Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI R C SHARMA & SHRI AMIT SHUKLA
आदेश ORDER �ी अिमत शु�ला, �या स: PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the assessee against impugned order dated 15.02.2013, passed by ld. Director of Income Tax (Exemptions), Mumbai (DIT) under section 12A(1)(b)(ii), refusing grant of registration under section 12AA. In the grounds of appeal, the assessee has raised following grounds:-
“1. The Learned. Director of Income-tax (Exemption), Mumbai, [“the DIT (E)”] erred in not granting registration 2 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 under section 12A of the Income-tax Act, 1961 (“the Act”); 2.1 The DIT (E) erred in holding that the Appellant-trust is not a valid public charitable trust on the ground that the trust deed does not contain a “dissolution clause”, without appreciating the fact that the Appellant-trust was a duly registered trust under the Bombay Public Trust Act, 1950. 2.2 The Appellant submits that the order of DIT(E) passed under section 12AA is without jurisdiction, and as such, is liable to be quashed. 3.1 The DIT (E) erred in holding that there existed non- charitable / commercial objects, which were not covered within the ambit of ‘charitable purpose’ as defined under section 2(15) of the Act. 3.2 While doing so, the DIT (E) failed to appreciate that none of the objects were in the nature of commercial / non- charitable objects under the Act. 3.3 The DIT (E) erred in holding that the trustees have full discretion to apply the income of the trust towards such non-charitable / commercial objects.
4. It is submitted that in the facts and the circumstances of the case, and in law, no such rejection of registration was called for”.
The brief facts as culled out from the impugned order and material on record are that, the assessee trust has been constituted by Deed of Trust dated, 28.06.2011 and was also registered with Charity Commissioner of Mumbai under Bombay Public Trust Act, 1950. The objects of the Trust as enumerated in the Trust Deed are as under:- “1. To open, conduct, maintain and manage various educational Institutions such as Kindergarten, primary, pre-primary schools, & Degree college for all faculties Such as arts, commerce & science as well as technical colleges, polytechnics, Laboratories, Libraries, Reading rooms, residential school as well as hostels for Students.
3 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 2. To start and run agricultural colleges, Engineering College, D. Ed; B Ed. Colleges, Computer training centers. Advance Computer Education & personality development & English speaking.
3. To extent help to poor and needy people in educational purpose like Vachanalaya, tailoring, cooking etc.
4. To give scholarship, free ships, charitable help and educational help and in cash or kind to the needy and deserving students without making distinction of caste and creed.
5. To Conduct Sport activities for welfare of Trust and General public.
6. To create social, cultural, educational awakening amongst the members and general public.
7. To establish, run, conduct, maintain and manage vriddhashram, vidhwashram, anathashram, dharmashala etc.
8. To establish, conduct maintain and mange health care centre.
To established medical centre for the handicapped or incapable persons;
To establish, hospital, medical dispensary, mobile dispensary, blood donation camp, eye check up camps medical relief centers, laboratories for the benefit of general public irrespective of caste, creed or nationality.
11 To maintain the gardens, tree plantation ‘program, cleanliness etc.
4 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 12. To run singing classes, dance classes, music classes and various cultural activities etc.
To perform national, social and cultural activities.
To organize, promote and hold sports activities in various states in India and also to organize tournaments to search sports talents in India to supports and nation to provide the best of the sports talents.
To provide, organize and sports scholarships to the talented sport man in India.
To create awareness of the sports and the importance of sports activities to participate to the international events.
To promote unity, goodwill, close cooperation, feelings brotherhood to increase Self confidence, understanding & healthy atmosphere amongst the different Communities with a view of national integration.
To run and organize social activities and programs for the benefit of the trusts.
To work for the welfare and development of the general public through various programs, lectures, demonstration and other activities and Religious Program.
To work for the welfare and development of the members and general public through various programs, lectures, demonstration and other activities.
To give medical help to the poor and deserving peoples.
5 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 22. To give educational helps to the poor and deserving students.
To give help to the affected people by earthquake, flood deserving & national calamities.
To do such other things which are incidental conducive to attainment of above object.
Looking to the “Objects” of the Trust, the assessee filed an application in prescribed Form 10A on 28.01.2012 before the ld. DIT (E) for grant of Registration under section 12AA.
