income Tax Act based on the absence of a dissolution clause, alleged non-genuine activities, and commercial nature of objects.
Sections Cited
12A, 12AB, 11, 12, 13
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ The CIT (Exemption) Tulsi Foundation A-65 Shanti Path Tilak Nagar, Jawahar Vs. Jaipur. Nagar, H.O. Jaipur, Jaipur-302004. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAETT 0627 Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri Anil Kumar Sharma (C.A.) jktLo dh vksjls@Revenue by: Shri Avind Kumar (CIT) lquokbZ dh rkjh[k@Date of Hearing :19/12/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 16/01/2024 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the assessee against orders of the Learned Commissioner of Income Tax (Exemption), Jaipur [herein after referred to as “Ld.CIT(E)] dated 29.07.2023.
The assessee has raised the following grounds of appeal:- 2.
1. Under the facts and circumstances of the case the ld. CIT Exemption, Jaipur is not justified in rejecting the application of the assessee for Registration u/s 12A of IT Act, 1961.
Brief facts of this case are that the assessee filed online application in Form No. 10AB seeking registration u/s 12AB of the Income Tax Act, 1961 on Tulsi Foundation vs. CIT(E) 03.01.2023. A letter/notice No. ITBA/EXM/F/EXM43/2023- 24/1051896302(1) dated 06.04.2023 was issued at the e-mail/address provided in the application requiring to submit certain documents/explanations by 21.04.2023. In response to the same, the applicant had submitted its reply vide dated 20.04.2023 which was duly examined and placed on record. Thereafter, a show cause letter was issued vide this office DIN & Notice No. ITBA/EXM/F/EXM43/2023-24/1054408425(1) dated 17.07.2023 through which date of submission was fixed as 21.07.2023. Further, the applicant had submitted its reply on the above show cause which was thoroughly examined and placed on record but not found tenable. Since it is a limitation matter, therefore, the case is decided on the basis of material filed by the applicant along with its application in Form no. 10AB and during the proceedings.
Feeling dissatisfied from the above order of the ld. CIT(E) the assessee has preferred the present appeal before the Tribunal on the grounds as stated in para 2 above. In support of the various grounds so raised by the ld. AR of the assessee reinterred the written submission made before the ld. CIT(E) and the same is reproduced hereinbelow:-
“1. The assessee is a Public Trust established for charitable purposes and registered with DevsthanDepartment, Govt. of Rajasthan vide Certificated dated 21.09.2021 issued under Rajasthan Public Trust Act 1959.2(PB No.27). 2. The assessee vide Application dated 03.01.2023 (Form 10AB) applied for registration of the Trust u/s 12A(1)(ac)(iii) of IT Act 1961. (PB No.1- 7).
Tulsi Foundation vs. CIT(E) 3.The assessee vide letter dated 20.04.2023 filed all requisite details/documents/evidences.(PB No.8-11) 3A. The Id.CIT(E) vide impugned order dated 29.07.2023 passed u/s 12AB(1)(b)(ii) rejected the application of the assessee. 4.The Id. CIT has rejected the application on following considerations/grounds: Absence of Dissolution Clause: 4.1 The Id. CIT(E) issued show cause notice for not having dissolution clause in Trust Deed of the assessee. (Page No.3 of the order of CIT(E). 4.2 The Id A/R of the assessee vide reply dated 24.07.2023(PB No.54-56) relying on certain case laws explained that dissolution clause is not mandatory and absence of the same cannot be a reason for rejecting application for registration u/s 12A. (Page No.3 of the order of CIT(E). 4.3 The ld. CIT(E) without duly appreciating the contention of the assessee held that the “the trust deed/MOA of the applicant doesn't contain the dissolution clause and thus, the applicant has failed to justify its public charitable nature. Therefore, the application filed by the applicant is liable to be rejected." (Page No.5 of the order of CIT(E). 4.5 Both the Id. A/R and CIT(E) has committed an error in observing the Trust Deed and in concluding the absence of dissolution clause therein. 4.6 Vide para 16 of Trust Deed dated 01.0.20121, the assessee Trust has provided for dissolution of the Trust. (PB No.12-21) as follows: "The Trustees may at any time by a unanimous decision dissolve the trust and spend the entire income and corpus of the trust for charitable and religious purpose)" (PB NO.20) 4.7 Alternatively, assessee places reliance on letter dated 24.07.2023 submitted before CIT(E) (PB No.54-56) 4.7 Therefore the Id. CIT(E) is not justified in invoking/concluding the absence of dissolution clause in the trust deed for rejecting application of the assessee. Genuineness of Activities: 4.8 The Id CIT(E) observed from Bank statement (PB No.59-65) of the assessee that there are certain transactions of Receipt/Payment with Shri Mohan Sukhani Chairman of the Trust showing Debit Balance of Rs.1400000/- on 12.12.2022. (Page No.6 of the order of CIT(E). 4.9 The ld. CIT(E) considered the relevant Debit Balance of Rs.1400000/-covered with in section 13(1)(c) and not eligible for exemption u/s 11 and 12 of IT Act and held:
