M/S BROADWAY CHRITABLE TRUST,NADIA vs. C.I.T - XXI,KOLKATA, KOLKATA

(i) Application in Form 10A signed by secretary without mentioning any date. (ii) The applicant society has not furnished the original trust deed along with Form 10A. Thus the application for registration u/s 12A was neither filled in properly nor accompanied by the documents as required by Rule 17A of the Rules. (iii) Besides the society has not filed the application within the stipulated time period of one year from the creation of the trust as per provisions of section 12A(1)(a) of the IT Act. For this reason petition for registration u/s 12A cannot be acted upon. The rejection of the assessee’s request for registration u/s 12AA was communicated through this office letter dated 30.8.2012. The 2 M/s. Broadway Charitable Trust. assessee trust filed a petition on 25.9.2012 requesting to review the order and grant registration u/s 12AA of the IT Act. In order to finalise the case on merit, the applicant was given ample opportunity of hearing to substantiate genuineness of its creation and activities. During the course of proceedings, for consideration of its claim of review petition in course of hearing on 8.11.2012 & 7.12.2012 the applicant trust filed various supporting documentary evidences including evidencing creation of trust i.e photo copy of trust deed dated 267.2006 and registered on 2.8.2006, certified copy of minute book (dated 19.2.2006), certified copy of cash book page 1 to 6 (F.Y. 05-06), confirmation of Settlors towards contribution to corpus fund were furnished. On perusal of the said documents, it was observed that as per deed of trust dated 26.7.2006 vide page no. 5 & 6 it has been testified by the settlors, namely (1) Mr Malay Kumar Ray, (2) Mr Subhas Chandra Debnath, (3) Mr Manas Bhattacharya (4) Mr Santanu Das (5) mr Tapash Chaki (6) Mr Pranes Chakraboty & (7) Mr Prahlad Paul that “The Settlors being inter-alia , absolutely seized and possessed of the sum of Rs. 9,00,000/- (Rupees Nine Lacs only) upon AS NUCLEUS OF A STARTING FUND FOR THE SAID Trust.” Thus, as per the deposition of the Settlors the movable property or sum amounting to Rs. 9,00,000/- (nine lacs only) has been settled upon the trsut. Thus, it is inferred that prior to execution of the trust deed, the settlors having contributed equally have handed over the sum of Rs. 9,00,000/- (Rupees Nine lacs only) in cash as initial ‘Trust Fund’ to the trustees. In order to examine the authenticity of the coming into existence of the said trust, relevant supporting documentary evidences evidencing creation of the trust was called for from the authorised representative, during hearing. The said documents were produced during course of proceedings on 7.12.2012, namely Trust Deed, Minute Book, cash book, etc certified copies thereof were also produced and kept on record. From perusal of original cash book, it is found that as against the claim of involving amount of Rs. 9,00,000/- by the settlors/trustees the actual amount available with the settlors was only RS. 62,898/- as on 26.7.2006, as per entries in the cash book. Hence, contrary to the deposition by the settlors in the Trust Deed, the trust fund i.e nucleus of a starting fund” is, sum of Rs. 9,00,000/- was not available with the settlors for deposition of the trustees. Further, as per letter dated 7.12.2012, the trust was not maintaining any bank account, which was only opened on 16.3.2011.

As per the Indian Trusts Act, 1882, a trust may be created for any lawful purpose. The purpose of trust is lawful unless it is (a) forbidden by law, or (b) is of such a nature that, if permitted, it could defeat the provisions of any law, or (c) is fraudulent. Every trust of which purpose is unlawful is void.

As per section 5 of Indian Trusts Act, 1882, no trust in relation to movable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered or unless the ownership of the property is transferred to the trustee. In case of movable property the trust may be declared either (i) by a non-testamentary document

3 M/s. Broadway Charitable Trust. or by will in the case of immovable property , (ii) by mere transfer of ownership of the property without making any declaration, or executing any document or will. Hence, in the case of the applicant trust , the sum of Rs. 9 lakhs comprising the movable property to be settled upon creation of the trust was not available with the settlors on the date of registration of the trust deed i.e on 26.7.2006, as discussed in above paragraph.