The Ld. DIT, on perusal of the Trust Deed noted that, firstly, the Trust Deed does not have a ‘dissolution’ clause to the effect that the trust is irrevocable and that if for some reason its objects cannot be carried out by the trustees who decides to dissolve or wind up the trust. Then as per the provisions of the Bombay Public Trusts Act, 1950 its net assets will have to be given to another trust having similar objects and under no circumstances, these will be distributed among the trustees; secondly¸ the objects of the Trust revealed that, the Trust has both charitable as well as non- charitable/commercial objects, like computer training centers, Health Care Centers, Personality Development, English speaking classes, tailoring & cooking classes, running of singing classes, dance classes, music classes etc. Further, there is no binding legal obligation on the trustees to apply income/trust funds solely for charitable purposes. In other words, trustees enjoy full discretion to apply the income of the trust towards attainment of any one or more of its objects including the above mentioned non-charitable/commercial
6 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 objects. Thus, on these premise and reasoning, the Ld. DIT has refused the registration u/s 12AA to the applicant Trust.
Before us, the Ld. Counsel, Mr. Deepak Tralshawala, submitted that, so far as the first contention raised by the Ld. DIT that Trust does not have a dissolution clause, same cannot be held to be tenable because, if any question of dissolution arises, then the trust will be handed over to the Charity Commissioner who will guide upon the disbursement process and in any case, if the assessee has been registered with Bombay Public Trust Act, then dissolution has to be done in the terms of provisions of the said Act even if there may not be any particular dissolution clause. In support, he strongly relied upon the decision of ITAT Mumbai Bench in the case of Tara Educational and Charitable Trust vs. DIT in order dated 18th July, 2014; and Organization of Autistic Individuals vs. DIT in ITA 1935/Mum/2013, order dated 30.09.2013. Regarding second observations of the ld. DIT that some of its activities are not charitable, he submitted that, firstly, at the time of registration, what is required to be examined is whether the activities of the applicant Trust are genuine or not, that is, whether it has been formed for the purpose of carrying out charitable work as defined under section 2(15); and secondly. whether the assessee is carrying out charitable or non- charitable has to be judged and examined later on by the Assessing Officer as to which part of the activities carried out by the trust is/are not genuine and this can only be examined when trust starts its activities. In support, he strongly relied upon the decision of Hon’ble Allahabad High Court in the case of CIT v Red Rose School, reported in [2007] 212 CTR
7 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 (All) 394 and Surya Educational Trust, reported in [2011] 203 taxman.com 53(P&H) and Foundation of Ophthalmic and Optometry Research Foundation Research Education Centre [2012] 201 taxman.com 236 (Del). He further contented that the object of section 12AA is to examine the genuineness of the objects of the Trust and not the application of the income.
6. On the other hand, Ld. CIT DR, after referring to the various observations of the Ld. DIT in the impugned order submitted that, no clause has been enshrined in the Trust Deed for dissolution, therefore trust cannot be said to have been constituted as per the requirement of the Charitable Trust. In support, he relied upon the following decisions, the relevant gists of which are as under:- i) Mohanlal Kanjibhai Pansara Education & Charitable Trust –[2013] 36 taxmann.com 338 (Rajkot-Trib) “On the perusal of the trust deed it is noticed that there is no clause in the trust deed imposing legal obligation on the assessee trust or its members to hold income of the assessee trust only for charitable purposes. There is no clause in the trust-deed by which the element of private gain is excluded. Similarly, there is no clause in the trust-deed to show that no profits would be divided or distributed among members at any time or at the time of dissolution. In the absence of such a clause, it is difficult to treat the assessee-trust as a charitable trust because it is possible for the members of the assessee-trust as a charitable trust because it is possible for the members of the trust, upon its dissolution, to divide the remaining funds among trustees.” ii) Hon’ble Apex Court in the case of Truck Operators’ Union v CIT [1981] 132 ITR 62, where the Court observed that: “It is true that the distribution can take place only at the time of dissolution but there is nothing preventing the assessed
8 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 from accumulating the funds and also distributing the entire amount among the members and dissolution, after all, is also a, matter which will be decided upon by the members of the association themselves”.
He further submitted that, in the present case, as pointed out by the Ld. DIT, the applicant trust has both charitable and non-charitable objects, therefore, it can be easily inferred that there was no binding legal obligation to apply the Trust funds solely for the charitable purposes and, therefore, its activities does not fall within the requisite definition and scope of “charitable purposes” as defined in section 2(15). If there are both charitable and non-charitable objects, then assessee is vested with the discretion to apply the income for non-charitable activities also, which will defeat the very purpose of granting registration. Hence, it has to be held that assessee’s activities are not solely for the charitable purposes. In support, he relied upon the following decisions:- i) Dharamaposhan Co. v CIT [1978] 114 ITR 463 (SC): “Where it observed that as the trust has both charitable purpose and it is open to the Appellant in its discretion to apply the income derived to any of the business. Hence it was held that it does not fall under the definition of ‘charitable purpose’ u/s 2(15)”. ii) Sole Trustee Loka Shikshan Trust vs CIT (1976 AIR 10): “Where the Court clearly stated that ‘education’ as included in the definition of ‘charitable purpose’ u/s 2(15) covers only formal education thorough schools and colleges and does not include coaching classes or other extracurricular classes. It held that “What education connotes in that clause is the process of training and developing the knowledge, skill mind, and character of students by formal schooling”.
9 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 iii) ITAT Cochin Bench judgment in the case of N Star Charitable Society v CIT, Kottayam [2013] 32 Taxmann.com 239 (Cochin-Tribunal), where it is observed: “The training instruction, etc. would result in grant of diploma or degree by a university or a governmental agency. In the before us, admittedly, the taxpayer is conducting coaching classes. Therefore it cannot be treated as a charitable institution as provided in Section 2(15) of the Act. This Tribunal is of the opinion that the taxpayer is not eligible for registration u/s 12AA of the Act”.
We have heard the rival submissions and perused the relevant finding given in the impugned order. So far as first objection of the Ld. DIT is concerned, that the Trust Deed of the applicant-assessee does not contain a ‘dissolution’ clause and, therefore, it is not a valid trust, cannot be upheld, because, whence the assessee is registered as a “Public Charitable Trust” with the Charity Commissioner under the ‘Bombay Public Charitable Trust Act, 1950’, then its entire activities as well as the eventuality of its dissolution is taken care of by the statute, because there are specific provisions under the said Act to deal with such kind of situations, like the trust will automatically be taken over by the Charity Commissioner who will guide upon the disbursement process of the assets and same would be transfer to another trust having similar objects. Under the provisions of section 12AA, r.w.s. 11 and 12, the Commissioner/DIT is required to ‘satisfy himself’ about the objects of the trust and the genuineness of the activities carried out by it. The scope of enquiry by the Commissioner/DIT as contemplated under section 12A is limited to the examination of the objects as well as the 10 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 genuineness of the activities. It is only after satisfying himself about the genuineness of the activities, CIT/DIT can grant registration under section 12AA. What happens to the Trust in the event of dissolution falls within the realm and domain of “Bombay Charitable Trust Act, 1950” and the Charity Commissioner and not under the provisions of sections 11 and 12 of the IT Act. This principle finds support from the decisions of this Tribunal as cited by the Ld. Counsel. Accordingly, we hold that, as far as impugned objection of the Ld. DIT is concerned, we do not find any merits so as to warrant rejection of registration u/s 12AA.
So far as second objection is concerned, that the applicant trust has both, charitable and non-charitable objects, we are of the opinion that, if the ‘objects’ of the trust itself has various clauses, some of which prima facie do not fall within the realm and scope of ‘charitable purposes’, then on such ‘objects’ registration u/s 12AA cannot be granted, because on what objects funds and income of the trust is applied, will get blurred as after the registration is granted income has to be computed in accordance with sections 11 to 13. We though agree with the contention of the Ld. Counsel that at the time of considering the application for the registration u/s 12AA, the DIT or Commissioner may not require to examine whether and how the income derived from the trust or institution is either not spent for charitable purpose or is for the earning of the profit, because the same can only be examined or scrutinized by the AO at the time of the assessment once the activities of the trust has been started or is carried out. The stage of application of income will only come subsequently when trust has been registered
11 राह� फ़ाउंडेशन Rahee Foundation ITA 2913/Mum/2013 on the basis of its objects and on the basis of the genuineness of its activities. The application of the funds, whether they are for profit earning or income derived by the charitable institutions is being misused can be the ground for refusing the exemption qua that part of the income or the exemption may be denied for that year when the misuse is found by the AO. Not only that, if later on it is found that the trust is not carrying out its activities in accordance with the objects or its activities are not genuine, then CIT/DIT have been empowered by the Act to cancel the registration u/s 12AA(3). The genuineness of the activities has to be seen qua the objects enshrined in the Trust Deed. However, if the objects itself contains various non-charitable objects also, then it would be very difficult to examine the genuineness of the trust for which it has been formed. Once a registration has been granted under section 12AA, it becomes fait accompli and income then has to be computed strictly in accordance with the sections 11 to 13, unless the registration itself has been cancelled by the CIT/DIT later on as per the conditions laid down in section 12AA (3). Now, whether the various objects as discussed by the ld. DIT are for charitable or for non- charitable purpose is not properly borne out from the order of the Ld. DIT, because, some of them may fall both under charitable as well as non-charitable depending upon the conduct of the assessee-trust and also the material facts on record. If the objects meant for carrying out activities like, computer training centers, Health Care Centers, Personality Development, English speaking classes, tailoring & cooking classes, running of singing classes, dance classes, music classes, etc. are not for the commercial purpose albeit for the welfare and promotion of the needy and poor students for