Tulsi Foundation vs. CIT(E) "Therefore, it is concluded that the trust is in specified violation by giving benefit to the specified persons and thus falls out of the scope of registration u/s 12A." (Paragraph First on Page No.8 of the order of CIT(E).) 4.10 The CIT (E) Further held: "3.3 This further shows that the applicant is using the bank account of the trust only for circular transactions within the family using trust as conduit. Further, there is absolutely no relation of these transactions with the activity of the trust. Thus it can be concluded that the activities of the applicant are non-genuine and the applicant is not eligible for registration u/s 12A." (Page No.8 of the order of CIT(E).) 4.11 As evident from Bank statement, :(PB No.59-65) the assessee Trust has following transactions in the Name of Trustees: 4.11.1 Mohan Sukhani: As recorded by CIT(E) on Page No.6 of his order showing Credit Balance of Rs.100000/- 4.11.2 Smt. Priyanka Sukhani: Credit Entry of Rs.1500000/- on 12.12.2022. 4.11.3 Smt. Kamla Sukhani: Credit Entry of Rs.8000000/- on 03.01.2023. 4.12 The relevant transactions in the name of Trustees are bonafide transactions of taking Interest free Loans and repayment thereof for the purpose and benefit of the assessee Trust. 4.13 The assessee has used the same either as Balance in Bank Account Investment or Investment in FDR's and earned Interest Income to be utilized for the charitable purposes of assessee Trust. The interest Income is evident from Bank statement of the Trust. (PB No.59-65) 4.14 The assessee has Interest Income of Rs.259477/- during the F.Y.2021-22 and Rs.559107/- during the F.Y.2022-23 against the Interest free Loans taken from Trustees and utilized the same for charitable activities. (PB No.46 and 58) 4.15 Th assessee has always outstanding Balance of Loans taken from Trustees except Rs.1400000/- in the Account of Shri Mohan Sukhani for few/20-21 days. 4.16 As evident from Audited/Provisional Balance Sheet as on 31.03.2022 and 31.03.2023, outstanding Loan in the name of Trustees is Rs.10000000/- and 8145000/-. (PB No.45 and 57) 4.17 Therefore allegation of the CIT(E) that the assessee is using the bank account of the trust only for circular transactions within the family using trust as conduit is unjustified, without any real finding and evidence available on record. Other observation of CIT(E): 4.18The Id. CIT(E) has further alleged that:
Tulsi Foundation vs. CIT(E) "3.4 The bank account statement of the applicant further shows that various payments have been made to St. Xavier School, SV Public School, St. Mira Brotherhood Society etc. However, the applicant has not submitted any further details of such payments". (Page No.8 of the order of CIT(E).) 4.18 The assessee in furtherance of it's objects has paid the relevant amounts towards Fee of poor/needy children's and submitted the Ledger Account of the same containing relevant details. (PB No.35-38) 4.19Therefore the said allegation/observation of CIT(E) is unjustified and contrary to evidences available on record. Legal Submission: 4.20 The registration u/s 12A of IT Act do not automatically confer any right of exemption u/s 11 and 12 of IT Act 196., it only makes the assessee eligible to claim such exemption. 4.20 The compliance of section 11,12 and 13 and evidences thereof needs to be examined by the AO during the course of assessment proceedings for allowing exemption. 4.21 The Hon. Kolkatta Bench in the case of Majumdar Art Foundation V.CIT(E) & 1689/Kol/2017 has categorically held: 6. We have given a careful consideration to the rival submissions and perused the materials available on record and after hearing the Id. DR for the Revenue, we are of the opinion that so far as grant of registration u/s 12AA of the Act is concerned, the CIT(Exemption)'s jurisdiction is only to verify the objectives of the institution and genuineness of the activities, meaning thereby that, he has to satisfy himself that the objects are charitable in nature and the activities being carried on or to be carried on are genuine, meaning thereby that, they are in consonance forachieving of charitable object and nothing else. So far as the violation of provision of section 13 of the Act is concerned, that is for limited purpose of taxing that amount and denying benefit of section 11 and 12 of the Act but cannot be a reason for refusing to grant registration u/s 12A of the Act or cancel the registration of the trust u/s 12A of the Act. (Copy of the Order attached) 4.22 The assessee also finds support from the following other decisions of Hon. ITAT: 1. Lilavati Kirtilal Mehta Medical Trust v. CIT (Central)-1, ITA No.2827/Mum/2014 2. Manav Vikas Avam Yoga PrasiskshanSansthan v. CIT(Exemption) Jaipur ITA No. 1021/JPR/2019). 4.23 The assessee has undertaken charitable activities of payment of Fee of poor/needy students in furtherance of it's objects and there is nothing on record to conclude or even to draw inference that the activities of the Trust are not genuine..
Tulsi Foundation vs. CIT(E) 4.24 Therefore ld.CIT(E) is not justified in invoking the provisions of section11 and 12 r.w.13 of IT Act1961 during the course of relevant proceedings u/s 12AB of the Act and holding the activities of assessee as not genuine. Business objects: 4.25 The Id. CIT(E) has held that Object no 4 (ii) and Object no. 4(v) focus on activities related to trade and business which is against the charitable spirit of any institution. (Page No.9 of the order of CIT(E).) 4.26 Your Honour may kindly peruse the Object no 4 (ii) and Object no. 4(v) (PB No.15 and 16), there is nothing in the said objects suggesting any activities related to trade and business. 4.27 All the objects of the assessee Trust are charitable purposes or incidental thereto. 4.28 Therefore ld. CIT(E) is not justified in holding that Object no 4 (ii) and Object no. 4(v) focus on activities related to trade and business and against the charitable spirit of any institution.. Prayer: Therefore Your Honour is requested to set aside impugned order dated 29.07.2023 passed by CIT(E) and may kindly be directed to grant registration to the assessee u/s12A(1)(ac)(iii) of IT Act 1961.”
During the course of hearing, the ld. AR of the assessee submitted that in the show cause notice issued by the ld. CIT(E) related to absence of the dissolution clause in the trust deed which is not mandatory but without prejudice the ld. AR of the assessee submitted that clause 16 of the trust deed deal with dissolution clause and the ld. AR of the assessee appearing at that time and dealing with, the ld. CIT(E) has not dealt with registration matter. The ld. AR of the assessee as regards to the transaction between related parties, if given an another opportunity are in fact in favour of the assessee for registration u/s 12A of Tulsi Foundation vs. CIT(E) the Act. The third aspect has dealt with in the order of the Ld. CIT(E) is that the objects of the trust are commercial in nature. The ld. AR vehemently submitted that in fact objected of the trust are charitable in nature and the Hon’ble Apex Court in the case of Ahmedabad Urban Development Authority is distinguishable and the observation made by the ld. CIT(E) is related to the observation of the Assessing Officer which is the ld. CIT(E) shall not be basis for rejection of application.
Per contra, the ld. DR relied on the orders of the ld. CIT(E). The ld. DR vehemently argued that Mohan Sukhani enjoying the benefit of trust money. In fact, he is doing circular transaction and upon seeing/observation of the income expenditure account, activity of the trust are not genuine and therefore, the registration u/s 12A of the Act has rightly been denied to the assessee.
We have heard the rival contentions and perused material available on record. The Bench noted that the ld. CIT(E) rejected the registration u/s. 12AB of the Act only on the reason that there is the Absence of dissolution clause, genuineness of activities and commercial objects. The Bench noted that the argument advanced by the ld. AR of the assessee are curable if the assessee can be given another chance to represent the issues Tulsi Foundation vs. CIT(E) raised by the ld. CIT(E) while dealing with the registration application of the assessee. We do not wish to enter into the matter of the disputes but after hearing the rival contention the Bench is of the view that let the ld. CIT(E) hear afresh contention so advanced by the assessee without any prejudice and therefore, after perusal of the argument of both the parties the Bench feels that the assessee should advance all aspect of the issues raised by the ld. CIT(E) and after given proper opportunity to the assessee, the ld. CIT(E) may decide the issue based on merits.
Before parting, we may make it clear that our decision to restore the matter back to the file of the ld. CIT(E) shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the ld. CIT(E) independently in accordance with law. In the result, the appeal of the assessee is allowed for statistical purposes Order pronounced in the open court on 16/01/2024. Sd/- Sd/- ¼jkBkSM+ deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 16/01/2024 *Santosh आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- Tulsi Foundation, Jaipur. 1. 2. izR;FkhZ@ The Respondent- CIT, Exemption ,Jaipur.