Devadiga Karnataka Sangha Charitable Institute, Bangalore V. DIT (Exemptions), Bangalore

ITA 1312/BANG/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57449 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-01-2012
• Assessment Year: misc
• Appeal Filed On: 25-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMAPATHI
• Assessee Lawyers: DR N SURESH
• Keywords: Charitable institution; Opportunity of being heard
• Section: 12A; 12AA; 12

Judgement Text

PAGE 1 OF 9 ITA NO.1312/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NO.1312/BANG/2010 DEVADIGA KARNATAKA SANGHA CHARITABLE INSTITUTE, NO.6, DEVADIGA SOUDHA, 3 RD D CROSS, IDEAL HOMES, BANGALORE-98. VS THE DIRECTOR OF INCOME TAX (EXEMPTIONS), BANGALORE-52. (APPELLANT) (RESPONDENT) DATE OF HEARING 17.01.2012 DATE OF PRONOUNCEMENT 17.01.2012 APPELLANT BY : DR. N SURESH, C.A. RESPONDENT BY : SHRI UMAPATHI, JCIT ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE APPELLANT-TRUST IS DIR ECTED AGAINST THE ORDER OF THE DIRECTOR OF INCOME-TAX (EX EMPTIONS) [DIT(E) IN SHORT], BANGALORE DATED 29.09.2010 PAS SED UNDER SECTION 12AA(1)(B)(II) OF THE INCOME TAX ACT, 1961. 2. THOUGH THE ASSESSEE IN HIS CONCISED GROUNDS OF APPEAL HAS ELABORATELY RAISED FOUR GROUNDS, THE CORE OF THE ISSUE PERTAINS TO REFUSAL OF GRANT OF REGISTRATION UNDER SECTION 12AA OF THE INCOME TAX ACT, 1961. PAGE 2 OF 9 ITA NO.1312/BANG/2010 2 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS A TRUST IN THE NAME OF DEVADIGA KARNATAKA SANGHA CHARITABLE INSTITUTE. IT IS ENGA GED IN RUNNING OF EDUCATIONAL INSTITUTION, NAMELY, MANGALA INSTITUTE OF MANAGEMENT STUDIES. THE APPELLANT HAD APPLIED FOR GRANT OF R EGISTRATION UNDER SECTION 12AA OF THE ACT VIDE ITS APPLICATION DATED 30.3.2010. THE APPLICATION WAS ACCOMPANIED BY THE CERTIFIED COPY OF THE TRUST DEED DATED 16/1/2004. THE APPELLANT-TRUST EARLIER HAD F ILED AN APPLICATION FOR REGISTRATION UNDER SECTION 12A (APPLICATION DAT ED 19.11.2007), THE SAID APPLICATION WAS REJECTED VIDE ORDER NO.DIT(E)B LR/12A/29/ ITO(E)-1/VOL 2008-09 DATED 30.5.2008. THE PRESEN T APPLICATION WAS FILED AFRESH ON MERITS, SINCE ACCORDING TO THE LEARNED AR, THE EARLIER APPLICATION DATED 19/11/2007 WAS REJECTED F OR NON- APPEARANCE. 