Here the essential precondition of creation of trust is not satisfied. Trust was created on false statement. There was no valid trust on the date of application for registration u/s 12AA.

A show cause notice was issued on 13.12.12, asking the applicant to show cause as to why application for registration u/s 12AA should not be rejected in view of that no valid trust was come into existence.

2.1. The assessee explained that the seven settlors were seized and possessed of Rs. 4,33,000/- on the date of execution of the Deed of Trust for settlement as Trust Fund and undertook to contribute further Rs. 4,67,000/- in future from time to time to make final contribution of Rs. 9,00,000/- in total by them as “Corpus of the Trust”. The Learned CIT however finally observed as under:-

On careful consideration of applicant’s submission it is observed that applicant has admitted that the settlors were not in possession of the trust property. i.e sum amounting to Rs 9 lacs and thus the said property was not available with the settlors for devolving upon the trust on the date of its creation / registration. Therefore no valid trust had come into existence on the date of registration of the trust. I am, therefore, of the considered opinion that registration u/s 12AA cannot be granted in this case, as a valid trust did not come into existence. In view of the above discussion, the application for review of registration u/s 12AA is accordingly rejected.

3. Hence assessee is in appeal before us against this rejection order on the following grounds :- “

1. That in the facts, circumstances as well as under the Law, Ld. C.l.T.-XXI, Kolkata, was not justified in treating the 'Application for Registration' of the Trust U/S 12A(1)(a) when it was made u/s 12A(l)(aa) within the time specified.

2. That in the facts, circumstances as well as under the Law, the Ld. C.I.T.-XXI, Kolkata, was not justified in refusing Registration merely pointing out certain rectifiable mistake in the instrument evidencing objects and genuineness of its activities.

4 M/s. Broadway Charitable Trust.

3. That in the facts, circumstances as well as under the Law, the Ld. C.l.T.-XXI, Kolkata, erred in referring to Section (5) and (6) of the Indian Trusts Act, 1882, when there has been no violation as such of the provisions of Section (5) and (6) of the Indian Trusts Act, 1882.

4. That in the facts, circumstances as well as under the law, Ld. C.I.T.-XXI, Kolkata. should have granted 'Registration' u/s 12AA in view of the 'Rectification Deed' executed to the original Deed of Trust removing the apparent mistake therein.

5. That the appellant craves leave to adduce, modify, add, rescind, revise any of the ground(s) in course of proceedings before the Honourable I.T.A.T., Kolkata.”

The assessee had also raised the following additional ground :- “(1A) THAT in the facts, circumstances as well as under the law, the ORDER passed by Ld. CIT - XXI on 30.08.2012, refusing grant of Registration u/s 12AA in violation of statutory period of six months as required u/s 12AA(2), got barred by limitation and the Appellant, in consequence, should be presumed to be granted Registration. [2004]91 ITDI (BANG).”

4. The Learned AR argued that the order granting or refusing registration should have been passed in terms of section 12AA(2) of the Act within 6 months from the end of the month in which application in Form 10A was filed. In the instant case, the order was passed beyond six months refusing the registration. Hence he placed reliance on the decision of the Co-ordinate Bench of Bangalore Tribunal in the case of Karnataka Golf Association vs Director of Income Tax reported in (2004) 91 ITD 1 (Bang. ITAT) in support of his contentions wherein it was held that where the trust files an application for registration, but no order is passed within statutory period, authority cannot deprive assessee benefit of registration. He argued that the registration has been refused only on the ground that the trust had come into existence in view of the fact that the initial corpus fund of Rs 9 lacs was not brought in by the settlors as mentioned in the trust deed. He further argued that the objects stated in the trust deed were examined by the Learned CIT and remand report also sought from the Learned AO and no adverse remarks were made in the order with regard to the same. Hence the objects are charitable in nature are proved beyond doubt. He further pointed out that the settlors / trustees have subsequently brought in more monies into the trust which is much more beyond Rs 9 lakhs for implementing the charitable objects of the trust. Accordingly he prayed for granting of registration u/s 12AA of the Act to the 5 M/s. Broadway Charitable Trust. assessee trust. In response to this, the Learned DR argued that the trust deed itself is incorrect and misplaced in as much as the settlors had not brought their initial corpus fund of Rs 9 lakhs as has been observed by the Learned CIT in his order refusing registration u/s 12AA of the Act and hence he argued that the trust had come into existence at all. He submitted that the documents mentioned in Rule 17A such as original trust deed and accounts for earlier years were not submitted by the assessee before the Learned CIT. With regard to the additional ground , he placed reliance on proviso to Rule 11AA(6) of the IT Rules.

5. We have heard the rival submissions and perused the materials available on record. We find that the Learned AR had pointed out that the trust is running an educational institution in the name of Broadway Accent Junior High School, duly recognized and approved by Govt. of West Bengal Secondary Education Board, vide their reference no. S/RCC09/2011/83. The running of school in the name of the assessee trust is not disputed by the revenue. We find that the Learned CIT had not disputed the objects of the trust as charitable in nature. We find that he had only pointed out certain defects in the trust deed which are curable in nature and which would not disturb the root of the existence of the trust per se. We find that the assessee had replied before the Learned CIT that a sum of Rs. 4,33,000/- were seized and possessed with the settlors being the initial corpus fund of the trust and had undertook to invest the balance promised amount of Rs. 4,67,000/- in future to the trust. We find that the Learned CIT had called for a report from the Learned AO to satisfy himself as to the genuineness of the activities of the Trust as well as its objects in terms of section 12AA(1)(a) of the Act. It was argued that admittedly no adverse remarks were sent by the Learned AO in this regard. However, the Learned CIT had proceeded initially to reject the application on the ground that the same was not made within one year from the date of creation of the trust and there is no power to condone the delay provided in the statute. In this regard, we find that in case the applicant had preferred an application on or after 1.6.2007, the Learned CIT, if satisfied with the charitable objects of the trust and genuineness of the activities of the trust, is duty bound to grant registration from the date of application of the trust. He cannot simply reject the 6 M/s. Broadway Charitable Trust. application just because it is filed beyond one year period. We also find that this order refusing registration on flimsy ground was passed beyond the period of six months from the end of the month in which application was filed by the assessee which is in gross violation of section 12AA(2) of the Act.

5.1. We find that in the second round of rectification proceedings, the Learned CIT ultimately had again rejected the registration u/s 12AA of the Act to the assessee on the ground that the initial corpus fund has not been brought in by the settlors / trustees as stated in the trust deed and accordingly held that the trust had not come into existence. We find that the settlors had pumped in Rs. 4,33,000/- as initial corpus fund which is not in dispute and had also undertook to bring in the balance sum of Rs. 4,67,000/- as per the trust deed in future. In our opinion, just because the part of the initial corpus fund has not been brought in by the settlors, it cannot be said that the trust has not come into existence. More so, the same need not be examined at the time of granting registration u/s 12AA of the Act. In this regard, we draw support from the decision of the Co-ordinate Bench of Delhi Tribunal in the case of Acharya Sewa Nivas Uttaranchal vs CIT reported in (2007) 13 SOT 54 (Delhi) (URO), wherein it was held that :- “Under section 12AA the jurisdiction of the Commissioner is confined to satisfying himself about the objects of the trust and the genuineness of the activities and for this purpose, he is authorized to make such enquiries as he may deem fit. The Commissioner, in the instant case, had not taken any objection to the charitable nature of the trust. In fact, the objects of the trust as declared in the trust deed, were all charitable objects and there was no finding recorded by the Commissioner to the contrary. The real objection of the Commissioner appeared to be that the initial contribution of Rs. 500 made by the founder of the trust and dedicated to the objects of the trust was hardly sufficient to carry out the charitable activities of the trust. The sufficiency or otherwise of the initial contribution made by the founder to the trust fund is not a relevant factor while dealing with an application for registration under section 12AA. The section in terms did not make it a consideration for the grant of registration. Further, there was a board of trustees constituted by the trust deed and the board had been authorized to collect contributions from schools and society to meet the objects of the trust and had been directed to deposit the contributions into the corpus fund. The corpus fund was to be invested in the prescribed modes and the trust deed authorised the trustees to utilize the earnings from the corpus fund towards meeting the objects of the trust. In special cases, the trustees had been authorized 10 utilize the corpus fund also for such purposes. The trustees had collected a sum of Rs. 5,71,927 towards contribution to the trust which had been deposited with the bank. The statement of account issued by the bank, which was placed before the Commissioner showed this 7 M/s. Broadway Charitable Trust. figure. Therefore, there were sufficient funds available with the trust, from which the charitable activities could be carried out. The Commissioner was not justified in refusing 10 grant registration to the assessee- trust. The reasons given by him for such refusal were extraneous to section 12AA. The Commissioner had not doubted the genuineness of the activities of the trust. For the above reasons, the registration was to be allowed to the assessee and the order passed by the Commissioner under section 12AA was to be set aside.”

5.2. We find that the Learned CIT had also observed that the assessee had violated the provisions of section 5 and 6 of Indian Trusts Act, 1882. For the sake of convenience, the relevant provision is reproduced hereinbelow:-

Section 5 of Indian Trusts Act, 1882 Trust of immovable property – No trust in relation to immovable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee. Trust of movable property –No trust relating to movable property is valid unless declared as aforesaid, or unless the ownership of the property is transferred to the trustee. These rules do not apply where they would operate so as to effectuate a fraud.

Section 6 of Indian Trusts Act, 1882 Creation of trust.

8 M/s. Broadway Charitable Trust. objects. Moreover, there is no allegation that the monies so brought in have been diverted to the personal benefit of the settlors. The monies so brought in remained in the coffers of the trust to be deployed for the charitable objects of the trust.

5.3. It is true that Rule 17A provides that assessee has to furnish the previous years accounts when application in Form 10A is filed. In our opinion, this requirement in Rule 17A asking for previous year accounts was relevant when the legislature had provided for condonation of delay in filing the application in Form 10A and granting registration with retrospective effect. Now the requirement of accounts had practically become redundant as the registration is granted only with effect from the date on which application is made after 1.6.2007. Hence viewing from this perspective, the assessee trust not bringing in the part of the promised initial corpus fund would not vitiate the status of the trust coming into existence much less seeking registration under the Income Tax Act. We hold that what is relevant at the time of granting registration u/s 12AA of the Act is that the Learned CIT should examine whether the objects of the trust as enumerated in the trust deed are charitable in nature and activities of the trust are genuine. It is well settled that the assessee trust cannot be forced to have carried out the objects as per the trust deed before seeking registration u/s 12AA of the Act. While this is so, both the receipts of the trust as well as the application of the funds of the trust would become irrelevant for examination at the time of granting registration. However, the same would be very much relevant at the time of assessment proceedings wherein the eligibility of claim of exemption u/s 11 of the Act could be examined in detail. We find that the Hon’ble Kerala High Court in its recent decision had an occasion to consider the powers of the Learned CIT vis a vis the behaviour of the trustees at the stage of granting registration u/s 12AA of the Act, in the case of Sree Anjaneya Medical Trust vs CIT reported in (2016) 382 ITR 399 (Ker) dated 11.2.2016, wherein it was held that :

It is clear from a plain reading of sections 12A and 12AA of the Act that what is intended thereby is only a registration simplicitor of the entity of a trust. This has been made a condition precedent for claiming the benefits of exemption. No examination of the modus of the application of the funds of the 9 M/s. Broadway Charitable Trust. assessee or an examination of the ethical background of its settlors is called for , while considering an application for registration. The stage for consideration of the relevance of the object of the assessee and the application of its funds arises at the time of the assessment. Where benefits are claimed by assesses in terms of sections 11 and 12 of the Act, the question as to the nature of such contribution and income can be looked into. At the time of registration of the assessee what is to be looked into is whether the assessee is a genuine one or whether it is a sham institution floated only to avail of the benefits of exemption under the Act.

Similarly we find that carrying on of charitable activities of the trust in accordance with the objects is not be treated as a condition precedent for the purpose of seeking registration u/s 12AA of the Act. We draw support from the following cases in this regard:-

(a) Hon’ble Delhi High Court in the case of DIT vs Foundation of Ophthalmic and Optometry Research Education Centre reported in (2013) 355 ITR 361 (Del) (b) Hon’ble Karnataka High Court in the case of DIT (Exemptions) vs Meenakshi Amma Endowment Trust reported in (2013) 354 ITR 219 (Kar) (c ) Hon’ble Madras High Court in the case of DIT (Exemptions) vs Seervi Samaj Tambaram Trust reported in (2014) 362 ITR 199 (Mad)

We are convinced on perusal of the trust deed that the objects enumerated therein are genuine and charitable in nature.

5.4. We find that the reliance placed by the Learned DR on proviso to Rule 11AA(6) of the IT Rules is not well founded . For the sake of convenience, the said provisions are reproduced hereunder:-

Rule 11AA-Requirements for approval of an institution or fund under section 80G (6) The time limit within which the Commissioner shall pass an order either granting the approval or rejecting the application shall not exceed six months from the end of the month in which such application was made:

10 M/s. Broadway Charitable Trust. Provided that in computing the period of six months, any time taken by the applicant in not complying with the directions of the Commissioner under sub-rule (3) shall be excluded.

In the instant case, the original order refusing registration on flimsy grounds was passed without granting opportunity of being heard to the assessee. Admittedly the details called for by the Learned CIT were submitted in the month of march 2012 itself and order refusing registration at the first instance was passed on 30.8.2012 which is beyond six months from the end of the month in which application was filed. Moreover, we find that the provision relied upon by Learned DR is relevant for granting approval under section 80G of the Act and not for granting registration u/s 12AA of the Act.

5.5. We find that the Learned AR had raised an additional ground stating that the order refusing registration u/s 12AA of the Act has been passed by the Learned CIT beyond the stipulated period of 6 months as per section 12AA(2) of the Act. We find that this additional ground deserves to be admitted as it goes to the root of the matter and does not require any fresh verification of facts. In this regard, the following sequence of events would explain the case better:-

31.1.2012 - Date of Form 10 A before the Learned CIT 31.7.2012 – Last date for passing order as per section 12AA(2) of the Act 30.8.2012 – First order of Learned CIT refusing registration on the ground that No provision is laid out for condoning the delay in preferring the Application in Form 10A. 24.9.2012 - Submissions of the assessee bringing to the notice of the Learned CIT that the order is passed beyond six months violating the Provisions of section 12AA(2) of the Act thereby automatically Entitled for registration u/s 12AA of the Act and also requesting Learned CIT to rectify his old order.

26.12.2012 – Reply by the assessee to the show cause notice of Learned CIT 30.1.2013 - Impugned Order of the Learned CIT refusing registration u/s 12AA We find that the assessee had not preferred any fresh application in statutory Form No. 10A while requesting the Learned CIT to rectify his old order. Instead it had only made a written request. The delay in passing the original order on 30.8.2012 which is beyond six months was also brought to the notice of the Learned CIT by the assessee which has not been taken into cognizance by the Learned CIT even in the second round of proceedings. We find that the Central Board of Direct Taxes had issued Instruction No. 16/2015 dated 6.11.2015 specifically addressing the impugned issue under dispute which is reproduced hereinbelow :- Instruction No.16/2015 F.No.197/38/2015-ITA.1 Government of India Ministry of Finance, Department of Revenue (Central Board of Direct Taxes) (ITA-1 Division) North Block, ITA.I Division Dated, the 6th November, 2015 To All the Principal Chief Commissioners of Income-tax All the Chief Commissioners Income-tax Chief Commissioner of Income-tax (Exemptions) All Directors General of Income-tax Sub : Following the prescribed Time limit in passing order u/s 12AA of the Income- tax Act, 1961 Sub-section(2) of Section 12AA of the Income-tax Act, 1961 prescribes that every order granting or refusing registration under clause(b) of sub-section (1) of that Section shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) or clause (aa) of the sub-section (1) thereof. Thus while processing the application u/s 12AA of the Act, the time limit of six months has to be adhered to by the Commissioner of Income Tax (Exemptions). However, it has been brought to the notice of the Board that the said time limit has not been observed in some cases.

12 M/s. Broadway Charitable Trust. 2. The undersigned is directed to convey that the aforesaid time limit of six months is to be strictly followed by the Commissioner of Income tax (Exemptions) while passing order u/s 12AA. The CCIT (Exemptions) may monitor the adherence of prescribed time limit and initiate suitable administrative action in case any laxity in adhering to the same is noticed.”

We also find that the Hon’ble Supreme Court in the case of CIT vs Society for the Promotion of Education , Allahabad in Civil Appeal No. 1478 of 2016 dated 16.2.2016 had categorically held as below:-

We find that the aforesaid judgement had emanated out of the order passed by the Hon’ble Allahabad High Court reported in (2008) 171 Taxman 113 (Allahabad) wherein it was held that : “Admittedly, after the statutory limitation, the Commissioner would become functus officio, and he could not thereafter pass any order either allowing or rejecting the registration. It is obvious that the application cannot be allowed to be treated as perpetually undecided. Therefore, the key question arises whether upon lapse of the six months period without any decision, the application for registration should be treated as rejected or it should be treated as allowed. [Para 6] Taking the view that non-consideration of the registration application within the time fixed by section 12AA (2) would result in deemed registration, may, at the worst, cause loss of some revenue or income-tax payable by that individual assessee. This would be similar to a situation where the assessing authority fails to make the assessment or reassessment within the limitation prescribed for the same. That also leads occasionally to loss of revenue from that individual assessee. [Para 10]

13 M/s. Broadway Charitable Trust. On the other hand, taking the contrary view and holding that not taking a decision within the time fixed by section 12AA(2) was of no consequence would leave the assessee totally at the mercy of the income-tax authorities, inasmuch as the assessee had not been provided with any remedy under the Act against non-decision. [Para 11] Besides, the said view would not create any irreversible situation, because under section 12AA(3), the registration can always be cancelled by the Commissioner, if he is satisfied that the objects of such trust or institution are not genuine or the activities are not being carried out in accordance with the objects of the trust or institution. The only drawback is that such cancellation would operate only prospectively. Therefore, if a view is taken that non-consideration of the registration application within the time fixed by section 12AA(2) would amount to deemed grant of registration, the only adverse consequence likely to flow from such a view, in respect of any case of that assessee arising in future would, at best, be some loss of revenue from that individual assessee from the date of expiry of the limitation under section 12AA(3) till the date of cancellation of that registration, if such cancellation is called for. [Para 12] For the interpretation of a statute, purposive construction' of the enactment, which gives effect to the legislative purpose/intendment, if necessary, must be followed and applied. [Para 13] Considering the pros and cons of the two views, by far the better interpretation would be to hold that the effect of non-consideration of the application for registration within the time fixed by section 12AA (2) would be deemed grant of registration. There is no good reason to make the assessee suffer merely because the Income-tax Department is not able to keep its officers under check and control, so as to take timely decisions in such simple matters, such as consideration of applications for registration even 'within the large six months period provided by section 12AA(2). ,[Para 18] Therefore, the writ petition was to be allowed. [Para 20].”

5.6. In view of the aforesaid findings and judicial precedents relied upon hereinabove, to sum up, we hold that :- (a) Sufficiency or some irregularities in bringing the initial corpus fund would not automatically make the trust as not to have come into existence ; (b) The charitable objects of the trust are not disputed by the Learned CIT ; (c) What is to be seen at the time of granting registration by the Learned CIT is only whether the objects of the trust are charitable and activities carried out are genuine in nature , which conditions have been duly satisfied by the assessee in the instant case ; (d) In any case, the order passed by the Learned CIT refusing registration u/s 12AA of the Act is beyond the stipulated period of six months as per section 12AA(2) of the Act and hence the assessee cannot be denied the benefit of registration u/s 12AA of the Act .

Order pronounced in the court on 29.4.2016.