JAIPUR RURAL HEALTH & DEVELOPMENT TRUST, Jaipur V. CIT-EXEMPTION, Jaipur

ITA 209/JPR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5167 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: misc
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S KOTHARI CIT DHK
• Keywords: Charitable institution
• Section: 80G; 12A; 12AA; 32; 12; 11

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 209 & 210/JP/2016 JAIPUR RURAL HEALTH & DEVELOPMENT TRUST, BIYANIS R-4, SECTOR-3, VIDHYADHAR NAGAR, JAIPUR. CUKE VS. THE COMMISSIONER OF INCOME - TAX, (EXEMPTIONS), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAATJ 0972 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI D.S. KOTHARI (CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04.08.2016. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 25/08/2016. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST THE TWO DIFFERENT ORDERS OF LD. CIT (EXEMPTIONS), JAIPUR DATED 24.02. 2016. FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO. 210/JP/2016. THE ASSE SSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED ON FACTS AND IN LAW IN REFUSING TO GRANT EXEMPTION U/S 80G O F THE INCOME TAX ACT, 1961. 2. THE ASSESSEE CRAVES TO AMEND, ALTER AND MODIFY ANY OF THE GROUNDS OF APPEAL. 3. NECESSARY COST BE ALLOWED TO THE ASSESSEE. 2 ITA NOS. 209 & 210/JP/2016 JAIPUR RURAL HEALTH AND DEVELOPMENT TRUST. 2. BRIEFLY STATED THE FACTS ARE THAT AN APPLICATION IN FORM 10A SEEKING REGISTRATION UNDER SECTION 12AA OF THE INCOME TAX A CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FILED BY THE ASSESSEE TRUST ON 11.0 8.2015. THE LD. CIT ISSUED NOTICE SEEKING CLARIFICATION ON THE ACTIVITY OF THE ASSESS EE TRUST AND AFTER CONSIDERING THE OBJECTS OF THE TRUST GAVE A FINDING THAT THE ACTIVI TIES OF THE TRUST ARE NEITHER AS PER OBJECTS NOR THE ACCOUNTS ARE MAINTAINED AS PER THE RAJASTHAN PUBLIC TRUST ACTS, 1959. THE LD. COUNSEL FOR THE ASSESSEE HAS REITERA TED THE SUBMISSIONS AS MADE IN THE WRITTEN BRIEF. 3. ON THE CONTRARY, THE LD. CIT D/R SUPPOSED THE SU BMISSIONS AND SUBMITTED THAT THE LD. CIT WAS WITHIN HIS RIGHT TO ENQUIRE AB OUT THE NATURE OF ACTIVITIES. IF THE LD. CIT COMES TO THE CONCLUSION THAT THE ACTIVITIES OF THE ASSESSEE TRUST ARE NOT IN CONSONANCE WITH THE OBJECTS OF THE TRUST IN THAT EV ENT THE LD.CIT IS JUSTIFIED IN REJECTING THE APPLICATION FOR REGISTRATION UNDER SE CTION 12AA OF THE ACT. 4. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED AS UNDER :- FROM THE OBJECTS OF THE ASSESSEE, IT CAN BE NOTED THAT ALL ITS OBJECTS ARE FOR GENERAL PUBLIC UTILITY. HOWEVER, THE LD. CIT HAS MA DE VARIUS INCORRECT AND IRRELEVANT OBSERVATIONS WHICH HAVE NO RELATION WITH THE GRANT OF REGISTRATION U/S 12AA. EACH OF SUCH OBSERVATION IS EXPLAINED AS UNDER :- (I) FROM THE COPY OF THE ORDER DATED 14.05.1986 (PB 36- 37) ALLOTTING THE LAND TO THE TRUST, IT IS SPECIFICALLY MENTIONED THAT THE SAME IS TO BE USED BY THE TRUST FOR CONSTRUCTIO N OF SCHOOL, COLLEGE, HOSPITAL, DHARAMSHALA AND OTHER PUBLIC UTI LITY ACTIVITIES. THEREFORE, IT WAS INCORRECT ON PART OF CIT TO OBSER VE THAT THE LAND HAS BEEN ALLOTTED FOR MIDDLE SCHOOL AND DISPEN SARY AND NOT FOR RUNNING OF HOSPITAL AND MEDICAL COLLEGE. (II) THE ASSESSEE TRUST HAS REVALUED THE LAND FOR RS. 29 .095 CRORES BY CREDITING THE CAPITAL FUND ON 31.03.2011. THE RE VALUATION OF 3 ITA NOS. 209 & 210/JP/2016 JAIPUR RURAL HEALTH AND DEVELOPMENT TRUST. LAND WAS MADE AS THE TRUST INTENDED TO ESTABLISH A MEDICAL COLLEGE AND HOSPITAL AND TO AVAIL THE FINANCE, THE LAND WAS REVALUED. THIS HAS BEEN OBJECTED BY THE CIT STATING THAT IT HAS BENEFITED THE TRUSTEES AND IT IS NOT AS PER THE PRO VISIONS OF THE RAJASTHAN PUBLIC TRUST ACT. THESE OBJECTIONS ARE IR RELEVANT AND NOT A CONDITION PRECEDENT FOR GRANT OF REGISTRATION . ONCE THE LAND IS REVALUED BY CREDITING TO THE CAPITAL FUND A CCOUNT OF THE TRUST, ONE FAIL TO UNDERSTAND HOW IT WOULD GIVE BEN EFIT TO THE TRUSTEES. THE CAPITAL FUND REMAINS OF THE TRUST ONL Y. WHETHER IT IS CREDITED TO THE CAPITAL FUND OR THE REVALUATION RESERVE MAKES NO DIFFERENCE. FURTHER, IT IS IRRELEVANT ON PART OF CIT TO OBSERVE THAT SUCH REVALUATION CAN BE MADE ONLY BY BUSINESS UNDERTAKINGS OR THAT A LAND WHICH IS ALLOTTED FREE OF COST CANNOT BE REVALUED BY THE TRUST. EVEN THE RAJASTHAN PUBLIC TRUST ACT DOES NOT PROHIBIT THE TRUST TO REVALUE THE ASSETS. THEREFORE, BY MAKING REVALUATION OF LAND, THE TRUSTEES/SETTLERS A RE NOT BENEFITED AND SECTION 13 IS NOT ATTRACTED. (III) IT IS OBSERVED THAT OPENING OF MEDICAL COLLEGE AND HOSPITAL IS NOT AS PER THE OBJECT OF THE TRUST. THIS FINDING IS INC ORRECT IN AS MUCH AS CLAUSE (A) AND (D) OF THE OBJECT CLAUSE SPE CIFICALLY AUTHORIZE THE TRUST TO ESTABLISH HOSPITALS AND COLL EGES. FOR ESTABLISHING THE MEDICAL COLLEGE, THE TRUST HAS REC EIVED LETTER OF INTENT FROM GOVERNMENT OF RAJASTHAN, MEDICAL EDUCAT ION VIDE LETTER DATED 10.07.2013 (PB 40-41). FOR GRANT OF REGISTRATION U/S 12AA, THE CIT, AS PER SUB-SECTION (1) OF THIS SECTION IS REQUIRED TO SATISFY HIMSELF ABOUT T HE OBJECTIVES OF THE TRUST AND THE GENUINENESS OF ITS ACTIVITIES. THERE IS NO FINDING OF CIT THAT THE OBJECTS OF TRUST ARE NOT CHARITABLE OR THA T THE ACTIVITIES OF THE TRUST ARE NOT GENUINE. IT IS A SETTLED LAW THAT AT THE STAGE OF GRANT OF REGISTRATION, CIT IS NOT REQUIRED TO ENQUIRE WHETHE R THE CONDIT6ION OF SECTION 11 TO 13 IS FULFILLED OR NOT. IN PRESENT CA SE, THE VARIOUS OBSERVATIONS MADE BY THE CIT ARE NOT AT ALL RELEVA NT FOR GRANT OF REGISTRATION U/S 12A AND THEREFORE HIS ORDER REFUSI NG THE REGISTRATION IS BAD IN LAW. IN VIEW OF ABOVE, THE LD. CIT BE DIRECTED TO GRANT REGISTRATION U/S 12A AND APPROVAL U/S 80G(5)(VI) OF THE IT ACT. 1961 TO THE TRUST. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT THE LD. CIT WAS WITHIN HIS JURISDICTION TO MAKE ENQUIRY RELATED TO THE OBJECTS OF THE TRUST BEFORE GRANTING THE 4 ITA NOS. 209 & 210/JP/2016 JAIPUR RURAL HEALTH AND DEVELOPMENT TRUST. REGISTRATION UNDER SECTION 12AA. THE LD. CIT HAS D ECLINED REGISTRATION BY OBSERVING AS UNDER :- 7. ON EXAMINATION OF THE DETAILS, IT IS SEEN THAT THE TRUST WAS ALLOTTED LAND BY STATE GOVERNMENT OF RAJASTHAN FOR RS. NIL F OR RUNNING OF MIDDLE SCHOOL AND DISPENSARY AT VILLAGE CHAMPAPURA. IT WAS FURTHER MENTIONED BY THE APPLICANT THAT IT HAS REVALUED THE LAND FOR RS. 29.09 CRORE. IT IS VERY INTERESTING TO NOTE THAT THE LAN D WHICH WAS ALLOTTED BY THE STATE GOVERNMENT FOR RUNNING OF PARTICULAR ACTI VITIES HAS BEEN REVALUED BY THE APPLICANT WITHOUT OBTAINING ANY PRI OR PERMISSION FROM THE GOVERNMENT OF RAJASTHAN. IT IS AN IMPORTANT AS PECT THAT WHETHER THE LAND OF A TRUST ALLOTTED BY THE GOVERNMENT CAN BE REVALUED OR NOT. TO UNDERSTAND THIS, ATTENTION IS INVITED TO THE RAJ ASTHAN PUBLIC TRUST ACT, 1959. SECTION 32 TO 36 OF THE ACT, DEALS WITH ACCOUNTS, AUDIT AND BUDGET RELATED TO THE RUNNING OF TRUST. NO PROVISIO N UNDER THE ACT EMPOWERS THE TRUST TO REVALUE THE ASSETS. THE CONCE PT OF REVALUATION BASICALLY COMES FROM COMPANIES ACT OR BUSINESS UNDE RTAKINGS. THOSE PROVISIONS ARE LIMITED TO COMPANIES ONLY AND ARE NO T APPLICABLE TO THE TRUST ESTABLISHED UNDER THE RAJASTHAN PUBLIC TRUST ACT, 1959. REVALUATION HAS NOT MERELY REMAINED REVALUATION OF LAND BUT IT HAS CREATED CAPITAL IN THE HANDS OF TRUSTEES/SETTLERS O F THE TRUST. 8. FURTHER, WHILE REVALUATING THE ASSET, THE TRU ST HAS NOT CREATED ANY RESERVE, INSTEAD IT HAS INCREASED THE CAPITAL FUND WHICH GIVES BENEFIT TO THE SETTLERS/TRUSTEES. IN THE BALANCE SHEET, THE CA PITAL ACCOUNT IS SHOWING A BALANCE TO THE TUNE OF RS.31.60 CRORES AS ON 31.0 3.2014. THE APPLICANT WAS ASKED TO SUBMIT THE EXPLANATION REGARDING CREAT ION OF CAPITAL IN THE BALANCE SHEET. THE APPLICANT FAILED TO SUBMIT ANY S PECIFIC EXPLANATION ON THIS ISSUE AND IT MERELY SAID THAT THIS CAPITAL IS CREATED ON ACCOUNT OF REVALUATION OF LAND. CREATION OF CAPITAL EVEN BY R EVALUATION OF THE ASSETS, GIVES HUGE BENEFIT TO THE SETTLER/TRUSTEES. THE CON CEPT OF CAPITAL AND REVALUATION IS APPLICABLE TO THE BUSINESS UNDERTAKI NG ONLY. THESE INDICATE THAT THE APPLICANT IS INTENDING TO RUN THE ABOVE OR GANIZATION AS BUSINESS UNDERTAKING. ON FURTHER ENQUIRING ABOUT THE PURPOSE OF REVALUATION OF ASSETS THE APPLICANT SUBMITTED THAT THE TRUST IS TO ESTABLISH MEDICAL COLLEGE AND HOSPITAL AND TO AVAIL THE FINANCE FROM BANKERS, TRUST HAS REVALUED THE LAND AND BUILDING. THIS RAISED ANOTHER ISSUE THAT W HETHER THE LAND WHICH HAS BEEN ALLOTTED FOR MIDDLE SCHOOL OR DISPENSARY C AN BE USED FOR RUNNING OF HOSPITAL AND MEDICAL COLLEGE OR NOT ? IT RAISES ANOTHER ISSUE THAT WHETHER THE GOVERNMENT LAND ALLOTTED AT RS. NIL CAN BE REVALUED FOR RAISING FINANCE FROM BANK FOR THE PURPOSE FOR WHICH THE LAN D WAS NOT ALLOTTED. ALL THESE ISSUES GOES AGAINST THE APPLICANT. THE REVALU ATION OF LAND HAS GIVEN RISE TO THE CAPITAL TUNE OF RS. 31.60 CRORE WHICH I S DIRECT/INDIRECT BENEFITS IN THE HANDS OF SETTLERS/TRUSTEES OF THE TRUST. 5 ITA NOS. 209 & 210/JP/2016 JAIPUR RURAL HEALTH AND DEVELOPMENT TRUST. 9. THE ATTENTION IS ALSO DRAWN TO THE NEWLY INSERTED P ROVISION TO THE SECTION 12AA OF THE I.T.ACT, 1961 W.E.F. 01.10.2014. SUB SE CTION (4) OF SECTION 12AA READ AS UNDER :- (4) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SEC TION (3), WHERE A TRUST OR AN INSTITUTION HAS BEEN GRANTED REGISTRATI ON UNDER CLAUSE (B) OF SUB-SECTION (1) OR HAS OBTAINED REGISTRATION AT ANY TIME UNDER SECTION 12A [AS IT STOOD BEFORE ITS AMENDMENT BY THE FINANC E (NO. 2) ACT, 1996 (33 OF 1996) AND SUBSEQUENTLY IT IS NOTICED TH AT THE ACTIVITIES OF THE TRUST OR THE INSTITUTION ARE BEING CARRIED OUT IN A MANNER THAT THE PROVISIONS OF SECTIONS 11 AND 12 DO NOT APPLY TO EX CLUDE EITHER WHOLE OR ANY PART OF THE INCOME OF SUCH TRUST OR INSTITUT ION DUE TO OPERATION OF SUB-SECTION (1) OF SECTION 13, THEN, THE PRINCIP AL COMMISSIONER OR THE COMMISSIONER MAY BY AN ORDER IN WRITING CANCEL THE REGISTRATION OF SUCH TRUST OR INSTITUTION. THIS SECTION EMPOWERS THE AUTHORITIES TO CANCEL THE REGISTRATION ALREADY GRANTED IF PROVISIONS OF SEC. 13(1) BECOME OPERATIV E. ONCE THE ACT HAS EMPOWERED THE AUTHORITY TO CANCEL THE REGISTRATION WITH REFERENCE TO SECTION 13(1), IT AUTOMATICALLY INDICATES THAT IF A T THE TIME OF REGISTRATION, ANY OF THE CONDITIONS MENTIONED IN SE C. 13(1) IS NOTICED, THEN REGISTRATION MAY NOT BE GRANTED. IT WILL SAVE THE VALUABLE TIME OF AUTHORITIES AND APPLICANTS BY AVOIDING DOUBLE RIGOR OUS OF FIRST GRANTING THE REGISTRATION AND THEN CANCELLING IT. IN THE PRESENT CASE, THE REVALUATION OF LAND HAS BE NEFITTED THE TRUSTEES, THEREFORE, THE PROVISIONS OF SECTION 13 A RE ATTRACTED AND IN VIEW OF PROVISIONS OF SECTION 12AA(4), THE TRUST IS NOT ENTITLED FOR REGISTRATION. 10. FURTHER, OPENING OF MEDICAL COLLEGE AND HOSPITAL IS NOT AS PER THE OBJECTS OF THE TRUST. FROM THE OBJECTS OF THE TRUST IT CAN BE SEEN THAT THE TRUST HAS NO OBJECT FOR OPENING OF MEDICAL COLLEGE AND HOSPIT AL. THUS THE WHOLE ACTIVITY OF CREATING CAPITAL IN THE HANDS OF TRUSTE E/SETTLER DOES NOT FALL WITHIN THE OBJECTS OF THE TRUST. IN OTHER WORDS THE TRUST IS ENTERING INTO AN ACTIVITY WHICH IS NOT AS PER THE OBJECTS OF THE TRU ST. AS THE TRUST IS DOING THE ACTIVITIES NOT AS PER THE OBJECTS IT CANNOT BE HELD AS CHARITABLE WITHIN THE MEANING OF SECTION 2(15) OF THE IT ACT, 1961. 11. FROM THE ABOVE DISCUSSION IT CAN BE SEEN THAT NEITH ER THE ACTIVITIES OF THE TRUST ARE AS PER OBJECTS NOR THE ACCOUNTS ARE MAINT AINED AS PER THE RAJASTHAN PUBLIC TRUST ACTS, 1959. THE TRUST HAS AL SO GIVEN UNDUE BENEFIT TO THE SETTLERS/TRUSTEES BY CREATING HUGE CAPITAL I N THE BALANCE SHEET BY 6 ITA NOS. 209 & 210/JP/2016 JAIPUR RURAL HEALTH AND DEVELOPMENT TRUST. REVALUING ASSETS OF THE TRUST. BASED ON ABOVE DISCU SSION I AM SATISFIED THAT THE TRUST IS NOT FIT FOR REGISTRATION AND THEREFORE REGISTRATION U/S 12AA IS REFUSED. THE LD . COUNSEL FOR THE ASSESSEE HAS POINTED OUT T HAT CLAUSES (A) AND (D) OF THE OBJECT CLAUSES SPECIFICALLY AUTHORIZE THE TRUST TO ESTABLISH HOSPITALS AND COLLEGES. IT IS CONTENDED THAT THE OBSERVATION THAT THE ACCOUNTS AR E NOT MAINTAINED AS PER RAJASTHAN PUBLIC TRUST ACT, 1959 IS INCORRECT. IT I S CONTENDED BY THE LD. COUNSEL THAT REVALUATION OF ASSETS IS NOT PROHIBITED BY RAJASTHA N PUBLIC TRUST ACT AND BY MAKING REVALUATION OF LAND, TRUSTEES/SETTLERS ARE NOT BENE FITED AS IT REMAINS THE CAPITAL OF THE ASSESSEE TRUST. 4.1. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE SUBMISSIONS. WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE OBJECTS OF THE ASSESSEE OF CLAUSE (A) AND (D) ARE FOR ESTABLISHMENT OF HOSP ITALS AND COLLEGES. WE ALSO FIND THAT AS PER CLAUSE 16 OF THE TRUST DEED, NO INCOME OR PART OF INCOME OR ASSETS OF THE TRUST FUND CAN BE APPLIED OR TRANSFERRED FOR AN Y PURPOSES OTHER THAN CHARITABLE PURPOSES. KEEPING THIS CLAUSE IN VIEW, WE HEREBY SE T ASIDE THE ORDER OF LD. CIT AND DIRECT HIM TO CONSIDER THE APPLICATION OF THE ASSES SEE FOR REGISTRATION U/S 12AA OF THE ACT. ITA NO. 209/JP/2016 : 5. THE APPLICATION FOR GRANTING EXEMPTION UNDER SEC TION 80G OF THE ACT WAS DENIED FOR WANT OF REGISTRATION UNDER SECTION 12AA. SINCE WE HAVE RESTORED THE 7 ITA NOS. 209 & 210/JP/2016 JAIPUR RURAL HEALTH AND DEVELOPMENT TRUST. ISSUE OF REGISTRATION FOR CONSIDERATION AFRESH, THE ISSUE OF EXEMPTION IS ALSO RESTORED THE FILE OF THE LD. CIT FOR DECISION AFRESH. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25/08/201 6. SD/- SD/- FOE FLAG ;KNO ( DQY HKKJR ) (VIKRAM SINGH YADAV) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 25/08/2016. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- JAIPUR RURAL HEALTH & DEVELOPMEN T TRUST, JAIPUR. 2. THE RESPONDENT- THE CIT (EXEMPTIONS), JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 209 & 210/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR