Commissioner Of Income Tax, (Exemptions), Kolkata v. Nawal Kishore Kejriwal Charity Trust

Form No.(J2) IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE Present :THE HON’BLE JUSTICE T.S. SIVAGNANAMA N D THE HON’BLE JUSTICE HIRANMAY BHATTACHARYYA IA NO.GA/2/2018 (Old No.GA/790/2018) ITAT/84/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- NAWAL KISHORE KEJRIWAL CHARITY TRUST IA NO.GA/2/2018(Old No.GA/793/2018) ITAT/85/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- ALKING CHARITY TRUST IA NO.GA/2/2018(Old No.GA/795/2018) ITAT/86/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- ALWAR CHARITY TRUST IA NO.GA/2/2018(Old No.GA/798/2018) ITAT/87/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- ASHOK KUMAR MEMORIAL TRUST IA NO.GA/2/2018 (Old No.GA/799/2018) ITAT/88/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- LAKSHMI TRUST IA NO.GA/2/2018 (Old No.GA/801/2018) ITAT/89/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- KRISHNA CHARITY TRUST IA NO.GA/2/2018 (Old No.GA/803/2018) ITAT/90/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- UDAIPUR CHARITY TRUST IA NO.GA/2/2018(Old No.GA/809/2018) ITAT/93/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- HARSH VARDHAN CHARITY TRUST IA NO.GA/2/2018 (Old No.GA/815/2018) ITAT/94/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- KISHORE KANTI KHANDELWAL CHARITY TRUST IA NO.GA/2/2018 (Old No.GA/822/2018) ITAT/95/2018 COMMISSIONER OF INCOME TAX, (EXEMPTIONS), KOLKATA -Versus- NATIONAL AGRICULTURAL AND SCIENTIFIC RESEARCH FOUNDATION For the Appellant: Mr. Tilak Mitra, Adv. Mr. Radhamohan Roy, Adv. For the Respondent: Mr. J. P. Khaitan, Senior Adv. Ms. Swapna Das, Adv. Mr. P. Jhunjhunwala, Adv. Mr. Siddhartha Das, Adv. Heard on : 08.02.2022 Judgment on : 08.02.2022 T. S. SIVAGANANAM, J. : All these appeals have been filed byrevenue under Section 260A of the Income Tax Act, 1961 (the ‘Act’in brevity) challenging a common order dated 30[th] August, 2017passed by the Income Tax Appellate Tribunal, Kolkata “B” Bench(the ‘Tribunal’ in short) in ITA No.285/Kol/2016, ITANo.286/Kol/2016, ITA No.287/Kol/2016, ITA No.288/Kol/2016, ITANo.289/Kol/2016, ITA No.1156/Kol/2016, ITA No.1157/Kol/2016, ITANo.1158/Kol/2016, ITA No.1159/Kol/2016 and ITA No.1160/Kol/2016for the assessment year 2006-07. The revenue has raised for the following substantialquestions of law for consideration:“(a) Whether the Tribunal has at all considered the activitiesof the assessee/respondent as in genuine for the purposeof application for Sub-Section 3 of Section 11AA ?(b)Whether on the facts and in the circumstances of thecase and in law the Income Tax Appellate Tribunal erredin reversing the order for cancellation of registrationunder Section 12AA(3) of the Income Tax Act, 1961 ?(c)Whether the finding of the Income Tax Appellate Tribunalregarding effective date of applicability of Section 12AA(3) of the Income Tax Act, is perverse in lawconsidering the explanatory notes of Finance Act, 2010 ? We have heard Mr. Tilak Mitra, learned standing counselassisted by Mr. Radhamohan Roy, learned advocate for theappellant/revenue and Mr. J. P. Khaitan, learned senior counselassisted by Mr. P. Jhunjhunwala, Ms. Swapna Das and Mr. SiddharthaDas, learned Advocates for the respondent/assessee. 12AA(3) of the Income Tax Act, is perverse in lawconsidering the explanatory notes of Finance Act, 2010 ? We have heard Mr. Tilak Mitra, learned standing counselassisted by Mr. Radhamohan Roy, learned advocate for theappellant/revenue and Mr. J. P. Khaitan, learned senior counselassisted by Mr. P. Jhunjhunwala, Ms. Swapna Das and Mr. SiddharthaDas, learned Advocates for the respondent/assessee. The registration granted in favour of therespondents/assessees under Section 12A of the Act stood cancelledby an order passed under Section 12AA(3) of the Act. Since thefacts are all identical, it would suffice to note the facts inITAT/84/2018 pertaining to Nawal Kishore Kejriwal Charity Trustwhich is taken as the lead case with the consent of the counsel oneither sides.The Commissioner of Income Tax (Exemptions), Kolkata (inshort CIT(E) issued show cause notice dated 30[th] October, 2014proposing to cancel the registration granted to the assessee underSection 12A of the Act. The allegation in the show cause noticewas that information has been received during the financial year2005-06, the assessee was involved in circuitous transactions byrotating the same donation through another trust by way ofdonations and that the money donated by the assessee trust cameback to it in the garb of donation from other trust registeredunder Section 12AA of the Act. Therefore, it was proposed that the activity of the assessee was neither genuine nor in accordanceto the stated objective of the Trust. The assessee submitted itsreply dated 16[th] November, 2015 stating that the show cause noticehas proposed to cancel the registration on the basis of thefinding made by the assessing officer in the assessment order forthe assessment year 2006-07 and in the said year the assessingofficer found that there was a case of a circuitous donation byone charitable trust to another charitable trust of same group andultimately the donated amount had came back to the donor trust.On such basis he refused to accept the donated income asapplication for charitable purposes as claimed in the return ofincome and added back the same to compute the total income at avery high figure. It was pointed out that even though theassessing officer rendered such a finding, he did not deny thestatus of the assessee as a charitable trust and completed theassessment on the basis of the provisions of Sections 11, 12 and13 of the Act. Further, it was pointed out that no action hasbeen taken for cancelling the assessment order passed for thefinancial year 2006-07 and the time limit for invoking the powerunder Section 263 of the Act had also expired. The assesseefurther stated that it had objected to the said order on theground that the finding is wrong and there is no material orevidence to establish that the donated amount actually came backto the donor trust and they are in possession of material to prove that the donee trust kept the donated amount in the corpus fundand the donee trust again issued donation to another charitabletrust from its current income. Therefore, the assessee pointedout that there is no basis for holding the theory of circulardonation and ultimate receipt of the donation by the donor trust.Further it was pointed out that though the assessee was notsuccessful before the CIT(A), it had succeeded before the tribunaland the claim for benefit as given in Clause (d) of Section 11 wasallowed. Therefore, the assessee contended that there was noground to withdraw the registration under Section 12A of the Act.Further it was pointed out that the assessment for the years 2007-08 to 2014-15 had been completed accepting the assessee as acharitable trust and allowing the benefit of Section 11 of theAct. Thus, the assessee stated that there is no material orevidence before the CIT(E) to hold that the trust is not eligiblefor registration under Section 12AA of the Act.We find from the order passed by the CIT(E) dated 30[th]March, 2016 that none of the explanation offered by the assesseewas considered and in the concluding paragraph the CIT(E)reiterated the allegations in the show cause notice in the form ofan order and cancelled the registration. The assessees filed appeals before the Tribunalchallenging the orders of cancellation which were separate ordersfor all the respondents/assessees. Before the Tribunal the assessee contended that cancellation of registration withretrospective effect is against law and that there was no materialavailable on record doubting the genuineness of the activities ofthe trust warranting cancellation. Several other grounds werealso raised by the assessee. More importantly that though thebenefit of exemption was denied for the assessment year 2006-07,in the other years benefits were granted by the assessing officerhimself and only for one year, the benefit was not extended whichcan hardly be a basis for cancellation of the registration. Theassessee also furnished factual details as to how the donationswere given to the trust. The Tribunal after taking note of thefacts held that the revenue has not disputed that all the corpusdonations were given from one trust to another trust out ofcurrent year’s income and in none of the cases, the corpusdonation received by the assessee was given to the trust in theform of corpus donation. Further, after taking note of theamendment to Section 11 which was brought about by Finance Bill,2017, with effect from 1[st] April, 2018, the tribunal pointed outthat prior to 1[st] April, 2018, the money donated as corpus, willamount to application of income. The tribunal took note of thedecision in the case of Commissioner of Income Tax vs. SarladeviSarabhai Trust reported in [1988] 172 ITR 698. The tribunal alsofaulted the CIT(E) for having cancelled the registration withretrospective effect as being without jurisdiction. Thereafter, the tribunal elaborately examined the facts and pointed out thatat the inception, the CIT(E) was satisfied with the genuineness ofthe activities and granted registration to the assessee and beforethe tribunal the activities of the assessee have not been doubtedexcept by stating that corpus donation was given by the assesseeto the other trust that too during only one assessment year 2006-07. It is settled legal principle that Section 12AA of the Actlays down procedure for registration and does not state that theCIT while considering the application for registration shall alsosee that the income derived by the trust is either not being spentfor charitable purpose or such trust is earning profit. Theprovision requires that the activities of the trust or theinstitution must be genuine which would mean that they are inconsonance with the object of the trust and are not merecamouflage of the proposed objects. Bearing the legal principlein mind, the tribunal once again examined the facts of the caseand pointed out that the activities of the assessee have not beendoubted in all these years. The activities were duly accepted tobe charitable by the revenue and the revenue failed to bringanything on record to controvert the submission made by theassessee.In Sarladevi Sarabhai Trust (supra), it was pointed outthat when a donor trust which is a charitable trust donates its income to another trust, the provisions of Section 11(1)(a) can besaid to have been met by such donor trust and the donor trust canbe said to have applied its income for religious and charitablepurposes notwithstanding the fact that the donation is subjectedto any conditions that the donee trust will treat the donation astowards its corpus and can only utilise the accruing income fromthe donated corpus for religious and charitable purposes, and thatthe question whether the gifted income is to be utilised by thedonee trust fully for its religious and charitable purposes orwhether the donee trust had to keep intact the corpus of thedonation and has to utilise only the income therefrom for itsreligious and charitable purposes, would not make the slightestdifference so far as entitlement of the donor trust for exemptionunder Section 11(1) of the Act.The Tribunal rightly took note of this decision whilegranting relief to the assessee. Hence, for the above reasons, wefind no ground to interfere with the order passed by the Tribunal.Accordingly, the appeals are dismissed and substantial questionsof law are answered against the revenue.Consequently, the connected applications for stay alsostand dismissed. (T.S. SIVAGNANAM, J.) I agree. (HIRANMAY BHATTACHARYYA, J.) A/s./pa