3.1 IN PURSUANT TO THE FRESH APPLICATION DATED 30 .3.2010, A LETTER WAS ISSUED BY THE ITO (EXEMPTIONS) CALLING FO R CERTAIN DETAILS, WHICH WAS DULY FURNISHED. SUBSEQUENTLY, IN THE COURS E OF HEARING, IT WAS POINTED OUT TO THE LEARNED AR THAT THE SCHEDULE PROPERTY OF THE TRUST WAS LEASED OUT BY THE BANGALORE DEVELOPMENT AU THORITY (BDA) IN FAVOUR OF DEVADIGA SANGHA (R), THE SETTLOR AND SI NCE DEVADIGA SANGHA (R) WAS HAVING ONLY LIMITED INTEREST AND NO T THE ABSOLUTE OWNERSHIP OF THE PROPERTY, THE SETTLOR (DEVADIGA SAN GHA (R)), HAD NO RIGHT TO TRANSFER OR SETTLE THE PROPERTY IN FAVOUR OF THIRD PARTY WITHOUT OBTAINING A NO OBJECTION CERTIFICATE FROM THE BDA. IT WAS PAGE 3 OF 9 ITA NO.1312/BANG/2010 3 SUBMITTED BY THE LEARNED AR THAT THE SETTLOR HAD CON STRUCTED A BUILDING AND HITHERTO WAS RUNNING AN EDUCATIONAL IN STITUTION IN THE NAME OF MANGALA INSTITUTE OF MANAGEMENT STUDIES, WHICH WAS SUBSEQUENTLY SETTLED IN THE NAME OF THE APPELLANT TR UST, NAMELY, DEVADIGA KARNATAKA SANGHA CHARITABLE INSTITUTE. IT WAS STATED IN THE PREAMBLE OF THE TRUST DEED THAT THE SETTLOR IN THE ANNUAL GENERAL BODY MEETING HAD AUTHORIZED THE INDIVIDUALS MENTIONE D IN SL. NO. 1 TO 6 TO CONSTITUTE A SEPARATE TRUST FOR THE DEVELOPMENT OF THE EXISTING EDUCATIONAL INSTITUTION AND ALSO TO GET THE KHATA O F THE PROPERTY TRANSFERRED IN ITS NAME. IN THE TRUST DEED, THE SE TTLOR HAD TRANSFERRED RIGHTS OF ITS LAND AND BUILDING IN FAVO UR OF THE TRUST, WHICH IS MENTIONED IN THE TRUST DEED AT PAGE 2. IT WAS FURTHER STATED BEFORE THE LEARNED DIT(E) THAT BDA HAS EXECUTED THE LEASE FOR 30 YEARS SUBJECT TO RENEWAL AND IF THE LEASE IS NOT REN EWED, THE PROPERTY AND ACCRETION TO THE PROPERTY WILL REVERT BACK TO TH E BDA. IN THE EVENT OF DISSOLUTION OR WINDING OF THE TRUST, IT WA S SUBMITTED THAT THE ASSETS REMAINING AS ON THE DATE OF DISSOLUTION SHAL L BE TRANSFERRED TO ANOTHER CHARITABLE TRUST/SOCIETY ETC. WHOSE OBJECTS ARE SIMILAR TO THIS TRUST AND THEREFORE, ON DISSOLUTION, SETTLORS WILL NOT BE BENEFITTED IN ANY WAY. 4. THE DIT(E), HOWEVER, REJECTED THE APPLICATION F OR REGISTRATION UNDER SECTION 12AA OF THE ACT BY OBSERV ING THUS:- IN MY CONSIDERED VIEW, THE DEVADIGA SANGHA (R) HAD NO INHERENT RIGHT TO SETTLE THE LEASED PROPERTY THROUGH THE AUTHORIZED SETTLERS IN THE PRESENT PAGE 4 OF 9 ITA NO.1312/BANG/2010 4 TRUST WITHOUT OBTAINING A NO OBJECTION CERTIFICATE FROM THE BDA. IN THE CIRCUMSTANCES, IT IS EVIDENT THAT THE SETTLERS DID NOT HAVE THE RIGHT TO DIVESTITUTE THE PROPERTY IN QUESTION TO THE PRESENT TRUST. IN THE PRESENT CASE, AS DEVADIGA SANGHA (R) AND THE SETTLERS DID NOT HAVE THE ABSOLUTE OWNERSHIP AND THE RIGHT TO TRANSFER, THE APPLICANT TRUST HAVE NOT BEEN SETTLED WITH RIGHTFUL OWNERSHIP AND INTEREST IN THE PROPERTY. IT IS ALSO PERTINENT TO MENTION HERE THAT THE KHATA AND CORPORATION TAX RECEIPTS ARE IN THE NAME OF DEVADIGA SANGHA (R), THE SETTLER. 4.1. IT WAS FURTHER OBSERVED BY THE DIRECTOR OF IN COME TAX (EXEMPTIONS) THAT EVEN IF IT IS ASSUMED THAT THE PROPERTY IN QUESTION WAS SETTLED IN THE NAME OF THE APPLICANT TRUST, IN THE EVENT OF THE DISSOLUTION OF THE TRUST OR ON EXPIRY OF THE LEASE, THE DEVADIGA SANGHA (R), THE LESSEE OF THE PROPERTY, HAVE TO SUR RENDER THE LEASE RIGHT BACK TO BDA. HENCE, ON DISSOLUTION, THE RIGH T OF LEASE IN THE PROPERTY WILL GO BACK TO DEVADIGA SANGHA (R) WHICH IN TURN WILL HAVE TO BE SURRENDERED BY THEM TO BDA. AS SUCH THE TRUST DEED IS NOT CONSISTENT WITH THE IRREVOCABILITY CLAUSE, WHICH I S ONE OF THE ESSENTIAL REQUIREMENTS OF A PUBLIC CHARITABLE TRUST. 5. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFOR E US. 6. THE LEARNED AR SUBMITTED THAT THE DIRECTOR OF I NCOME TAX (EXEMPTIONS) HAS ERRED IN NOT CONSIDERING THE O BJECTS AND ACTIVITIES OF THE TRUST. THE APPELLANT IS A TRUST CONSTITUTED FOR THE PURPOSES OF IMPARTING EDUCATION AND IS ENGAGED IN R UNNING OF EDUCATIONAL INSTITUTIONS. THEREFORE, IT SATISFIES T HE CHARITABLE PURPOSE PAGE 5 OF 9 ITA NO.1312/BANG/2010 5 AS DEFINED UNDER SECTION 2(15) OF THE I T ACT, 1961 . IT WAS SUBMITTED THAT THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS ) HAS ERRED IN NOT APPRECIATING THE SCOPE AND OBJECT OF SECTION 12 A(A) AND 12AA. THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS) PRI MARILY OUGHT TO HAVE CONSIDERED THE OBJECTIVE OF BRINGING SECTION 1 2A AND 12AA RWS 2(15) OF THE I T ACT, 1961. IN THE LIGHT OF THE OB JECT AND SCOPE, THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTIONS) OUGHT T O HAVE CONSIDERED THE APPLICATION OF THE APPELLANT, WHICH HAS BEEN COMPLETELY IGNORED. THE LEARNED AR ARGUED THAT THE LEARNED DI RECTOR OF INCOME TAX (EXEMPTIONS) HAS TRAVELLED BEYOND THE REQUIREMEN T OF LAW. IT WAS SUBMITTED THAT WHILE CONSIDERING THE APPLICATIO N FOR REGISTRATION FILED UNDER SECTION 12A(A), 12AA RW RULE 17 TO THE INCOME TAX RULES, 1962, THE POWER VESTED WITH THE REGISTERING AUTHORI TY UNDER SECTION 12(AA), UNDER SUB-CLAUSE (A) AND (B) IS TO CALL FOR THE DOCUMENTS OR INFORMATION FROM THE TRUST TO SATISFY ABOUT THE OBJE CTS AND GENUINENESS OF THE ACTIVITIES OF THE TRUST. THE PO WER VESTED WITH THE REGISTERING AUTHORITY IS TO FOCUS ON OBJECTS AND GEN UINENESS OF THE ACTIVITIES, AND IN THE LIGHT OF SATISFYING THE OBJEC TS AND GENUINENESS OF THE ACTIVITIES OF THE TRUST, POWER IS VESTED TO CAL L FOR THE DOCUMENTS. WHEREAS THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTI ONS) HAS NOT CONSIDERED THE OBJECTS AND GENUINENESS OF THE ACTIV ITIES IN THE ORDER DATED 29.9.2010 AND HAS ERRED BY TRAVELING BEYOND THE SCOPE AND OBJECT OF SECTION 12AA OF THE I T ACT. IT WAS CON TENDED FURTHER THAT THE PROVISO TO SECTION 12AA(1)(B) PROVIDES THA T NO ORDER UNDER SUB-CLAUSE (I) SHALL BE PASSED UNLESS THE APPLICANT HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. IN THE INSTA NT CASE, BEFORE PAGE 6 OF 9 ITA NO.1312/BANG/2010 6 PASSING THE ADVERSE ORDER, THE APPELLANT TRUST WAS NEITHER GIVEN SHOW CAUSE NOTICE NOR REASONS BASED ON WHICH THE APPLICA TION FOR REGISTRATION WAS REJECTED. 6.1 THE LEARNED AR ALSO RELIED ON THE JUDGEMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SANJEEVAMMA HAN UMANTHE GIOWDA CHARITABLE TRUST V DIT(E) 285 ITR 327 AND CONTENDED THAT THE DIT(E) SHOULD HAVE SATISFIED HIMSELF ABOUT THE GENU INENESS OF THE ACTIVITIES OF THE TRUST OR INSTITUTION BY SECURING I NFORMATION FROM THE APPELLANT TRUST. IT WAS SUBMITTED THAT AT THE TIM E OF REGISTRATION, THE DIRECTOR OF INCOME TAX (EXEMPTIONS) IS NOT EMPO WERED TO EXAMINE THE SOURCE OF THE INCOME OF THE TRUST BUT I S TO EXAMINE WHETHER SUCH INCOME IS APPLIED FOR CHARITABLE OR RE LIGIOUS PURPOSE. IT WAS CONTENDED THAT SATISFACTION OF THE COMMISSIONER /DIT(E) SHOULD BE REGARDING THE APPLICATION OF THE INCOME OF THE T RUST FOR CHARITABLE OR RELIGIOUS PURPOSE WHICH ONLY ENTITLES THE ASSESSE E TO CLAIM EXEMPTION. 7. THE LEARNED DR PRESENT WAS DULY HEARD. HE HAD S TRONGLY SUPPORTED THE ORDER OF THE DIT(E). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, WE ARE OF THE VI EW THAT THE DIRECTOR OF INCOME TAX (EXEMPTIONS), BEFORE PASSING AN ADVER SE ORDER AGAINST THE APPELLANT TRUST, OUGHT TO HAVE GIVEN AN OPPORTU NITY OF HEARING TO THE ASSESSEE. THE PROVISO TO SECTION 12AA(1)(B) PR OVIDES THAT NO PAGE 7 OF 9 ITA NO.1312/BANG/2010 7 ORDER UNDER SECTION 12AA SHALL BE PASSED UNLESS THE APPLICANT HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. IN THE INSTANT CASE, THE DIRECTOR OF INCOME TAX (EXEMPTIONS) PASSE D AN ORDER ADVERSELY WITHOUT PUTTING THE ASSESSEE ON NOTICE THE REASONS FOR REJECTING THE APPLICATION. THE TRUST WAS FORMED BY DEED DATED 16/1/2004. ON RECEIPT OF THE APPLICATION FOR REGIS TRATION UNDER SECTION 12AA, THE ITO (EXEMPTIONS) ATTACHED TO THE OFFICE OF THE DIRECTOR OF INCOME TAX (EXEMPTIONS) HAD ISSUED A LE TTER (CALL MEMO) REQUIRING CERTAIN DETAILS. TO THIS, THE ASSESSEE H AD DULY FILLED THE DETAILS CALLED FOR. IN THE COURSE OF HEARING, THE DIRECTOR OF INCOME TAX (EXEMPTIONS) HAD RAISED CERTAIN OBJECTIONS WITH REFERENCE TO GRANT OF REGISTRATION. THE ASSESSEE HAD FILED WRIT TEN SUBMISSIONS WITH REFERENCE TO THOSE OBJECTIONS POSTED BY THE DIR ECTOR OF INCOME TAX (EXEMPTIONS). HOWEVER, THE DIRECTOR OF INCOME TAX (EXEMPTIONS) HAD REJECTED THE APPLICATION FOR REGIS TRATION FOR TWO REASONS, NAMELY, (I) DEVADIGA SANGHA (R) AND THE SETTLERS DID NOT HAVE THE ABSOLUTE OWNERSHIP AND THE RIGHT TO TRANSFER, T HE APPLICANT TRUST HAVE NOT BEEN SETTLED WITH RIGHTFUL OWNERSHIP AND INTEREST IN THE PROPERTY. (II) EVEN IF IT IS ASSUMED THAT THE PROPERTY IN QU ESTION WAS SETTLED IN THE NAME OF THE APPLICANT TRUST, IN THE EVENT OF THE DISSOLUTION OF THE TRUST OR ON EXPIRY O F THE LEASE, THE DEVADIGA SANGHA (R), THE LESSEE OF THE PROPERTY, HAVE TO SURRENDER THE LEASE RIGHT BACK TO BDA. HENCE, ON DISSOLUTION, THE RIGHT OF LEASE IN THE PROPERTY WILL GO BACK TO DEVADIGA SANGHA (R) WHICH IN TURN WILL HAVE TO BE SURRENDERED BY THEM TO BDA. AS SUCH THE TRUST DEED IS NOT CONSISTENT WITH THE PAGE 8 OF 9 ITA NO.1312/BANG/2010 8 IRREVOCABILITY CLAUSE, WHICH IS ONE OF THE ESSENTI AL REQUIREMENTS OF A PUBLIC CHARITABLE TRUST. 8.1 THE ABOVE SAID TWO REASONS FOR REJECTING THE A PPLICATION FOR REGISTRATION WERE NOT PUT TO ASSESSEE, CALLING FOR ITS SPECIFIC OBJECTIONS. AS STATED EARLIER, BY VIRTUE OF PROVISO TO SECTION 12AA(1)(B), NO ORDER UNDER SUB-SECTION (1) CAN BE P ASSED WITHOUT GIVING REASONABLE OPPORTUNITY OF BEING HEARD. IN TH E INSTANT CASE, SINCE NO SHOW-CAUSE NOTICE OR REASONS FOR REJECTING THE APPLICATION WAS GIVEN TO THE ASSESSEE PRIOR TO THE IMPUGNED ORD ER DATED 29.9.2010, WE ARE OF THE VIEW THAT THE APPELLANT TR UST WAS NOT GIVEN REASONABLE OPPORTUNITY TO REBUT THE POINTS RAISED IN THE IMPUGNED ORDER. THEREFORE, IN THE INTEREST OF JUSTICE THE M ATTER IS RESTORED TO THE FILE OF DIRECTOR OF INCOME TAX (EXEMPTIONS). H E SHALL RE-EXAMINE THE ISSUE AFRESH AFTER AFFORDING REASONABLE AND PRO PER OPPORTUNITY TO THE APPELLANT TRUST TO REBUT THE REASONS STATED IN THE IMPUGNED ORDER FOR REJECTING THE REGISTRATION APPLICATION. THE DI RECTOR OF INCOME TAX (EXEMPTIONS), WHILE PASSING FRESH ORDER, SHALL KEEP IN MIND THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SANJEEVAMMA HANUMANTHE GOWDA CHARITABLE TRUST (2 85 ITR 327). 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED ON THE 17 TH DAY OF JANUARY, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER PAGE 9 OF 9 ITA NO.1312/BANG/2010 9 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.