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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI SANDEEP GOSAIN
O R D E R PER SANDEEP GOSAIN, JM: The present appeal has been filed by the assessee against the order dated 30.05.2013 passed by the DIT(E), Mumbai thereby the application for registration u/s 12AA of the Act was rejected.
When as per section 14 of Society Registration Act, 1860, society cannot distribute assets to trustees or members on dissolution of trust once society is registered under the society registration act, 1860. When the assessee trust is registered under society registration act, 1860 in such case Whether DIT (E) is correct in law and in fact in holding that there is remote possibility that trustees will distribute assets on dissolution of trust to the members of the trust if there is no expressed ban in trust deed? 2. Whether learned Director of Income Tax (Exemption) is correct in holding that as the assessee trust deed does not specifically provides for non-distribution of assets among members, assessee trust has violated the provisions of section 12A/12AA? 3. The learned Director of Income Tax (Exemption) has erred in fact and in law in not following recent judgment of Sitaram Kutir Charitable trust vs. CIT charitable trust (appeal no. Ahmadabad Tribunal in which it was held that not specifically mention of dissolution clause in trust deed of society registered under society registration act, 1890 would not make trust to dis-entitle for registration u/s 12AA of Income tax act. 4. The Appellant craves the leave to add, amend, alter and for delete any of the above grounds of appeal
on or before the time of hearing.
2. During the pendency of the appeal, the assessee moved an application for seeking permission to file the revised grounds of appeal and mentioned that the original ground of appeal are lengthy and argumentative, therefore, the assessee/appellant sought permission to file revised grounds of appeal. Hence, considering the request of the assessee, the revised grounds of appeal were allowed to be filed and accordingly now in the revised grounds of appeal are as under:
Denial of Registration u/s 12AA 1. The Learned Director of Income Tax (Exemption) erred in rejecting application for grant of approval of registration u/s 12AA of the Act on the ground that dissolution clause if not properly mentioned in Memorandum of Association and Article of Association of the appellant trust.
The learned Director of Income Tax (Exemption) erred in rejecting application for grant of approval of registration u/s 12AA of the Act on the ground that appellant trust is not able to explain the distribution of assets on dissolution of trust. The Appellant craves the leave to add, amend, alter and / or delete any of the above grounds of appeal
3. Brief facts of the case are that the assessee’s institution has filed an application for registration u/s. 12A of the Income Tax Act, 1961 in the prescribed Form No. 10A on 09.11.2012. The institution has been constituted by a Memorandum of Association dated 18.05.2010. It was registered with the Asstt. Registrar of Societies, Mumbai on 26.11.2010 and the Charity Commissioner, Mumbai on 03.11.2012. ‘JITO’ here refers to Jain International Trade Organization, a company registered u/s.25 of the Companies Act, 1956 on 20.03.2007 in the State of Maharashtra. A notice was served upon the assessee requiring it to furnish the certain details/documents, and after considering the case, the DIT(E) rejected the application filed by the assessee-trust for registration u/s 12AA of the Act without expressing any opinion about the charitable nature and the objects of the applicant institution or the genuineness of its activities.
4. Aggrieved by the order of DIT(E) dated 30.05.2013 the assessee filed the appeal before us on the grounds reproduced hereinabove.
5. Along with grounds of appeal, the assessee also filed Paper Book thereby filing certain documents which as under: i. Societies Registration Act, 1860. ii. Certificate of registration of Mumbai Charity Commissioner iii. Certificate of registration of Society Registration Act, 1860. iv. Memorandum of Association JITO Mumbai Goregaon Chapter.
In addition, another Paper Book was also filed thereby filing the additional evidence which are as under: i. 12AA certificate and Memorandum of Association, Jain International Trade Organizations. ii. 12AA certificate and Memorandum of Association, JITO Mumbai Queen’s Chapter. iii. 12Aa certificate and Memorandum of Association JITO-Mumbai Juhu Chapter. iv. 12AA certificate and Memorandum of Association of JITO Mumbai, Walkeshwar Chapter. 6. On the last date of hearing i.e. 24.08.2015 nobody from the side of assessee appeared and it was observed in the order dated 24.08.2015 of the Tribunal that on 29.07.2015, this appeal was adjourned at the request of the assessee. The last opportunity was granted to the assessee for arguments on the appeal but even then on 24.08.2015 nobody appeared, therefore, the matter was again adjourned to 05.10.2015, however, it is noticed that after rising of the court on 24.08.2015 the representative of the assessee appeared and put his signatures on the order-sheet and noted down the next date of hearing i.e. on 05.10.2015. Again on 05.10.2015 when the case was called out, none appeared on behalf of the assessee, this shows that the assessee is not interested to pursue his appeal and therefore, the conduct of the assessee is deprecated. However, considering the interest of justice, we have decided to decide the appeal on merits.
We have carefully considered the orders passed by DIT(E), the operative portion of the said order is mentioned as under:
“3. In order to be eligible for registration, the basic requirement is that the applicant has to be a validly constituted public charitable institution. It is seen from perusal of the Rules & Regulations of the applicant that it does not have a proper "dissolution clause" to the effect that if for some reason its objects cannot be carried out by the trustees who decide to dissolve the applicant institution then as per the provisions of the Societies Registration Act, 1860 AND THE Bombay Public Trusts Act, 1950 its net assets will be given to another institution having similar objects and under no circumstances, these will be distributed among the trustees. Clause 31 of the Rules & Regulations of the applicant dealing with 'dissolution' provides that ".... Upon dissolution of this Chapter after satisfaction of all its dues and liabilities, the remaining assets / funds of this Chapter shall be given/distributed or transferred completely to JITO Main chapter or to other Chapters or Institutions as directed by the Main Chapter of JITO". In this connection, it is stated by the applicant vide letter dated 13.03.2013 that "if dissolution clause is not provided in the Trust Deed, then dissolution of trust procedure shall be governed ·by Public Trust Act. Hence, it can be deemed that dissolution procedure is provided". It is submitted that under Income Tax Act, registration is governed by Sections 12A and 12AA which do not require any particular clauses to be incorporated in Trust Deed. It is contended that if the dissolution clause is not there in Trust Deed, the Trust Act will prevail and hence application for registration cannot be rejected on this ground. It is argued that the Charity Commissioner, Mumbai is the competent authority to decide whether trust should be registered without dissolution clause or not.
I have considered the submissions of the applicant but the same are not acceptable. There is no judicial authority for the proposition that once a trust '" institution is registered under the Bombay Public Trust Act or the Societies Registration Act, It must be granted registration under Income Tax Act, 1961 as well without any enquiry into its validity, its objects or its activities. Since the applicant is a society constituted under the Societies Registration Act, 1860 it has to have a "dissolution clause" in consonance with Section 14 of the said Act which clearly imposes a bar on payment or distribution of surplus among the members of the society consequent upon its dissolution. The issue of prohibition on distribution of property of the institution among the trustees in the event of its dissolution must find clear and specific mention in the Rules & Regulation itself and cannot be left to the discretion of the trustees. It may be mentioned that in the absence of such a clause, there could always be a possibility, howsoever remote, of net assetsof the trust being divided or distributed among the trustees in case of dissolution of the institution. In this sense, clause 31 does not meet the legal requirement. There is another flaw in the said clause 31 in as much as it does not specify that upon dissolution, the net assets of the applicant will be transferred to another public charitable trust or institution having similar objectives. Rather, on the contrary, it lays down that the net assets of the applicant in case of its dissolution shall be transferred inter alia to other institutions "as directed by the main Chapter of JITO".
Each statute governing registration of charitable trusts and institutions has its own set of legal provisions and rules to be complied with. No charitable trust or institution can take the plea that once it has complied with the requirements of a particular Act, it must automatically be granted registration under other Acts without any further probe or insistence on compliance under other statutes. It is true that registration under Income Tax Act, 1961 is governed by Section 12A/12AA. But this does not mean that the registering authority should wear blinkers and allow registration irrespective of whether the applicant is a validly constituted public trust/institution or not. No applicant can afford to override statutory provisions and requirements except at his own peril. For want of the desired and appropriate dissolution clause in the Rules & Regulations, the applicant cannot be said to have been constituted as a valid public charitable institution. The application filed by the applicant trust for registration u/s. 12AA is accordingly rejected. At this stage, no opinion is being expressed about the charitable nature of objects of the applicant institution or the genuineness of its activities which will be examined as and when the applicant makes a fresh application for registration after inclusion of a suitable clause to the above effect in its Rules & Regulations.”
The assessee has challenged the aforementioned order on the ground that in the recent judgment of co-ordinate bench in ITA No. 71/Ahd.2013 of Ahmadabad Tribunal titled in case as “Sitaram Kutir Charitable Trust vs. CIT Charitable Trust”, it was held that not specifically mentioning of dissolution clause in the trust deed of society registered under Society Registration Act, 1890, would not make trust to dis-entitle for registration u/s. 12AA of Income Tax Act.
We have considered the facts, the orders passed by DIT(E) and we are of the considered view that the aforementioned file be remanded back to DIT(E), Mumbai with a direction to consider the judgment of co- ordinate bench in ITA No. 71/Ahd.2013 titled as Sitaram Kutir Charitable Trust and others if any on the subject and pass order u/s 12AA r.w.s.
12A of the Income Tax Act afresh after providing an opportunity of hearing to the assessee.
In the result, appeal filed by the Assessee is allowed with the aforementioned directions.
Order pronounced in the open court on this 13thday of January, 2016.