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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
This appeal filed by the assessee is against the order of the Ld. CIT(Exemptions), Hyderabad vide order U/s. 12AA(1)(b)(ii) of the Income Tax Act, 1961 dated 26/09/2019. 2. The assessee has raised the following grounds of appeal:
“1. The Ld. CIT(E), Hyderabad has erred both in law and on facts in rejecting the application filed by appellant in Form 10 seeking Registration U/s. 12A of the Act.
The Ld. CIT(E), Hyderabad ought to have properly appreciated that the appellant has fulfilled all the requirements as envisages in section 12AA of the Act, in essence and substance and as such have held that, the appellant is eligible for grant of Registration U/s. 12A of the Act.
The very observations, averments, grounds and adverse remarks in the impugned order at S.No. 3 to 10 and sub- points thereof along with case laws mentioned therein, while rejecting the application filed by the appellant, are basing merely on surmises, conjectures, presumptions, assumptions and apprehensions, without properly understanding / appreciating the factual, legal and statutory position with regard to said aspects and as such not correct and tenable.
For the above grounds and any other grounds that may be urged during the course of hearing of appeal, the appellant humbly prays the Hon’ble Income Tax Appellate Tribunal, Visakhapatnam Bench, to allow the appeal by directing the Ld. CIT (E), Hyderabad to grant registration u/s. 12A of IT Act, as claimed by the appellant or to give any other appropriate relief as the Hon’ble Bench may deem it fit, in the facts and circumstances of appellant’s case.”
Brief facts of the case are that the assessee is a Trust registered vide Trust Deed dated 05/07/2017. The Trust was started by the settler M/s. Apex Frozen Foods Ltd., a limited company which in order to carry out its duties under Corporate Social Responsibility (CSR) provided U/s. 135 of the Companies Act, 2013. The objects of the Trust as mentioned in Clause-3 of the Trust Deed are extracted below: “To spend the fund exclusively in accordance with CSR policy of the company for general public on charitable basis irrespective of caste, creed or community within the Indian Territories which inter alia includes:
3
Eradication of Extreme hunger and poverty
Infrastructure Development (Village roads, culverts, bus shelters, solar lighting etc.,
Ensuring environmental sustainability
Drinking water / sanitation
Healthcare
Community Development
Education and Vocational Training
Skill Development
Child care and nutrition.”
The Trust applied for grant of registration u/s. 12AA on 22/3/2019 before the Ld. CIT(Exemptions), Hyderabad. Registration U/s. 12AA was rejected on the ground that the assessee trust has been formed by the settler M/s. Apex Frozen Foods Ltd., only for the purpose of carrying out its CSR activities. While rejecting assessee’s application for registration, the Ld. CIT(A) also observed that the assessee has violated the provisions of section 13 of the IT Act and also the CSR expenditure is not allowable under the Act. The Ld. CIT(E) in para 9.2 of his order has observed as under:
“9.2…………However, the corporates wants to circumvent these provisions so that they are able to reduce their tax liability. Therefore, these kind of colorable devices are formed by the corporate. In the present case, the assessee has no independent existence. Thus, the applicant is not eligible for 12A registration.
In view of all the above facts, I am of the view that the applicant is not fit for grant of registration
4 u/s. 12AA of the Act. Hence, the application in Form 10A filed by the above applicant is hereby rejected.”
Being aggrieved by the order of the Ld. CIT(E), the assessee is in appeal before us.
The Ld. AR submitted that as per the Companies Act, 2013 wherein under section 135 of the Act, the companies are allowed to set up a Trust to carry out CSR activities and for that the Trust should be formed by the assessee-company and the Income Tax Act also recognized the said section of the Companies Act. The Ld. AR also submitted that the objects of the Trust are for public charity only. He therefore pleaded that the Ld. CIT(E) should have allowed the assessee’s application for registration U/s. 12AA of the Act. The Ld. AR also submitted that the Ld. CIT(E) has not doubted the genuineness of the activities of the assessee nor doubted its charitable nature and therefore the provisions U/s. 12AA of the Act does not empower to reject the registration of the assessee’s Trust. The Ld. AR also relied on the following case laws: (i) Chandigarh [2019] 108 taxmann.com 53 (Delhi-Trib.). (ii) Chandigarh [2018] 91 taxmann.com 197 (Delhi – Trib.)]
5 (iii) St. Mary’s Medium School Society vs. CIT (Exemptions), ITA No.2060/H/2018, dated 25/02/2022 (Visakhapatnam –Trib)
Per contra, the Ld. DR submits that the Ld. CIT (E) has rightly rejected the application of the Trust as the objects of the Trust were not charitable in nature. The Ld. DR also argued that in order to circumvent the disallowance U/s. 37(1) the assessee has formed a Trust for its CSR activities.
We have heard both the parties and perused the materials available on record. It is noted that the main aim of forming the Trust is for complying with the CSR requirements. Accordingly, if a Trust is formed for the purposes of carrying out the CSR activities, the registration U/s 12AA cannot be denied. The Ministry of Corporate Affairs in the Rules framed for the purpose of CSR has implicitly provided for forming the dedicated Trust under sub-rule 2 to Rule 4 which is extracted below: “(2) The board of company may decide to undertake it is CSR activities provided by the CSR committee, through the registered trust or a registered society or a company established by the company or its holding or subsidiary or associate under section 8 of the Act or otherwise.”
Just because the Trust has been formed for complying CSR requirements, it cannot per se be the reason for denying
6 registration U/s. 12AA of the Act. At the same time, on examining the aims and objects of the assessee’s Trust which was created in order to eradicate extreme hunger and poverty, infrastructure development, ensuring environmental sustainability, drinking water facility, healthcare, community development, skill development etc., in India and abroad which certainly falls under charitable activity under section 2 clause (15). The Ld. CIT(E) was only required to firstly find out whether the Trust has been established for charitable activities and whether its activities are genuine for grant of registration U/s. 12AA.
2 In the present case on hand, the Ld. CIT(E) has rejected registration U/s. 12AA of the Act on the ground that the assessee has claimed exemption U/s. 11 for the AYs 2018-19 and 2019-20 without having registration U/s. 12AA of the Act. The Ld. CIT(E) also observed that w.e.f 1/9/2019, compliance of law for the time being in force by the Trust is mandatory. In our opinion, the Ld. CIT(E) has not looked into the objectives of the society but relied on the wrong claim made in earlier years by the assessee. The procedure for registration U/s. 12AA is extracted below for reference:
“Procedure for registration. 12AA. (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) or clause (ab) of sub-section (1) of section 12A, shall— 54[(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about,— (i) the genuineness of activities of the trust or institution; and (ii) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects, and may also make such inquiries as he may deem necessary in this behalf; and] (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities 55[as required under sub-clause (i) of clause (a) and compliance of the requirements under sub-clause (ii) of the said clause], he— (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (1A) All applications, pending before the Principal Chief Commissioner or Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Principal Commissioner or Commissioner and the Principal Commissioner or Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day. (2) Every order granting or refusing registration under clause (b) of sub-section (1) 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) or clause (ab) of sub-section (1) of section 12A. (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.
It is clear from the plain reading of section 12A and section 12AA of the Act is only registration simpliciter of the entity of a Trust / Society. The rest of factors like suspicion and apprehension raised by the Revenue can be taken by the Ld. Revenue Authorities at the time of framing the assessment.
We also note that the identical issue whether the registration U/s. 12AA can be denied to a Trust which is merely formed for complying the CSR obligations of the assessee- company, the issue was decided in favour of the assessee in the following case laws which are relied on by the Ld. AR. (i) Chandigarh [2019] 108 taxmann.com 53 (Delhi- (Exemptions), Chandigarh [2018] 91 taxmann.com 197 (Delhi – Trib.)]
Respectfully following the decisions rendered by the Coordinate Bench of the Tribunal (supra), we find that the assessee’s objects are charitable in nature and fall within the definition of section 2(15) of the Act thereby entitling the 9 assessee Trust for registration U/s. 12AA of the Act. Therefore, we hereby direct the Ld. CIT(Exemptions) to provide registration U/s. 12AA of the Act to the assessee Trust.
In the result, appeal filed by the assessee is allowed. Pronounced in the open Court on the 08th April, 2022. (दुव्िूरु आर.एऱ रेड्डी) (एस बाऱाकृष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याययकसदस्य/JUDICIAL MEMBER ऱेखा सदस्य/ACCOUNTANT MEMBER Dated : 08.04.2022 OKK - SPS आदेश की प्रतिलिपि अग्रेपिि/Copy of the order forwarded to:- ननधधाररती/ The Assessee– Apex Foundation, D.No.4-35, Panasapadu BO,
Kakinada Rural, East Godavari District, Andhra Pradesh – 533005. रधजस्व/The Revenue – Commissioner of Income Tax (Exemptions), 2nd Floor,
Aayakar Bhavan, Basheerbagh, Hyderabad.
The Principal Commissioner of Income Tax, आयकर आयुक्त (अऩीऱ)/ The Commissioner of Income Tax (Appeals), 4. ववभधगीय प्रनतननधध, आयकर अऩीऱीय अधधकरण, ववशधखधऩटणम/ DR, ITAT,
Visakhapatnam गधर्ा फ़धईऱ / Guard file 6. आदेशधनुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam