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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the assessee is directed against the order dated 14.10.2023 of the Ld. Commissioner of Income Tax (Exemption), Pune [“CIT(E)”] whereby he cancelled the registration granted on 24.09.2021 to the assessee u/s 12AB read with section 12A(1)(ac)(i) of the Income Tax Act, 1961 (the “Act”) and rejected the assessee’s application in Form 10AB filed on 15.04.2023 u/s 12A(1)(ac)(v) of the Act.
The assessee has taken the following grounds:-
“1. Change in object clause was in time-As per clause 10 of form 10AC the conditions subject to which registration is granted, sub-clause a states that As & when [here is a move to amend/ alter the objects/rules & regulations of the applicant, prior approval of [he CIT shall be sought along with draft of the amended deed & no such amendment shall be effected until & unless the approval is accorded. The application is to be made within 30 days from date of said modification The Application with charity commissioner (CC) for
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permission to change in object clause was made on 31.03.23 & application for permission from Income Tax department in Form 10AB U/S 12A(1)(ac)(v) was made on 15.04.23. As such by making application in time, the trust has properly complied with the conditions in Act. It's also pertinent to note that even after getting the permission from the CC on 19.04.23, trust till-to-date has not effected any change in its objects, pending permission from the Income Tax Authorities. 2. Earlier 12AB registration received as religious trust: The trust was carrying on religious activity till the time of making of application with charity commissioner dated 31st March 2023. The earlier application for 12AB provisional registration was made stating the nature of activity of the trust as religious activity only and the provisional registration was received against that application vide Unique Registration Number AADTS7194LE20217 dated 24.09.2021. As per the provisions of income tax Act 1961 exemption under section 11 is available from the income from property held for charitable or religious purpose. In view of the above, now there was no reason for the learned CIT to cancel the registration u/s 12AB on the plea that the trust has been carrying out religious activities. 3. Change in object to education: The objects of the trust are changed from religious nature to education as already communicated to the Ld. CIT at the time of hearing for 12AB renewal under section 12A(1)(ac)(v) that the objects of the trust henceforth will be of educational nature. The trust has not yet started the activity pending the approval from CIT. However the fact is not considered by the learned CIT at the time of passing the rejection order. The application is rejected on the plea that the nature of activity of the trust is not genuine. In fact the trust has been carrying out religious activities genuinely and now also the trust wishes to carry out the educational activities genuinely, when permitted by CIT. 4. Genuineness of Activity The dictionary meaning of Genuineness is the quality of truly being what something is said to be; authenticity. As per oxford dictionary is real; exactly what it appears to be; not artificial. A detailed note on the activities of the trust has been submitted in reply to the show cause notice. It has been clearly mentioned therein that earlier activities of the trust were of religious nature and the trust now intends to modify its objects to other charitable activity such as Education, medical etc. The photos of the activities so far carried out by the trust were also attached to the reply submitted to CIT. The photos are for the religious activities. There are no photos for the educational activities since they are not yet taken up pending permission from CIT. It could not be understood whether the verdict of the Id.CIT that activity of the trust is not genuine is based on the existing religious activities of the trust or proposed educational activities (not yet started. 5. Unwarranted Action The trust has applied for permission only for change in object clause of the trust. Instead of considering this application in that context, the learned CIT has commented on the loans taken by the trust from the trustees. In this case, the trustees had brought in their own funds for carrying out the religious activities. It has been ab-initio intention of the trust to bring in these funds permanently on non-returnable basis. In advertently, the same were shown as Loans instead of as Donations. Now, the accounting has been got corrected by the trust by showing these amounts as donations. The application was made seeking permission for change in object of the trust. The Id.CIT has not commented anything about the proposed change. Instead, he has come to a conclusion that the objects are not genuine and straight away cancelled the registration
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u/s 12AB. It is pertinent that the existing as well as the proposed objects of the trust are well within the provisions of 2(15) of the Act. 6. Natural Justice Denied: The show cause notice was received dated 05th October 2023 and response due date 10th October to which the trust has replied within due date where in was stated that the activities during the past three years were of religious nature however now onwards after change of object clause the activity of the trust will be of educational nature. However the Ld. CIT has not taken this fact into consideration and mentioned that the activity of the trust is not charitable hut of religious nature. The trust has submitted the supporting documents photographs etc of the religious activities undertaken during the past years. As on the date of application no educational activity was commenced this fact is not taken into consideration by the authority while rejecting the application. The learned CIT has not given any opportunity of being heard on his plea that the activities of the trust are not genuine.”
