SHREEJEE PRASAD,NASHIK vs. CIT EXEMPTION,, PUNE

The assessee raised 4 grounds of appeal amongst which the only issue emanates for our consideration is as to whether the CIT(Exemption) justified in rejecting the grant of registration u/s. 12AA of the Act in the facts and circumstances of the case.

Heard both parties and perused the material available on record. We note that the assessee registered under Bombay Public Trust Act on 27-03- 2008. The assessee made online application in Form No. 10A for approval of the Trust/Institution u/s. 12AA of the Act on 30-11-2019. According to CIT(Exemption) the main object of the assessee as per the trust deed is pooja, abhishek, aarti, naivadya, annual festivals and maintenance of temples to be constructed in future. Further, he observed that as per the note of activities the assessee is focused towards distribution of hot, nutritious and fresh food to poor, needy and hungry children in and around Nashik. Further, he found that the assessee made expenditure on the above said activities of distribution of food : i. Rs.7.69 lacs for F.Y. 2016-17 (A.Y. 2017-18), ii. Rs.6.64 lacs for F.Y. 2017-18 (A.Y. 2018-19) and iii. Rs.3.85 lacs for F.Y. 2018-19 (A.Y. 2019-20).

He observed that as per the Income and Expenditure, the source of income has been from interest on securities for the above three financial years. On examination of list of donors, the CIT(Exemption) found donations of Rs.12,93,771/- for F.Y. 2016-17 (A.Y. 2017-18), Rs.11,33,593/- for F.Y. 2017-18 (A.Y. 2018-19) and Rs.13,07,852/- for F.Y. 2018-19 (A.Y. 2019-20). According to him the said donations involving three financial years credited to reserve account under the head “Any other fund Annadan Fund” without routing it through the Income and Expenditure Account. He show caused the assessee why this amounts should not be taxed. It was explained that as per resolution dated 05-04- 2008to it was resolved to get donations from such persons which would be invested in FDRs by creating corpus fund, interest earned thereon is to be spent on food for poor. The CIT(Exemption) held a corpus is the main fund and it may not be tied to a particular activity and it is kept for basic expenditure needed for the administration and survival of the organization and generally not allowed to be utilized for the attainment of objects of the trust and held the above said donations as received by the assessee is not corpus donations but are voluntary donations and held the same to be taxable in the hands of the assessee, in view of that finding the CIT(Exemption) denied granting of registration u/s. 12AA of the Act by holding the assessee trust has escaped amount of donations from taxation by not showing amount of said donations in the total income of the above three financial years. Aggrieved, the assessee is before us.

The ld. AR, Shri Rakesh Joshi submits that the CIT(Exemption) had given totally extraneous reasons in denying the registration as sought u/s. 12AA of the Act. He linked the genuineness of the activities with the discharge of the alleged tax liability for three financial yeas as noted in Para No. 4 of the impugned order and discharge of tax liability and payment thereon cannot be a ground for rejection of granting of registration. He further argued that the CIT(Exemption) without realizing the payment of tax cannot be the activity of the trust and ignored that the corpus fund created by accepting donations is not chargeable to tax. He submits that the said donations utilized towards the Annadan Fund were in the nature of corpus donations and without verifying in detail and understanding the same the CIT(Exemption) held the donations are not corpus in nature. The CIT(Exemption) did not consider the case laws brought to his notice where various Tribunals held that the corpus donations were not taxable.

The ld. DR, Shri T. Vijay B. Reddy submits that if the registration u/s. 12AA is granted the AO will be precluded from taking any action u/s. 147 of the Act. The CIT(Exemption) rightly denied the registration u/s. 12AA of the Act to the assessee to bring the admitted income within the purview of taxation. He argued that any interpretation of the provisions of the Act which takes away the right to collect legitimate tax would be inconsistent with the Act itself and if the registration is granted which itself takes away the right of the AO to bring to tax any income. He vehemently argued the CIT(Exemption) having no option in order to recover the admitted tax as per the provisions of law denied registration to the assessee. He also argued that the provisions are interpreted in a manner so as to mean that after the grant of registration, the income of the assessee becomes exempt or eligible for the benefit of section 11 and 12 of the Act since its inception and not only in respect of pending assessment proceedings and prayed to uphold the order passed by the CIT(Exemption).

We note that the main contention of ld. DR is that if the registration u/s. 12AA of the Act is granted that the Department will have no opportunity to collect taxes in view of the Income and Expenditure Account as submitted by the assessee along with the application seeking registration. The ld. AR contends that the donations were accepted from the large number of pilgrims has been treated as corpus fund and it is not taxable. As the said corpus fund as we noted from the record were utilized for the fulfillment of its main object in distributing hot, nutritious and fresh food to poor, needy and hungry children across the poverty of in and around Nashik. There is no dispute with regard to this aspect by the CIT(Exemption) as he discussed the same in Para No. 3 of the impugned order. According to CIT(Exemption) a corpus fund is utilized for the existence and sustenance of the trust but not for the attainment of objects of the trust. As we discussed above that the non-payment of alleged taxes for the financial years indicated above should not be the reason for granting registration u/s. 12AA of the Act and the CIT(Exemption) did not observe anything adverse to the objects and activities of the assessee by holding are not genuine and charitable in nature. Further, we find no force in the arguments of ld. DR in canvassing that the tax administration will never get a chance to recover taxes for the above indicated three financial years, therefore, in our opinion, the assessee is entitled to get registration u/s. 12AA of the Act and accordingly, we direct the CIT(Exemption) to grant registration u/s. 12AA of the Act. Thus, the grounds raised by the assessee are allowed.

In the result, the appeal of assessee is allowed.