The Director Of Income Tax (Exemptions)Chennai v. M/S.r.j.b.v.vasudevaneducational & Charitable Trustplot

In the High Court of Judicature at Madras Dated: 22.07.2014 Coram The Honourable Mr.JUSTICE R.SUDHAKARandThe Honourable Mr.JUSTICE G.M.AKBAR ALI Tax Case (Appeal) No.729 of 2013 The Director of Income Tax (Exemptions)Chennai .... Appellant Vs. M/s.R.J.B.V.VasudevanEducational & Charitable TrustPlot No.9, NGO Colony,Chrompet, Chennai - 44. .... Respondent APPEAL under Section 260A of the Income Tax Act against theorder dated 24.5.2013 in I.T.A.No.8/Mds/2013 on the file of theIncome Tax Appellate Tribunal, Madras 'D' Bench against theproceedings of the Director, Income Tax (Exemptions) Chennai dated27.11.12 and made in DIT(E) No.2(137) 12-13. For Appellant : Mr.J.NarayanaswamyStanding Counsel for Income Tax For Respondent: Mr.R.Janakiraman This Tax Case (Appeal) is filed at the instance of the Revenueas against the order of the Income Tax Appellate Tribunal raisingthe following substantial question of law: "Whether on the facts and in the circumstances of thecase, the Tribunal was right in holding that assessee Trustis entitled to registration under Section 12AA?" 2. The Director of Income Tax (Exemptions), Chennai appears tohave been on the wrong premise in the whole case where thehttps://hcservices.ecourts.gov.in/hcservices/ respondent/assessee seeks registration under Section 12AA of theIncome Tax Act as a charitable institution. At the outset we wouldlike to point out a specific line in the order, which has beentotally misquoted or misconstrued by the original Authority, whichreads as follows: "As per Rule 17A read with Section 17B, audited accounts of the last 3 years should have been enclosed inForm No.10B" 3. We find, Section 17B of the Income Tax Act is not applicablein the case of charitable institution and further assuming Rule 17Bof the Income Tax Rules is made applicable and it has been wronglyquoted as Section 17B, still then, Rule 17A and 17B stand mutuallyexcluded and we give reasons hereunder: The assessee/respondent herein is a trust. The Trust wasconstituted under a Trust Deed dated 17.11.2008 and was registeredon 02.12.2009. An application in Form 10A for registration underSection 12AA of the Income Tax Act was filed on 22.5.2012. Inresponse to the questionnaire dated 17.8.2012, the authorisedrepresentative of the assessee has submitted a reply on 04.09.2012enclosing certain details. The Director of Income Tax (Exemptions)found fault with the language in the Trust Deed and held that thepresent Trust cannot act as a trustee in another trust orinstitution. The Authority also held that for more than four years,there was no activity worth its name undertaken by the trust exceptsome small amount of donation and the accounts submitted along withForm 10A are not audited accounts for three years, as prescribed inForm 10B and therefore, the Director of Income Tax (Exemptions)rejected the registration. 4. Aggrieved by the same, the assessee preferred an appealbefore the Income Tax Appellate Tribunal. 5. The Tribunal, on an analysis of the materials placed, heldthat the Director of Income Tax (Exemptions) had not pointed out asto how the objects of the trust as not charitable or the activitiesof the trust as not genuine. In so far as the issue relating tofiling of audited accounts for three years as required in Form 10B,the Tribunal held that the non-filing of audited accounts does notmake any difference and that does not make the trust ineligible forregistration. Accordingly, the Tribunal allowed the appeal. 6. Aggrieved by the order of the Tribunal, the Revenue haspreferred the present Tax Case (Appeal). 7. Heard Mr.J.Narayanaswamy, learned Standing Counsel appearingfor the appellant at length and perused the materials placed beforethis Court. https://hcservices.ecourts.gov.in/hcservices/ 8. We find that the issue involved in this appeal is covered bythe provisions of Rule 17A of the Income Tax Rules, which reads asfollows: 6. Aggrieved by the order of the Tribunal, the Revenue haspreferred the present Tax Case (Appeal). 7. Heard Mr.J.Narayanaswamy, learned Standing Counsel appearingfor the appellant at length and perused the materials placed beforethis Court. https://hcservices.ecourts.gov.in/hcservices/ 8. We find that the issue involved in this appeal is covered bythe provisions of Rule 17A of the Income Tax Rules, which reads asfollows: "Application for registration of charitable or religioustrusts etc. 17A. An application under clause (aa) of sub-section (1) ofsection 12A for registration of a charitable or religioustrust or institution shall be made in duplicate in FormNo.10A and shall be accompanied by the following documents,namely:- (a) where the trust is created, or the institution isestablished,under an instrument, the instrument inoriginal, together with one copy thereof; and where thetrust is created, or the institution is established,otherwise than under an instrument, the document evidencingthe creation of the trust or the establishment of theinstitution, together with one copy thereof: Provided that if the instrument or document inoriginal cannot conveniently be produced, it shall be opento the Commissioner to accept a certified copy in lieu ofthe original; (b) where the trust or institution has been inexistence during any year or years, prior to the financialyear in which the application for registration is made, twocopies of the accounts of the trust or institution relatingto such prior year or years (not being more than threeyears immediately preceding the year in which the saidapplication is made) for which such accounts have been madeup." All that is required to be submitted at the time of application forregistration is that the institution should produce certifieddocument evidencing creation of trust with two copies of theaccounts of the trust or the institution relating to the previousyear or years. 9. In this case, the accounts have been submitted in Form 10A.It is admitted by the Original Authority that the application hasbeen enclosed with documents as required in Form 10A. Theinvocation of Rule 17B (wrongly quoted as Section 17B) would apply,in a case where the charitable institution was registered underSection 12AA of the Income Tax Act. 10. Section 12A of the Income Tax Act reads as follows:12A. Conditions for applicability of sections 11 and12 .--(1) The provisions of section 11 and section 12shall not apply in relation to the income of any trust orinstitution unless the following conditions are fulfilled,namely :— https://hcservices.ecourts.gov.in/hcservices/ (a) the person in receipt of the income has made anapplication for registration of the trust or institutionin the prescribed form and in the prescribed manner to theCommissioner before the 1st day of July, 1973, or beforethe expiry of a period of one year from the date of thecreation of the trust or the establishment of theinstitution, whichever is later and such trust orinstitution is registered under section 12AA : Provided that where an application for registration of thetrust or institution is made after the expiry of theperiod aforesaid, the provisions of sections 11 and 12shall apply in relation to the income of such trust orinstitution,— (i) from the date of the creation of the trust or theestablishment of the institution if the Commissioner is,for reasons to be recorded in writing, satisfied that theperson in receipt of the income was prevented from makingthe application before the expiry of the period aforesaidfor sufficient reasons ; (ii) from the first day of the financial year in which theapplication is made, if the Commissioner is not sosatisfied ; Provided further that the provisions of this clause shallnot apply in relation to any application made on or afterthe 1st day of June, 2007; (i) from the date of the creation of the trust or theestablishment of the institution if the Commissioner is,for reasons to be recorded in writing, satisfied that theperson in receipt of the income was prevented from makingthe application before the expiry of the period aforesaidfor sufficient reasons ; (ii) from the first day of the financial year in which theapplication is made, if the Commissioner is not sosatisfied ; Provided further that the provisions of this clause shallnot apply in relation to any application made on or afterthe 1st day of June, 2007; (aa) the person in receipt of the income has made anapplication for registration of the trust or institutionon or after the 1st day of June, 2007 in the prescribedform and manner to the Commissioner and such trust orinstitution is registered under section 12AA ; (b) where the total income of the trust or institution ascomputed under this Act without giving effect to **theprovisions of section 11 and section 12 exceeds themaximum amount which is not chargeable to income-tax inany previous year, the accounts of the trust orinstitution for that year have been audited by anaccountant as defined in the Explanation below sub-section(2) of section 288 and the person in receipt of the incomefurnishes along with the return of income for the relevantassessment year the report of such audit in the prescribedform duly signed and verified by such accountant andsetting forth such particulars as may be prescribed. (c) Inserted by Finance Act, 2001, with effect from April1, 2002, omitted by the Finance Act, 2002. https://hcservices.ecourts.gov.in/hcservices/ (2) Where an application has been made on or after the 1stday of June, 2007, the provisions of sections 11 and 12shall apply in relation to the income of such trust orinstitution from the assessment year immediately followingthe financial year in which such application is made. 11. Section 12AA of the Income Tax Act reads as follows:"12AA.Procedureforregistration.--(1)TheCommissioner, on receipt of an application for registrationof a trust or institution made under clause (a) or clause(aa) of sub-section (1)of section 12A, shall-- (a) call for such documents or information from thetrust or institution as he thinks necessary in order tosatisfy himself about the genuineness of activities of thetrust or institution and may also make such inquiries as hemay deem necessary in this behalf; and (b) after satisfying himself about the objects of thetrust or institution and the genuineness of its activities,he --(i) shall pass an order in writing registeringthe trust or institution; (ii) shall, if he is not so satisfied, pass anorder in writing refusing to register the trust orinstitution,and a copy of such order shall be sent to theapplicant: Provided that no order under sub-clause (ii) shall bepassed unless the applicant has been given a reasonableopportunity of being heard. (1A) All applications, pending before the ChiefCommissioner 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 Commissioner andthe Commissioner may proceed with such applications underthat sub-section from the stage at which they were on thatday. (2) Every order granting or refusing registration underclause (b) of sub-section (1) shall be passed before theexpiry of six months from the end of the month in whichthe application was received under clause (a) @or clause(aa) of sub-section (1) of section 12A. https://hcservices.ecourts.gov.in/hcservices/ Provided that no order under sub-clause (ii) shall bepassed unless the applicant has been given a reasonableopportunity of being heard. (1A) All applications, pending before the ChiefCommissioner 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 Commissioner andthe Commissioner may proceed with such applications underthat sub-section from the stage at which they were on thatday. (2) Every order granting or refusing registration underclause (b) of sub-section (1) shall be passed before theexpiry of six months from the end of the month in whichthe application was received under clause (a) @or clause(aa) of sub-section (1) of section 12A. https://hcservices.ecourts.gov.in/hcservices/ (3) Where a trust or an institution has been grantedregistration under clause (b) of sub-section (1) or hasobtained registration at any time under section 12A [as itstood before its amendment by the Finance (No. 2) Act, 1996(33 of 1996)] ]and subsequently the Commissioner issatisfied that the activities of such trust or institutionare not genuine or are not being carried out in accordancewith the objects of the trust or institution, as the casemay be, he shall pass an order in writing cancelling theregistration of such trust or institution : Provided that no order under this sub-section shall bepassed unless such trust or institution has been given areasonable opportunity of being heard." 12. In this case, the respondent/assessee is yet to obtainregistration under Section 12AA of the Income Tax Act. Therefore,Rule 17B of the Income Tax Rules has no application for the present.If the respondent/assessee satisfies the requirement of Rule 17A andhad submitted Form 10A along with requisite documents, the assesseeis entitled to seek registration under Section 12AA of the IncomeTax Act, unless there is some material to decline such registrationas is provided in the said Section. The Original Authority has notrecorded his subjective satisfaction in this case. Also, thereasoning given by the Authority is not in consonance with theprovisions of law. The Original Authority declined registration onthe ground that the assessee had spent only small amounts towardscharitable activities. The bonafides of the Trust should not bedoubted on this ground. The Authority has to test the nature andthe activity of the Trust to grant registration. In the presentcase, the Original Authority has not doubted the bona fides of theTrust or the activity of the Trust, but on the ground that the Trusthad spent low quantum towards charitable activity, the Authority haddeclined registration of the Trust. A Trust can only do activitieswithin its financial capability. A Trust is not measured by itsfinancial clout but by its philanthropic disposition. 13. The finding that no activity worth its name was undertakenby the assessee is untenable. This Court has already consideredsuch plea in T.C.(A)No.579 of 2013, dated 27.1.2014 in the case ofDirector of Income Tax Exemptions, Chennai. V. M/s.Seervi SamajTambaram Trust, and held as follows:"9. In the present case also, the Revenue onlyquestions the trust not having commenced its activity forthe grant of registration. The provision under Section12AA of the Income Tax Act does not stipulate such acondition for grant of registration. On the other hand,Section 12AA (1) contemplates satisfaction of theCommissioner about the objects of the Trust and thegenuineness of the activities and make such enquiry asmay be necessary for the purpose of grant ofhttps://hcservices.ecourts.gov.in/hcservices/ registration. In so considering the application, theCommissioner has to give an opportunity to the assesseeas provided for under proviso to sub-section (1) ofSection 12AA. Under sub-section (3) of Section 12AA, theCommissioner is given power to cancel the registration,if he satisfies that the objects of such trust are notgenuine or not being carried on in accordance with theobjects of the trust. When such an authority is vestedwith the Commissioner to cancel the registration in theevent of the trust not being carried on in accordancewith the objects of the trust, we do not find any groundto say that merely on the date of the application, theassessee trust had not commenced its activities, hence,registration could not be granted. It is not denied bythe assessee that on the date of the application underSection 12AA, it was yet to commence its operation. Butnevertheless the genuineness of the objects of the trustwere not questioned by the Commissioner. Considering thefact that the continuance of registration is further asubject matter of scrutiny by the Commissioner ascontemplated under Section 12AA(3) of the Income Tax Act,we do not think that the Revenue would be justified inrefusing the registration at the threshold. The Tribunalhad followed the decision of the Gujarat High Court inthe case of CIT V. Kutchi Dasa Oswal Moto Pariwar AmbamaTrust reported in 29 Taxman 228. We respectfully agreewith the decision of the Gujarat High Court." 14. In such view of the matter, the interpretation given by theOriginal Authority declining to register the Trust has no legalbasis. Hence, We find that the Tribunal is justified in settingaside the order of the Original Authority. sl https://hcservices.ecourts.gov.in/hcservices/ To 1. The Income Tax Appellate Tribunal, Madras 'D' Bench. 2. The Director of Income Tax (Exemptions), Chennai. 3. The Assistant Registrar Income Tax Appellate Tribunal IV Floor, Rajaji Bhavan, Besant NagarChennai 1 cc to Mr.J.Narayanaswamy, Advocate, SR. 3246 1 cc to Mr.R.Janakiraman, Advocate, sr. 32588 T.C.(A) No.729 of 2013 KSJ (CO) kk 7/8