The grounds are argumentative but in essence they challenge the decision of the Ld. CIT(E) rejecting the assessee’s application filed before him in Form10AB u/s 12A(1)(ac)(v) of the Act on 15.04.2023.
The facts in brief are that the assessee is a charitable trust which came into existence w.e.f. 22.07.1990 for carrying out religious activity. Under the new provisions of section 12AB, the assessee trust applied for registration on 17.08.2021. Section 12AB registration has been granted to the trust on 24.09.2021 which is valid till Assessment Year (“AY”) 2026- 27. It is this registration of the assessee trust which has been cancelled by the Ld. CIT(E) against which the assessee trust is in appeal and all the grounds relate thereto.
What development took place since grant of registration u/s 12AB on 24.09.2021 is this. In March 2023, the trust decided to change it objects so as to include the activities such as education etc. With a view to comply the mandatory provisions of sub-clause (a) of clause 10 of Form 10AC which makes it a condition precedent to seek prior approval of the Ld. CIT(E) as and when there is a move to amend or alter the objects/rules and regulations of the trust. Pursuant thereto, the assessee filed an application seeking permission for change in object clause with the Income Tax Department in Form 10AB u/s 12A(1)(ac)(v) of the Act on 15.04.2023 within the due date prescribed under the Act. Application seeking permission for change in object clause was also filed with the Charity Commissioner on 31.03.2023.
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The Ld. CIT(E) required the assessee to furnish copy of earlier registration u/s 12AB; date of adoption/modification of objects; copy of trust deed/MoA before adoption/modification of objects; and copy of trust deed/MoA after adoption/modification of objects. On verification thereof, the Ld. CIT(E) issued show cause notice on 05.10.2023 as mentioned in para 5 of his impugned order. The assessee submitted its response on 10.10.2023. The Ld. CIT(E) was not satisfied with the submissions of the assessee. He not only rejected the assessee’s application in Form 10AB u/s 12A(1)(ac)(v) of the Act seeking permission to modify the objects of the trust but also cancelled the registration granted to the trust on 24.09.2021 u/s 12AB of the Act. Aggrieved thereby, the assessee is in appeal before the Tribunal.
It is submitted by the Ld. AR that the Charity Commissioner has granted permission to modification/change in the objects of the trust vide his order dated 19.04.2023. He emphasized that despite receiving the said permission of the Charity Commissioner, the trust has not changed its objects pending permission from the Income Tax Authorities in view of the mandatory requirement of sub-clause (a) of clause 10 of Form 10AC. The Ld. AR pointed out that section 12AB registration has been granted to the trust on 24.09.2021 to carry out religious activities which is valid till AY 2026-27. The assessee trust therefore enjoys exemption u/s 11 of the Act. He strongly refuted the allegation of Ld. CIT(E) that the nature of activity of trust is not genuine and submitted that the trust has been carrying out religious activities genuinely.
7.1 The Ld. AR contended that the trust applied for permission only for change in the object clause of the trust. The Ld. CIT(E) did not consider the assessee’s application in this context. Instead, he commented on the loans taken by the trust from the trustees. The Ld. AR clarified that the trustees had brought in their own funds for carrying out the religious activities. It has been ab-initio intention of the trust to bring in these funds permanently on non-refundable basis. Inadvertently, the same was shown as loans instead of donations. Now, the account has been corrected by the trust by showing these amounts as donations.
7.2 The Ld. AR made it clear that during the past three years the activities of the trust has been of religious nature in support of which
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evidence was placed before the Ld. CIT(E). It is only after the approval of the Ld. CIT(E) regarding the change in the objects of the trust that the nature of the activity of the trust will be of charitable in nature, e.g. education etc. However, no education activity commenced yet pending the approval from Ld. CIT(E).
The Ld. CIT-DR supported the order of Ld. CIT(E). He argued that the assessee trust has not undertaken any charitable activity as per changed objects of the trust as envisaged in the new trust deed and highlighted the basis on which the Ld. CIT(E) took the impugned decision.
We have considered the submission of the parties and perused the records. It is an admitted position that the assessee trust is carrying on religious activities ever since it came into existence in the year 1990. It is also not in dispute that the assessee obtained registration as religious trust under the new provisions of section 12AB on 24.09.2021 which is valid till AY 2026-27. Undoubtedly, Income Tax exemption u/s 11 of the Act is available to the religious or charitable trust and therefore, the assessee trust is entitled to avail exemption from Income Tax u/s 11 till the registration of it as religious trust subsists.
However, the provision for withdrawal of exemption is enshrined in sub-section (4) of section 12AB provided specified violations therein are found. These violations include income having been applied for other than objects of the trust. There is no finding recorded by the Ld. CIT(E) that the expenditure has been incurred on objects other than the religious objects of the trust. Another specified violation relates to trust having any income from non-incidental business. No evidence at all has been brought on record by the Ld. CIT(E) that the trust has carried out any business activity. Yet another specified violation is about application of income which does not enure for the benefit of the public. Not even one instance has been noted by the Ld. CIT(E) in which there is an application of income of the trust for private religious benefit. There is no whisper in the order of the Ld. CIT(E) that there is violation of conditions on the basis of which the registration to the assessee trust was granted. Genuineness of the religious activity carried on by the assessee trust cannot be doubted as it was only after the Ld. CIT(E) was then satisfied about the genuineness of the religious activity of the trust that the registration to the trust was
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granted u/s 12AB of the Act on 24.09.2021. Unless and until any adverse material is brought on record which has not been done, the Ld. CIT(E) is not justified in withdrawing the registration granted to the trust u/s 12AB of the Act. Non-compliance of any other law/furnishing of incomplete or false or incorrect information has also not been noticed by the Ld. CIT(E). The issues raised by the Ld. CIT(E) in para 5 of his order are not at all relevant for the purpose of withdrawal of registration granted to the assessee trust u/s 12AB of the Act which is valid till AY 2026-27. Moreover, it is revealed from the records that the registration already granted to the assessee u/s. 12AB of the Act has been cancelled without following the due process of the principles of natural justice. We are therefore of the view that the cancellation of registration already granted to the assessee trust as a religious trust which subsists till AY 2026-27 is not justified at all. We, therefore vacate this part of the Ld. CIT(E)’s order.
Now, coming to the assessee’s application in Form 10AB u/s 12A(1)(ac)(v) of the Act filed before the Ld. CIT(E) on 15.04.2023, we have already observed earlier that the said application was moved by the assessee pursuant to the mandatory provision of sub-clause (a) of clause 10 of Form 10AC which reads as follows :
“As and when there is a move to amend or alter the objects/rules and regulations of the applicant, prior approval of the Commissioner of Income Tax shall be sought along with the draft of the amended deed and no such amendment shall be effected until and unless the approval is accorded.”
We have perused the paper book filed by the assessee. It would show that copy of new trust deed dated 31.03.2023 was submitted by the assessee which formed part of its reply filed on 12.09.2023 and 10.10.2023 before the Ld. CIT(E). Application for modification (pages 15 to 24 of paper book) to enlarge the objects of the trust was also submitted to the Charity Commissioner u/s 50(A)(1) of Maharashtra Public Trust Act, 1950. The Charity Commissioner has granted permission to the modification/change in the objects of the trust vide his order dated 19.04.2023 copy of which is placed at pages 85 to 90 of the paper book.
The contention of the assessee is that the assessee filed application before the Ld. CIT(E) for change in the object clause as per the new trust deed in compliance to the requisite condition of sub-clause (a) of clause 10
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of Form 10AC within the prescribed time limit of 30 days. Therefore, the application for change in the object clause has been filed in time. It has also been asserted that the assessee trust till date has not effected any change in its objects, pending permission from the Income Tax Authorities. The proposed modified object, namely the educational activities have not yet been taken up. The argument of the Ld. CIT-DR is therefore not relevant. In our view, the aforesaid legal and factual matrix of the assessee’s case has not been considered/appreciated by the Ld. CIT(E) in right perspective.
We, therefore, direct the Ld. CIT(E) to consider the assessee’s application u/s 12A(1)(ac)(v) in Form 10AB seeking approval for change in the objects/rules/regulations of the assessee trust as per the new trust deed and pass order afresh in accordance with law after allowing reasonable opportunity of hearing to the assessee trust. We order accordingly.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 04th June, 2024.
Sd/- Sd/- (R.K. Panda) (Astha Chandra) JUDICIAL MEMBER VICE PRESIDENT पुणे / Pune; दिन ांक / Dated : 04th June, 2024. रदि आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to : अपील र्थी / The Appellant. 1. प्रत्यर्थी / The Respondent. 2. 3. The CIT, Exemption, Pune. 4. The Pr. CIT concerned. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, 5. पुणे / DR, ITAT, “A” Bench, Pune. ग र्ड फ़ इल / Guard File. 6. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER,
िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune