M/s Sri Sagi Subba Raju Foundation, Visakhapatnam V. The CIT-1, Visakhapatnam, Visakhapatnam

ITA 274/VIZ/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67368 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-04-2013
• Assessment Year: misc
• Appeal Filed On: 12-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: SUSEEL KUMAR AGARWAL
• Keywords: Charitable institution
• Section: 12A; 12AA; 11

Judgement Text

ITA NO.274/VIZ/2011 SRI SAGI SUBBA RAJU FOUNDATION, VISAKHAPATNAM PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI D MANMOHAN, VICE PRESIDENT AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.274/VIZAG/2011 ASSESSMENT YEAR: NA SRI SAGI SUBBA RAJU FOUNDATION VISAKHAPATNAM CIT-1 VISAKHAPATNAM (APPELLANT) PAN NO: AAKTS 4909A VS. (RESPONDENT) APPELLANT BY: SHRI SUSEEL KUMAR AGARWAL, CA RESPONDENT BY: SHRI K.V.N. CHARYA, CIT(DR) DATE OF HEARING: 30.04.2013 DATE OF PRONOUNCEMENT: 03.05.2013 ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 07-07- 2011 PASSED BY LEARNED CIT-I, VISAKHAPATNAM REJECTI NG THE APPLICATION FILED BY THE ASSESSEE SEEKING REGISTRATION UNDER SE CTION 12AA OF THE ACT. 2. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. THE ASSESSEE HEREIN IS CREATED BY A TRUST DEED DATED 28-04-2011. IT FI LED AN APPLICATION BEFORE LEARNED CIT, SEEKING REGISTRATION U/.S 12AA OF THE ACT ON 18.05.2011 AS A CHARITABLE TRUST. THE LEARNED CIT FOUND THAT THE AS SESSEE DID NOT CARRY OUT ANY CHARITABLE ACTIVITIES. HENCE, HE REFUSED TO GR ANT REGISTRATION WITH THE FOLLOWING OBSERVATIONS:- AS STATED THE TRUST HAS SEVERAL CHARITABLE ACTIVIT IES WHICH ARE INCLUDED IN THE OBJECTS OF THE TRUST BUT EVEN ACCOR DING TO THE TRUST, IT HAS NOT CARRIED OUT ANY SUCH CHARITABLE ACTIVITIES DURING THE FIRST YEAR OF ITS FUNCTIONING. IN THE ABSENCE OF ANY ACTIVITY , THE GENUINENESS OF THE ACTIVITIES CANNOT BE EXAMINED. IN A SIMILAR CA SE, THE HON'BLE HIGH COURT OF KERALA (SELF EMPLOYERS SERVICE SOCIET Y VS. COMMISSIONER OF INCOME TAX 164 CTR (KER) 449) CLEAR LY HELD WHEN THE CIT EXERCISES HIS JURISDICTION UNDER SEC. 12AA WHILE CONSIDERING THE APPLICATION FOR REGISTRATION UNDER SECTION 12A HE HAS TO BE SATISFIED OF THE CHARITABLE AND RELIGIOUS NATURE OF ITS OBJECTS AND ITA NO.274/VIZ/2011 SRI SAGI SUBBA RAJU FOUNDATION, VISAKHAPATNAM PAGE 2 OF 5 GENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTI TUTION. IN THE PRESENT CASE ADMITTEDLY THE TRUST HAS NOT DONE ANY CHARITABLE WORK DURING THE RELEVANT PERIOD, I.E., 28-04-2011 TO TIL L DATE. THERE WERE NO MATERIAL BEFORE THE CIT TO BE SATISFIED OF THE G ENUINENESS OF THE TRUST OR INSTITUTION. UNDER THESE CIRCUMSTANCES REJ ECTION OF APPLICATION UNDER EXT. P5 CANNOT BE TERMED AS ILLEG AL OR ARBITRARY. IN THE IMPUGNED CASE ALSO, AS THERE WERE NO ACTIVIT IES, THE APPLICATION FOR REGISTRATION UNDER SECTION 12AA IS HEREBY REJECTED. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPLICATION BEFORE US. 3. ACCORDING TO LEARNED A.R, THE LEARNED CIT H AS ACCEPTED THE FACT THAT THE OBJECTS OF THE TRUST ARE CHARITABLE IN NATURE A ND HE HAS REJECTED THE APPLICATION ONLY ON THE GROUND THAT THE ASSESSEE DI D NOT CARRY OUT ANY CHARITABLE ACTIVITIES. ACCORDING TO LEARNED A.R, T HE ACTIVITIES CARRIED ON BY THE TRUST AND THE APPLICATION OF FUNDS WOULD COME I NTO PICTURE ONLY AFTER THE RETURNS OF INCOME WERE FILED. ON THE CONTRARY, THE LEARNED D.R SUBMITTED THAT THE ASSESSEE DID NOT CARRY OUT ANY CHARITABLE ACTIVITY AND HENCE THE LEARNED CIT COULD NOT EXAMINE THE GENUINENESS OF TH E ACTIVITIES CARRIED ON BY THE ASSESSEE. THE LEARNED D.R PLACED RELIANCE O N THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. LUCKNOW EDUCATIONAL AND SOCIAL WELFARE SOCIETY (340 ITR 86) IN THIS REG ARD. 4. WE HAVE HEARD THE RIVAL CONTENTIONS. UNDER THE PROVISIONS OF SEC.12AA OF THE ACT, THE LEARNED CIT HAS TO SATISFY HIMSELF ABOUT THE GENUINENESS OF ACTIVITIES AND ALSO ABOUT THE OBJECT S OF THE TRUST OR INSTITUTION BEFORE GRANTING REGISTRATION UNDER SECT ION 12A OF THE ACT. IN THE INSTANT CASE, THERE APPEARS TO BE NO DISPUTE THAT T HE OBJECTS OF THE TRUST ARE CHARITABLE IN NATURE, SINCE THE LEARNED CIT DID NOT MAKE ANY COMMENT ON THE OBJECTS OF THE TRUST. ACCORDING TO LEARNED CIT , THE ASSESSEE DID NOT CARRY OUT ANY CHARITABLE ACTIVITIES AND HENCE HE CO ULD NOT EXAMINE THE GENUINENESS OF ITS ACTIVITIES. ITA NO.274/VIZ/2011 SRI SAGI SUBBA RAJU FOUNDATION, VISAKHAPATNAM PAGE 3 OF 5 5. WE NOTICE THAT THE PROVISIONS OF SEC. 12AA H AVE USED THE WORDS GENUINENESS OF ITS ACTIVITIES. THE LEARNED CIT H AS INTERPRETED THESE WORDS TO MEAN GENUINENESS OF CHARITABLE ACTIVITIES . IN OUR VIEW, THE WORD ACTIVITIES CANNOT BE RESTRICTED TO MEAN ONLY CHA RITABLE ACTIVITIES, SINCE THE WORD CHARITABLE IS ABSENT IN SUB-SECTION (1) OF SEC. 12AA OF THE ACT. IT IS ALSO WELL SETTLED PROPOSITION OF LAW THAT NO WOR D CAN BE ADDED OR DELETED WHILE INTERPRETING ANY PROVISION OF THE ACT. ACCOR DINGLY, IN OUR VIEW, THE WORD ACTIVITIES SHOULD BE GIVEN ITS NATURAL MEANI NG. FOR EXAMPLE, IF A TRUST IS FORMED WITH THE OBJECTIVE OF CONSTRUCTING SCHOOLS AND PROVIDING EDUCATION TO THE POOR AND DOWN TRODDEN, THE EDUCATI ONAL ACTIVITIES SHALL START ONLY AFTER COMPLETION OF CONSTRUCTION OF THE SCHOOL. TILL THE COMPLETION OF THE CONSTRUCTION, IT CANNOT BE SAID THAT THE TRU ST DID NOT CARRY ON ANY ACTIVITY. THUS, IN OUR VIEW, VARIOUS STEPS TAKEN B Y THE ASSESSEE IN ORDER TO MAKE THE TRUST OR INSTITUTION OPERATIONAL WHICH WIL L ENABLE TO CARRY OUT ITS OBJECTIVES SHALL ALSO CONSTITUTE ACTIVITIES WITHI N THE MEANING OF SEC. 12AA OF THE ACT. 6. THERE CANNOT BE ANY DISPUTE THAT THE OBJECTS OF THE TRUST SHOULD BE CHARITABLE AND/OR RELIGIOUS IN NATURE. IN OUR VIEW , ONCE A FINDING IS GIVEN THAT THE OBJECTS OF THE TRUST OR INSTITUTION IS CHA RITABLE AND/OR RELIGIOUS IN NATURE, THE STATUTE REQUIRES THE LEARNED CIT TO SAT ISFY HIMSELF THAT THE ACTIVITIES CARRIED ON BY THE ASSESSEE ARE GENUINE I N NATURE, I.E., THE SAID ACTIVITIES ARE DIRECTED TOWARDS ATTAINMENT OF THE O BJECTIVES OF THE TRUST/INSTITUTION. UNDER THE SCHEME OF THE ACT RE LATING TO CHARITABLE AND RELIGIOUS TRUSTS/INSTITUTIONS, WE NOTICE THAT THE G RANTING REGISTRATION UNDER SECTION 12AA OF THE ACT IS ONE ASPECT AND GRANTING EXEMPTION UNDER SECTION 11 OF THE ACT IS ANOTHER ASPECT. THE REGISTRATION GRANTED UNDER SECTION 12A OF THE ACT IS ONLY ONE OF THE CONDITIONS PRESCRIBED FOR AVAILING EXEMPTION UNDER SECTION 11 OF THE ACT, I.E., THE TRUST HAS TO FULFILL THE CONDITIONS PRESCRIBED IN SEC. 11 TO SEC. 13 OF THE ACT ALSO, I N ORDER TO AVAIL EXEMPTION UNDER SECTION 11 OF THE ACT. FOR EXAMPLE, IF A TRUS T/INSTITUTION HAS NOT APPLIED ANY PART OF ITS INCOME FOR CHARITABLE/RELIG IOUS PURPOSES FOR WHICH IT ITA NO.274/VIZ/2011 SRI SAGI SUBBA RAJU FOUNDATION, VISAKHAPATNAM PAGE 4 OF 5 WAS FORMED, THEN IT WILL BE SUBJECTED TO TAX ON ITS INCOME, EVEN THOUGH THE CONCERNED TRUST/INSTITUTION IS REGISTERED UNDER SEC TION 12AA OF THE ACT. THUS, IN OUR VIEW, THE LEARNED CIT IS EMPOWERED TO EXAMINE THE GENUINENESS OF ALL TYPES OF ACTIVITIES, INCLUDING T HE CHARITABLE ACTIVITIES, WHILE PROCESSING THE APPLICATION FILED THE ASSESSEE . HOWEVER, THE APPLICATION CANNOT BE REJECTED ON THE SOLE REASON T HAT THE ASSESSEE DID NOT CARRY ON ANY CHARITABLE ACTIVITY. 7. IN VIEW OF THE FOREGOING DISCUSSIONS, IN OUR VIEW, THE LEARNED CIT WAS NOT JUSTIFIED IN REJECTING THE APPLICATION FILED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT CARRY OUT ANY CHARITABLE ACTIVITY. AT THE SAME POINT, IT IS ALSO NOT CLEAR AS TO WHETHER THE ASSES SEE DID FILE ANY REPORT ON THE ACTIVITIES CARRIED OUT BY IT SINCE THE DATE OF ITS FORMATION OR NOT. ACCORDINGLY, IN OUR VIEW, THIS MATTER REQUIRES FRES H EXAMINATION AT THE END OF THE LEARNED CIT IN THE LIGHT OF DISCUSSIONS MADE SUPRA. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER OF LEARNED CIT AND RES TORE THE MATTER TO HIS FILE WITH THE DIRECTION TO PROCESS THE APPLICATION FILED BY THE ASSESSEE AFRESH IN THE LIGHT OF DISCUSSIONS MADE (SUPRA) AND BY, IN TER ALIA, CALLING FOR A REPORT ON THE ACTIVITIES CARRIED OUT BY THE ASSESSE E AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 03.05.2013. SD/- SD/- (D MANMOHAN) (B R BASKARAN) VICE PRESIDENT ACCOUNT ANT MEMBER VISAKHAPATNAM, DATE: 3 RD MAY, 2013 VG/SPS ITA NO.274/VIZ/2011 SRI SAGI SUBBA RAJU FOUNDATION, VISAKHAPATNAM PAGE 5 OF 5 COPY TO 1 SRI SAGI SUBBAA RAJU FOUNDATION, RAVI 7-8-11/3, CLUB ROAD, WALTAIR UPLANDS, VISAKHAPATNAM 2 THE CIT-1, VISAKHAPATNAM 3 4. THE CIT, VISAKHAPATNAM THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM