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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’: NEW DELHI
Before: SH. C.M. GARG & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: The present appeal by the assessee is directed against the order dated 27th September, 2013 of the Commissioner of Income Tax, Hisar, passed under section 12AA of the Income Tax Act, 1961, raising following grounds of appeal: i. In the facts and circumstances of the case the learned Commissioner of Income Tax has erred in law & facts in refusing to grant registration u/s 12AA of the IT Act for the reasons given in para 6.1 of the order. ii. The appellant craves leave to add amend or rescind any ground arising out of the order 2.1 The facts in brief are that the assessee Trust applied for registration of the assessee before the learned Commissioner of Income Tax, on 21.03.2013. While examining the object as well as the genuineness of the activity of the assessee
2. Trust, the learned Commissioner of Income Tax observed from the Trust deed dated 18.10.2012 that the Trust was created for public charitable purposes in consequence to a resolution passed by the Board of Directors of M/s Grasim Bhiwani Textiles Ltd. (hereinafter called, “the company”) on 21.07.2012, and employees of the company were made trustees of the Trust. 2.2 The learned Commissioner of Income Tax further observed in respect of objects of the trust as under: (i) that the clause 4(b)(v) of the deed contained rendering of services to the person of high order, however, the Trust could not clarify meaning of the term ‘persons of high order’. (ii) that sub-clause (j) and (k) of clause 5 of the Trust deed contained objects related to the welfare of the employees of the company and welfare of the families and their wives through part time tailoring classes, vocational training centers etc. 2.3 The Commissioner of Income Tax also observed certain clauses in the trust deed indicating direct and indirect control of the company or the affairs of the trust as under: i. Clause 13 of the deed contained that the office of a Trustee would be vacated if any Trustee ceased to be an employee of the company. ii. Clause 15 of the deed provided that company should nominate one of the trustees as “managing trustee”, who should preside over the meetings of the trustees. iii. Sub clause (f) of clause 23 provided that before taking any major decision, the trustees should take approval from the Board of Directors of the company, wherever required.
3 2.4 The learned Commissioner of Income Tax also observed that the winding up of clause of the deed contain Clauses 36 and 37, which provided transfer of the amount realized on winding up of the Trust, after payment to the company.
On demonstrating the above discrepancies in the trust deed by the learned Commissioner of Income Tax, the assessee Trust amended the original Trust deed by executing a supplementary Trust deed on 23.07.2013, which was registered with the Joint Registrar of Registration of properties. Through the supplementary deed, the assessee deleted the sub clause (j) and (k) of clause 5 i.e. object clause and amended the clause related to retirement of the trustees and clause related to winding up of the trust. In the supplementary deed, a new clause authorizing amendment of clauses of the trust deed to the trustees was inserted. The learned Commissioner of Income Tax was of the view that there was no amendment clause in the original deed and therefore the supplementary trust deed executed amending the original deed was in violation of the terms of original trust deed. In this respect, the assessee submitted that the amendment in the deed was carried out in compliance to the original resolution of the company authorizing two directors/two officers/one director and one officer of the company for carrying out amendment in trust deed. Further, the Commissioner of Income Tax was of the view that the Registering Authority was not having any authority in respect of allowing amendment to the trust deed. The assessee in this respect placed his reliance on the judgment of the Hon’ble High Court of Rajasthan in the case of Laxminarain Lath Trust Vs. Commissioner of Income 4 Tax, (1988) 170 ITR 375, and claimed that it was permissible for the settler to clarify his intention in creating the trust under the settlement deed by executing the supplementary deed and the route of amendment of original deed via court was not required. The Commissioner of Income Tax, however, distinguished the facts of the said case and observed that there was no mistake in the original trust deed and the amendments have been incorporated after demonstrating the discrepancies by him. He further observed that despite the amendments, certain clauses which existed in the original deed, which indicated control of the company over the trusts, for example, sub clause (f) of clause 23 of the deed i.e. the Trust would be required to take prior permissions of the Board of Directors of the company before taking any major decisions, and clause 15 of the deed i.e., it was the discretion of the company to decide who shall preside over the meetings of the trustees. The learned Commissioner of Income Tax concluded that the constitution of the trust could not be amended by a supplementary deed registered with the Sub-Registrar in the garb of rectification of mistake and trust was always irrevocable by its inherent nature and the amendment routed without the permission of the court was not having any legal sanctity. Regarding genuineness of the activities, the learned Commissioner of Income-tax observed that scale of activities was small. In response, the assessee explained that with initial funds of Rs. 1.00 lakh, within a period of 5 months , the assessee carried out various activities of charitable nature like distribution of blankets, organizing diabetic camps, development of public parks, help in marriage of 5 poor family girls etc. The learned Commissioner observed that blanket and mementos were claimed as distributed in same function, however, bill of Mementos was of a date subsequent to the function. The assessee explained that bill was obtained from the supplier on subsequent date therefore the mistake happened. The learned Commissioner of Income Tax also observed irregularities in maintaining minutes of meeting by the trustee and demonstrated that even the minutes of meeting of the trustee were engineered by the finance department of the company indicating the control over the affairs of the trust in practice. The learned Commissioner of Income Tax also noted casual approach of the trustees in recording minutes of meeting. In concluding para of the order, the learned Commissioner of Income Tax refused to grant registration under Section 12AA of the Act with the following findings : “6.1 Keeping in view all the facts and circumstances of the case, I have come to the following conclusions are inevitable: The amendment carried out by way of 1st supplementary deed (dated i. 23.07.2012) is not for rectification of any ‘mistake’ but (it is) a regular amendment which not being via court route, is illegal and unacceptable. ii. Certain provisions of the trust deed are not clear. iii. There are certain clauses in the trust deed which ensure control of the company over the activities of the trust and service the interest of the settler company. iv. In practice also, the trustees being employees of the company, look forward towards ‘corporate office’ of the company/Business Group and do not carry out activities of the trust, independently. v. The activities of the trust are very little and (the activities of the trust) do not instill any confidence. 6.2 In view of the above, I am satisfied that it is not a fit case for granting registration u/s 12AA of the Income Tax Act, 1961. Accordingly, the request of the trust for registration is refused.”
Aggrieved, the assessee is before us.
At the time of hearing, the learned Authorized Representative of the assessee referring to page no. 5 of the paper book of the assessee, drawn our attention to the objects of the trust. He further submitted that the learned Commissioner of Income Tax had neither given any finding that the objects of the trust were not in the nature of non-charitable nor the activities were of ingenuine nature and after the amendments in the trust deed, the trust satisfied all the conditions for registration under Section 12AA of the Act. The learned Authorized Representative further relied on the judgment of the Hon’ble Rajasthan High Court in the case of Laxminarain Lath v/s CIT (Supra) and the Hon’ble Punjab & Haryana High Court reported in 366 ITR 378 and also relied on the decision of ITAT, Jodhpur Bench in the case of Sh. Agarwal Panchayat Vs. Income Tax Officer, (2015) 173 TTJ (Jd) (UO) 61. 5. On the other hand, the learned Commissioner of Income Tax (Departmental Representative) submitted that the assessee entity was not a trust in practice but it was subsidiary or supporting entity to the company to execute the task which the company was otherwise not allowed. She further submitted that in spite of the amendment to the trust deed the company was in position to control directly or indirectly the affairs of the trust, ultimately to achieve profit motive of the company. She further submitted that the trust deed appears to be a 7 contract between the trust and company to execute the welfare activity for employees and their families. 6.1 We have heard the rival submissions and perused the material on record. The section 12AA of the Act mandates the Commissioner of Income-tax or Director to satisfy himself before grant of registration about the objects of the trust whether the same are charitable in nature and the genuineness of its activities. The clauses related to welfare activities of employees in the original trust were already amended by the assessee though supplementary deed and the other objects mentioned in the trust deed are charitable in nature. The learned Commissioner of Income-tax has not given the finding that post amendment of trust deed, the objects of the trust are not charitable in nature. The learned Commissioner of Income-tax has not specifically brought on record that the activities of the trust are not genuine except minor discrepancies of records maintenance. We have observed that the ld. Commissioner of Income-tax has refused registration only in view of five conclusions drawn in para 6.1 of his order. The first conclusion is that amendment carried out through supplementary deed was illegal and unacceptable. The ld. AR on the other hand drew our attention to the judgment of Hon’ble Rajasthan High Court in the case of Laxminarain Lath Trust (Supra). Facts of the case as mentioned in head notes are as under: “L created a trust by a deed in August, 1948. The objects of the trust were mainly of a charitable nature, but sub-clause (vi) of clause 2 of the trust deed enabled the trustees to render aid to any persons belonging to the family of L. In May, 1958, L executed a 8 supplementary deed whereunder the words “belonging to the family of Laths”in sections 2(vi) were deleted and in their place the words “in distress”were inserted. The Tribunal held that the amendments made by the supplementary deed were not valid and the income of the trust was not exempt.”
6.2 The Hon’ble High Court in above case observed that it was permissible for the settler to clarify his intention in creating the trust under the original settlement deed by executing the supplementary deed. The Hon’ble Court further held that the Income Tax authorities could ignore the supplementary deed if it was not found to be genuine and found to be fictitious or shame. The Hon’ble High Court further referring the judgment of Hon’ble Calcutta High Court said as under : “In D.K. Sain v. Nandarani Dassi [1969] 73 CWN 877, the settler, Madhoo Soodon Sain, had created a trust for the benefit of himself and his son, Motilal Sain, his daughter-in-law, Nandarani, their sons and daughters as also grandsons and grand-daughters. Subsequently, by a deed of rectification, the settler, Madhoo Soodon Sain, made an alteration in the original trust deed and the question was whether it was permissible for the settler to make the said rectification, as stated in the deed of rectification, was that the trust deed did not represent the true intention of the settler and that certain words had crept in which were contrary to his intention. A learned judge of the Calcutta High Court upheld the said deed of rectification executed by the settler on the view that the original trust deed was not in consonance with the true intention of the settler and a mistake had been committed in the drafting of the original trust deed. The ld. Judge also held that the said mistake oculd be rectified by taking appropriate proceedings for rectification of the trust deed in the court and the court in those proccedings would have rectified the said mistake. The learned judge observed that what enables the court to rectify the mistake, enables the settler so to do. The learned judge also observed that the mere fact that the trust deed conveys by way of settlement the trust property irrevocably, does not mean that the deed cannot be reformed, and that the irrevocability can be no bar to the deed’s rectification.”
6.3 Further the Hon’ble Court, citing the doctrine of cy pres held as under : “In respect of charities, courts apply the doctrine of cy pres which envisages that where a clear charitable intention is expressed, it will not be permitted to fail because the mode, if specified, cannot be executed and the law will substitute another mode of cy pres, i.e., as nearly as possible to the mode specified by the donor. The said doctrine is applied on the principle that the court would lean in favour of charity and where a general charitable goal is projected and particular objects and modes are indicated, the court, acting to fulfil the broader benevolence of the donor and to avert the frustration for the good to the community, reconstructs, as nearly as may be, the charitable intent and makes viable what otherwise may die (See state of Uttar Pradesh v. Bansi Dhar, AIR 1974 SC 1084). In the present case, the settler was alive and he had indicated what his intention was in creating the trust by executing the supplementary deed. In our opinion, it was permissible for the settler to clarify his intention in creating the trust under the original settlement deed by executing the supplementary deed and it cannot be said that the supplementary deed dated May 21, 1958, executed by the settler must be ignored.”
6.4 In the case in hand also the amendment has been carried out under the authority granted by the settler company and it was registered with Registration Authorities rather than court. The supplementary deed was otherwise not found to be fictitious or shame by the learned Commissioner of Income-tax in case in hand. We find that in view of clear judgment of the Hon’ble High Court of Rajasthan in the case of Laxminarayan Lath Trust (Supra), the amendment carried out in the trust deed through supplementary deed without approval of Court was a valid one and there was no illegality in the same. 6.5 The second conclusion of the ld. Commissioner of Income-tax that certain provisions of the trust deed were not clear. We are of the opinion that non- 10 clarity of one or two words in the deed can’t be a ground for refusing the registration if otherwise the trust fulfills the conditions for registration. 6.6 The third conclusion drawn by the ld. Commissioner of Income-tax that certain clauses of trust deed envisage control of the company over the activities of the trust and serve the interest of the settler company. It is seen that, sometimes settler wants to have some sort of control over the affairs of the trust so as to ensure that Trust work in the direction of its objects and for this purpose , the settler also become one of the trustee of the trust and exercise control over the affairs of the trust. In the case in hand, the settler has not become trustee. Further, the learned Commissioner of Income-tax has not brought on record how the trust has served the interest of the company. If it was so , before refusing the registration, he was required to clearly record such activities in his order. Further, the Commissioner of Income tax has power to cancel the registration. If at any time, he finds that due to abuse of control by the settler , any activity of the assessee falls in the nature of not genuine activity, the ld Commissioner may cancel the registration invoking section 12AA(3) of the Act even subsequent to granting the registration. Further, we are of view that doubt raised by the ld. Commissioner of Income-tax that the trust would serve the interest of the settler company, is without any evidences and based only on the presumptions and possibilities. The object clauses containing welfare of the employees had already been removed through supplementary deed and now there was not any object which was in violation of charitable object as defined in section 2(15) of the Act.
11 6.7 In Fourth conclusion also the ld. Commissioner of Income-tax has expressed general notion that trustees being employees of the company look forward toward corporate office and do not carry out activities of the trust independently. We find nothing wrong in taking certain assistance of ministerial or clerical level for carrying out meeting etc. from the office of settler. The ld. Commissioner was required to examine whether taking any assistance rendered the activities of the trust not genuine. He has not given any finding in this respect. Further, the last conclusion drawn by the ld. Commissioner of Income- tax is that the activities of the trust were very little and did not instill any confidence. It was the first year of the activity of the trust and the trust had started the activities in the nature of relief to poor like distribution of blanket etc. The activities were not started as large scale as there were no funds in the trust. As regards to the activity, the ld. Commissioner has not concluded that same were not genuine, might be at small scale. The discrepancies observed by the ld. Commissioner in recording bills or minutes of meeting are not material in sense when we look the activities which were carried out were charitable in nature. The learned Commissioner of Income-tax (Departmental Representative) has made allegations that the trust was acting as subsidiary of the company. We find that all the allegations are devoid of evidences as far as the charitable activities carried out by the trust are concerned. We are of considered opinion that under section 12AA of the Act, the jurisdiction of the Commissioner of Income-tax is confined to satisfying himself about the objects of the trust and the genuineness 12 of the activities and for this purpose and he is authorized to make such enquiries as he may deem fit. In the case in hand, the Commissioner has not taken any objection to the charitable nature of the trust. In fact, the objects of the trust as declared in the trust deed are all charitable objects and there is no finding recorded by the Commissioner to the contrary. The reasons given by the learned Commissioner of Income-tax are based on possibilities of misuse of control by the settler company and therefore reasons for refusal are extraneous to section 12AA of the Act. For the above reasons, the order passed by the learned Commissioner of Income-tax under section 12AA is set aside and we direct the Commissioner of Income-tax to allow the registration to the Trust.
In the result, the appeal filed by the assessee is allowed. The decision is pronounced in the open court on 16th December, 2015.