CARELEAVERS INNER CIRCLE FORUM,JAIPUR V. COMMISSIONER OF INCOME TAX (EXEMPTION), JAIPUR

ITA 903/JPR/2024

AI Insights

The case involves two appeals by Careleavers Inner Circle Forum against the orders of the Commissioner of Income Tax (Exemption), which rejected their applications for registration under sections 12AB and 80G of the Income Tax Act. The primary reasons for rejection included discrepancies in the Articles of Association and the applicant's previous benefits from sections 11 and 12 of the Act, which were not disclosed in their applications. The tribunal noted the applicant's failure to provide adequate explanations and documents during the initial proceedings but decided to remand the case for a fresh decision, allowing the applicant another opportunity to substantiate their claims.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 35320 (ITAT-JAIPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2024-2025
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY DHARIWAL
• Assessee Lawyers: PANKAJ SANCHETI
• Keywords: Set aside; Opportunity of being heard; Charitable institution
• Section: 11; 68; 22; 12; 80G; 101

Judgement Text

"vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh xxu xks;y] ys[kk lnL; ,o Jh ujsUnz dqekj] U;kf;d lnL; ds le{k BEFORE: SHRI GAGAN GOYAL, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum Start-up No. 06, MIIC MNIT JLN Marg Malviya Nagar, Jaipur cuke Vs. Commissioner of Income Tax (Exemption), Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJCC 9402 A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Pankaj Sancheti, CA jktLo dh vksj ls@ Revenue by : Sh. Sanjay Dhariwal, CIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 10/02/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 11/02/2025 vkns'k@ ORDER PER: NARINDER KUMAR, JUDICIAL MEMBER On 25th June, 2024, appellant presented the above captioned two appeals. Thereby, the appellant challenged two orders passed by ld. CIT(E) on 27.04.2024. By one order, application u/s 12AB of the Income Tax Act (for short ‘Act’) was rejected, whereas, vide separate order separate application filed u/s 80G of the Act was rejected. 2. Application under section 12 AB was rejected on the following grounds. • Application non maintainable taken benefit of section 11 or 12 2 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) • Discrepancies in Article of Association • Business objects • Benefit to interested person • Genuineness of Activities The 2nd mentioned application i.e. u/s 80G was rejected on the following two grounds; • Approval u/s 80G cannot be granted without registration u/s 12AB • Application non maintainable taken benefit of section 11 or 12 3. Arguments heard. File perused. ITA No. 904/JP/2024 4. Ld. AR for the appellant has submitted that the appellant is a company incorporated on 25.11.2021 dedicated towards helping young adult who have grown up in orphanages or institutional care. It provides these individuals with crucial support while they transition into independent adulthood, by providing them assistance in finding housing, continuing their education, and securing employment. 3 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) Learned AR has submitted that as further claimed by the appellant, it has support from UNICEF. This partnership aims to provide essential support to young adults leaving institutional care, focusing on areas such as education, health and livelihood. 5. As noticed above, one of the grounds for rejecting the application u/s 12AB of the Act is that there were discrepancies in the Article of Association. In this regard, the observations made by Ld. CIT(E) need to be reproduced for ready reference. Said observations read as under:- “03. Discrepancies in Article of Association 3.1. On perusal of the AOA of the institution, some discrepancy was found in Para. 35 of Article of Association of the Company. The same is as under: - 35. \"Notwithstanding anything contained in these articles but subject to the provisions of sections 68 to 70 and any other applicable provision of the Act or any other law for the time being in force, the company may purchase its own shares or other specified securities.\" A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market at a rate decided by the management. Thus, in the guise of this clause, the institution can go for earning & distribution of profits which clearly violates the spirit of charitability and also the condition that any institution claiming to be a public religious or public charitable 4 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) or both should be irrevocable in nature. The purpose of an irrevocable trust is to move the assets from the grantor's control and name to that of the beneficiary (public at large). In other words, the settlor has to give up ownership and all beneficial interests in the property and it has to hold all the properties as trustee for the benefit of public at large. Here, in the present case, section 8 Company is the settlor. Therefore, the settlor cannot buy back its own shares/property once it has been given for the charitable purposes. Hence, this clause in AOA shows that the institution is not established for charitable purposes and thus ineligible for registration u/s 12AB. To clarify the above, the applicant was asked vide notesheet dated 12.04.2024. The same is reproduced as under: - 1. \"On perusal of the AOA of the institution, it is seen that clause 35 specifies the following: \"Notwithstanding anything contained in these articles but subject to the provisions of sections 68 to 70 and any other applicable provision of the Act or any other law for the time being in force, the company may purchase its own shares or other specified securities.\" A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market at a rate decided by the management. Thus, in the guise of this clause, the institution can go for earning & distribution of profits which clearly violates the spirit of charitability and also the condition that any institution claiming to be a public religious or public charitable or 5 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) both should be irrevocable in nature. The purpose of an irrevocable trust is to move the assets from the grantor's control and name to that of the beneficiary (public at large). In other words, the settior has to give up ownership and all beneficial interests in the property. Here, in the present case, section 8 Company is the settlor. Therefore, the settlor cannot buy back its own shares/property once it has been given for the charitable purposes. In view of the above, fumish an explanation as to why the application filed by you for registration u/s 12AB should not be rejected.\" However, the applicant has failed to furnish any explanation in this regard and hence, it can be concluded that the applicant intends to indulge in non-charitable activities and thus is ineligible for registration u/s 12AB. 3.2 Para, 65 of Article of Association of the applicant is also reproduced as under:- \"65. If the company shall be wound up, the liquidator may, with the sanction of a special resolution of the company and any other sanction required by the Act, divide amongst the members, in specie or kind, the whole or any part of the assets of the company, whether they shall consist of property of the same kind or not…” A section 8 company may be dissolved/wound up. Upon dissolution and after settlement of all debts and liabilities, the funds and property of the company cannot be distributed among the members of the company. Rather, the remaining funds, property must be given or transferred to some other sec. 8 company preferably one having similar objects as the dissolved/wound up entity. This is also evident from the section 8 (9) of the companies Act which is reproduced as under: - 6 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) \"(9) If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any assets, they may be transferred to another company registered under this company and having similar objects, subject to such condition as the tribunal may imposed, or may be sold and proceeds thereof credited to [insolvency and Bankruptcy Fund formed under sec. 224 of the Insolvency and Bankruptcy Code, 2016)\" To clarify the above, the applicant was asked to furnish clarification on the same vide this notesheet dated 12.04.2023. \"Clause 65 of the Article of Association of the institution states as under- \"If the Company shall be wound up, the liquidator may with the sanction of a special resolution of the Company and any other sanction require by the Act, divide amongst the members, in specie or kind, the whole or any part of the assets of the Company, whether they shall consist of the same kind or not.\" A section 8 company may be dissolved/wound up. Upon dissolution and after settlement of all debts and liabilities, the funds and property of the company cannot be distributed among the members of the company. Rather, the remaining funds, property must be given or transferred to some other sec. 8 company preferably one having similar objects as the dissolved/wound up entity. This is also evident from the section 8 (9) of the companies Act which is reproduced as under- \"(9) If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any assets, they may be transferred to another company registered under this company and having similar 7 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) objects, subject to such condition as the tribunal may imposed, or may be sold and proceeds thereof credited to [insolvency and Bankruptcy Fund formed under sec. 224 of the Insolvency and Bankruptcy Code, 2016] Thus, it is evident from the above that you are in clear violation of Sec. 8 (9) of the Companies Act and hence, ineligible for registration u/s 12AB. In view of the above, fumish an explanation as to why the application filed by you for registration u/s 12AB should not be rejected.\" However, even after giving sufficient opportunities, the applicant has failed to furnish explanation on the same. Thus, it is evident from the above that the applicant is in clear violation of Sec, 8 (9) of the Companies Act and most importantly lose the character of public charitable institution where it is necessary to hold assets for the benefit of general public. Hence the applicant is ineligible for registration u/s 12AB.” 6. Ld. CIT(E) further observed that in view of stipulation of para 35 of its Article of Association, the applicant can go for earning and distributions of the profits which clearly violated the spirit of charitability; that the said clause also clearly violated the conditions that any institution claiming to be a public religious or public charitable or both, should be irrevocable in nature, so that the assets may move beyond the control of the grantor to the beneficiaries i.e. public at large. 8 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) 7. As noticed above, Learned CIT(E) has also recorded certain observations under the heading “Business Objects” and held that not only in the object of trust deed, the applicant is also involved in doing business activity and cannot be classified as charitable, and rathr, it is doing such business thereby violating the law. 8. Ld. AR for the appellant has submitted that after passing of the impugned order, the applicant-appellant has presented an application to the Ministry of Cooperate Affairs for approval of the amendment in the Article of Association. In this regard, ld. AR for the assessee has referred to the copy of Form No. MGT-14 available at page No. 101 to 112. This form appears to have been submitted online on 24th July, 2024. Ld. AR for the appellant has further submitted in the course of arguments that approval of the amendments to the Article of Association, as regards the amendment in the object clause may take some time, but the matter may be remanded to Learned CIT(E) for decision afresh having regard to the amendments in the object clause of the Article of Association, sent for approval. 9 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) In the course of arguments, Learned DR for the department has not opposed the prayer made on behalf of the assessee for remand of the matter to Learned CIT(E) for decision afresh having regard to the object clause, amendments whereof are pending approval of the Ministry of Corporation Affairs as submitted by Learned AR. In this regard, it is significant to note that when Ld. CIT(E) raised query in this regard and called upon the applicant to furnish response, the applicant did not submit any reply. Applicant was required to explain the query and also put forth all the relevant documents so that Learned CIT(E) could effectively adjudicate the issue. But, the applicant failed to do so. Learned AR submits that the applicant on being afforded another opportunity shall produce all the relevant material before Learned CIT(E) even on this point. 9. Once, the assessee has already applied for alteration of object clause in the Article of Association, and also intends to produce all the relevant documents before Learned CIT(E) on the issues involved, we deem it a fit case where the matter be remanded to Learned CIT(E) decision of the 10 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) application afresh after providing reasonable opportunity of being heard to the applicant. Non maintainability of the application u/s 12AB 10. The application having derived u/s 11 & 12 of the Act, as regards the said ground made based for rejection of the application u/s 12AB as well as u/s 80G of the Act, ld. CIT(E) observed as under:- “02. Application non maintainable taken benefit of section 11 or 12 2.1 Since applicant filed its application in form 10AB and verification of same says that applicant is applying for registration/ approval under the section code 4A u/s 12A(1)(ac)(vib). The provision of section 12A(1)(ac) (vib) are as under:- \"(vi)(B) commenced and no income or part thereof of the said trust or institution has been excluded from the total income on account of applicability of sub-clause (iv) or sub- clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, or section 11 or section 12, for any previous year ending on or before the date of such application, at any time after the commencement of such activities. From the plain reading of this section, it is evident that, the applicant can apply only if, it has commenced activities and not taken benefit of section 10, 11 & 12 in earlier years. Thus, to verify taking of benefit of section 11 & 12, the applicant was asked vide this office questionnaire letter dated 25.02.2024 at point no. 22: - 11 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) \"please submit the following: 1. Have you taken benefit of section 11, 12 or clause (iv)(v) (vi) & (via) of 10 (23C) in earlier year, give a clarification/affidavit in this regard. Copy of ITR for last three year to prove that no benefit has been taken earlier.\" In response to above, the applicant furnishes its reply and stated that it has not taken any benefit of section 10/11/12 in any earlier year, however, it was seen from the ITR, that assessee has filed ITR for A.Y. 2023-24 in ITR-7 as trust and has claimed its income as zero. From income and expenditure account also, it was seen that in A.Y. 2023-34, assessee was having income before section 11 of Rs. 19.66 lakhs, which was claimed to be applied and thus claimed exempt. It was also seen that earlier assessee has taken provisional registration under clause 12A(1)(ac)(vi) and on that basis only has filed its ITR on the basis of its provisional registration. Thus, it is clear that assessee has earlier taken benefit, thus not eligible under this clause (viB), code 4A. In fact, in such cases where provisional registration is taken, assessee should have filed under clause (iii) for regularization of registration. 2.2 Again, vide ordersheet dated 12.04.2024 the applicant was asked” You were asked vide point no. 22 of questionnaire dated 25.02 2024 to submit the affidavit, however you have not submitted the same. Therefore, you are once again requested to submit the affidavit wherein it is mention that you have not taken benefit of section 11,12 or clause (iv)(v)(vi) & (via) of 10 (23C) in earlier year.” In response of the showcause the applicant has not submitted its submission till date. 12 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) Further, the applicant alongwith Form 10AB given undertaken, which is as under: - I Girish Mehta, son of Dayaram Mehta, hereby declare that the details given in the form are true and correct to the best of my knowledge and belief. I undertake that I am applying for registration/approval under the section code 4A having commenced activities on 01-04-2022, and also that no income or part thereof the CARELEAVERS INNER CIRCLE FORUM having permanent account number (PAN) AAJCC9402A has been excluded from the total income on account of applicability of sub-clause (iv)or sub-clause (v) or sub-clause (via) of clause (23C) of section 10 or section 11 or 12 for any previous year ending on or before the date of making this application on 31.10.2023, at any time after the commencement of such activities I further undertake to communicate forth with any alteration in the terms of the Trust, or in the rules governing the institution, made at any time hereafter. I further declare that I am filling this form in my capacity as MTR (designation) having PAN FAMPM3218K and that I am competent to file this form and verify it. 2.3 From above the applicant itself stated that he has never taken benefit of section 11,12 or clause (iv) (v) (vi) & (via) of 10 (23C) however on perusal of ITR of the applicant it is seen that the applicant has taken benefit of section 11,12 or clause (iv)(v)(vi) & (via) of 10 (23C) in the F.Y. 2022-23. In view of the above, the present application filed in Form No.10AB is liable to be rejected as non-maintainable. 13 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) 11. As noticed above, Ld. CIT(E) observed that for the purpose of registration/approval u/s 12A, it is to be established that if applicant has commenced activities, it has not taken benefit of section 10, 11 & 12 of the Act in the previous years. As finds mentioned in the impugned order letter dated 25.02.2024 was issued to the applicant to inquire as to whether the applicant has taken benefit of sections 11 and 12 of the Act in the previous year. Thereupon, the applicant submitted reply that it had not taken any such benefit on going through the ITR furnished with the applicant for the year 2023-24, in ITR-7 as a trust, it had shown its income as ‘Zero’. But, on going through the Income and Expenditure Account, it was seen that in the Assessment Year 2023-24, assessee had income of Rs. 19.66 lakhs, which was claimed to be exempt. As further finds mentioned in the impugned order, Ld. CIT(E) called for affidavit of the applicant on this point. Thereupon, representative of the applicant testified that the applicant commenced activities on 08.04.2022 and further that no income or part thereof was excluded from total income 14 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) on account of applicability of sub clause (iv) or sub clause (v) or sub clause (vi a) of clause (23C) of section 10, 11 or 12 for any previous year. Ld. CIT(E) was not satisfied with the above testimony in the affidavit, and he held that the applicant had taken benefit of section 11, 12 or clause (iv), (v), (vi) and (vi a) of section 10(23C), in the F.Y 2022-23. 12. Ld. AR for the appellant has contended that while dealing with an applications u/s 12AB or 80G of the Act, Ld. CIT(E) is not required to consider if the applicant had availed of benefit of section 11 or 12 of the Act. 13. In this regard, suffice it to say that registration of the Trust or Institution under section 12 AB is not merely a formality, and the CIT(E) may go through the relevant financials as regards the past activities of the applicant trust, so that he may satisfy himself about the genuineness of activities the trust or institution, and also about compliance of such material requirements of any other law for the purpose of achieving its objects. But, here, we find that Learned CIT(E) while dealing with the issue of grant or refusal of registration went on even to satisfy if the applicant had or had 15 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) not availed of benefit of provisions of section 11 or 12 of the Act in the previous period, and thereby appears to have exceeded the scope of satisfaction. Benefit to interested person 14. While passing impugned order, Ld. CIT(E) has observed that Shri Girish Mehata, Ms Anisha Sharma director and Sh. Kushal Gaur, trustee are the persons specified in section 13(3) (3A) of the Act. They have retrieved property of the trust for their personal use, and not for any charitable purpose. While so observing, Learned CIT(E) arrived at the conclusion that the trust violated provisions of clause (a) of explanations below section 12AB(iv) of the Act. 15. Ld. AR for the appellant has submitted that the above said persons were drawing salary, as permissible under the law and withdrawal of salary could not said to be unreasonable, particularly when they had to discharge duties to achieve objects of the trust. 16. On the other hand, Ld. DR for the department has pointed out that the applicant has two bank accounts i.e. one with State Bank of India and other HDFC Bank; that Shri Girish Mehata, director of the applicant received a 16 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) sum of Rs. 21,47,577/- that M/s Anita Sharma, another director of the applicant received at Rs. 7,04,078/-; that Shri Kushal Gaur received a sum of Rs. 6,04,548/- during the F.Ys 2022-23 and 2023-24, from account of the assessee with State Bank of India; that in addition thereto Sh. Girish Mehta, director also received a sum of Rs. 1,71,056/- in the said financial year, from HDFC bank. 17. Ld. DR has rightly pointed out that Ld. CIT(E) asked the applicant to explain about various payments made to the said three persons, for the purpose for which same were made, as to whether the said payments were shown or not in the books of accounts, whether any such payment was by way of reimbursement, but the applicant did not furnish any reply. On behalf of the appellant, as noticed above, another opportunity has been sought to furnish all the requisite documents before Learned CIT(E). Genuineness of Activities 18. In para 6.1 of the impugned order, Learned CIT(E) has concluded that the activities of the applicant trust are not genuine. On oing through the same paragraph, we find that the applicant failed to lead any evidence to prove genuineness of transactions; that the applicant failed to provide any justification regarding payments of salary, rent and travelling expense; that the applicant failed to provide evidence as to who were 17 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) the beneficiers of Rs. 55 lacs said to have been spent on orphange and care leavers and as to how said amount was actually provided and spent. In the given facts and circumstances, as noticed above, Learned AR has sought another opportunity before Learned CIT(E) to produce all the relevant documents, but the fact remains that the applicant should have made available entire relevant information and evidence to the Learned CIT(E) so that same could be scrutinized for the purposes of registration. From the above discussion, we find that in the interest of justice, one more opportunity of being heard be granted to the assessee, with a chance to produce all the material documents before Learned CIT(E). Result 19 As a result, the appeal-ITA No.904/JP/2024 is disposed of for statistical purposes, and matter is remanded to Learned CIT(E), who shall decide the application afresh after providing one more opportunity of being heard to the assessee, with a chance to produce all the material documents. However, keeping in view the failure on the part of the assessee to produce a number of relevant documents and evidence before Learned CIT(E), for which no satisfactory explanation was put forth, the appellant is burdened 18 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) with costs of Rs.2,500/-. Costs to be deposited in Prime Minister’s National Relief Fund. Receipt to be produced before Learned CIT(E) before commencement of the proceedings on remand. ITA No.903/JP/2024 20. In view of the decision in ITA No.904/JP/2024 above, the consequential impugned order passed on application under section 80G of the Act, rejecting the same, is hereby set aside, and the application is restored to the files of Learned CIT(E), who shall decide the application afresh after providing one more opportunity of being heard to the assessee, with a chance to produce all the material documents. However, keeping in view the failure on the part of the assessee to produce a number of relevant documents and evidence before Learned CIT(E), for which no satisfactory explanation was put forth, the appellant is burdened with costs of Rs.1,500/-. Costs to be deposited in Prime Minister’s National Relief Fund. Receipt to be produced before Learned CIT(E) before commencement of the proceedings on remand. 19 ITA Nos. 903 & 904/JP/2024 Careleavers Inner Circle Forum vs. CIT (E) Copy of the common order be placed in the connected file of Appeal ITA No.904/JP/2024. Appeal files be consigned to the record room after the needful is done by the office. Order pronounced in the open court on 11/02/2025. Sd/- Sd/- ¼xxu xks;y ½ ¼ujsUnz dqekj½ (GAGAN GOYAL) (NARINDER KUMAR) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 11/02/2025 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Careleavers Inner Circle Forum, Jaipur 2. izR;FkhZ@ The Respondent- Commissioner of Income Tax (Exemption), Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA Nos. 903 & 904/JP/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar "