M/s Nanak Chand Jain Charitable Trust, Karnal V. CIT (E), Chandigarh

ITA 6528/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3484 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: misc
• Appeal Filed On: 21-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWROOP
• Keywords: Charitable institution; Condonation of delay
• Section: 80G; 12A; 12AA; 37; 11

Judgement Text

1 ITA NOS. 6527 & 6528/DEL/2016 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 6527/DEL/2 016 (A.Y.2016-17) & I.T.A .NO. 6528/DEL/2 016 (A.Y.2016-17) NANAK CHAND JAIN CHARITABLE TRUST SHOP NO. 161, NEW ANAJ MANDI, GHARAUNDA KARNAL AACTN1456D (APPELLANT) VS CIT(E) CHANDIGARH (RESPONDENT) APPELLANT BY SH. VED JAIN, ADV & MS. RANO JAIN, ADV RESPONDENT BY MS. SHEFALI SWROOP, CIT DR ORDER PER SUCHITRA KAMBLE, JM THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS DATED 27/9/2016 U/S 12AA OF THE INCOME TAX ACT, 1961 & OR DER DATED 28/9/2016 U/S 80 G(5) (VI) OF THE INCOME TAX ACT, 1961 PASSED BY THE COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHANDIGARH. 2. THE LD. AR SUBMITTED THAT THERE IS A DELAY OF 21 DAYS FOR WHICH THE APPLICATION FOR CONDONATION OF DELAY IS FILED FOR T HE REASONS STATED WHICH IS SUPPORTED BY THE AFFIDAVIT. THE REASONS GIVEN BY TH E ASSESSEE FOR NOT FILING THE APPEAL IN TIME APPEARS TO BE GENUINE. THEREFORE, TH E DELAY OF 21 DAYS FOR FILING APPEAL IS CONDONED. DATE OF HEARING 23.11.2017 DATE OF PRONOUNCEMENT 09.02.2018 2 ITA NOS. 6527 & 6528/DEL/2016 3. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 6527/DEL/2016 1. THAT THE ORDER OF COMMISSIONER OF INCOME TAX (EXEMP TIONS), CHANDIGARH IS AGAINST LAW AND FACTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE ORDER OF THE COMMISSIONER OF INCOME TAX (EXEMPTIONS) IS N OT JUSTIFIED IN DENYING REGISTRATION OF THE TRUST U/S 12AA OF THE ACT STATI NG THAT THE TRUST IS FORMED MERELY FOR COMPLYING THE CSR REQUIREMENTS OF THE SE TTLER COMPANY IGNORING THE FACT THAT THE APPELLANT IS ENGAGED IN CARRYING OUT THE CHARITABLE ACTIVITY AS PER THE OBJECT OF THE TRUST. ITA NO. 6528/DEL/2016 1. THAT THE ORDER OF COMMISSIONER OF INCOME TAX (EXEMP TIONS), CHANDIGARH IS AGAINST LAW AND FACTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE ORDER OF THE COMMISSIONER OF INCOME TAX (EXEMPTIONS) IS N OT JUSTIFIED IN DENYING REGISTRATION OF THE TRUST U/S 12AA OF THE ACT STATI NG THAT THE TRUST IS FORMED MERELY FOR COMPLYING THE CSR REQUIREMENTS OF THE SE TTLER COMPANY IGNORING THE FACT THAT THE APPELLANT IS ENGAGED IN CARRYING OUT THE CHARITABLE ACTIVITY AS PER THE OBJECT OF THE TRUST. 4. THE ASSESSEE IS A TRUST, REGISTERED VIDE DEED DA TED 27/03/15. THE TRUST WAS STARTED BY THE SETTLER M/S. VEER OVERSEAS LTD. A LIMITED COMPANY WHO IN ORDER TO CARRY OUT ITS DUTIES UNDER THE CORPORATE S OCIAL RESPONSIBILITY (CSR), AS PROVIDED UNDER SECTION 135 OF THE COMPANIES ACT, 20 13 CREATED THIS TRUST. THE OBJECTS OF THE ASSESSEE TRUST ARE IN THE NATURE OF ERADICATING HUNGER AND POVERTY, PROMOTION OF EDUCATION, PROMOTING GENDER E QUALITY ETC. APART FROM THIS IT IS ALSO PROVIDED THAT THE TRUST MAY CARRY ON OTH ER ACTIVITIES AS PRESCRIBED BY THE GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED UNDER CLAUSE (O) AND (Q) OF 3 ITA NOS. 6527 & 6528/DEL/2016 SUB-SECTION 3 OF SECTION 134 READ WITH SECTION 135 AND SUB SECTION (1) OR (2) OF SECTION 469 OF THE COMPANIES ACT 2013 SHALL ALSO BE PERUSED. AN APPLICATION FOR GRANT OF REGISTRATION U/S 12AA WAS FILED BEFORE THE CIT (EXEMPTION) CHANDIGARH, AS ON 28/03/2016. AN ORDER REJECTING TH E APPLICATION FOR GRANT OF REGISTRATION UNDER SECTION 12AA WAS PASSED ON 27/09 /2016. THE REGISTRATION UNDER SECTION 12AA WAS REJECTED ON THE GROUND THAT THE ASSESSEE TRUST HAS BEEN FORMED BY THE SETTLER M/S VEER OVERSEAS LTD. F OR THE PURPOSE OF CARRYING OUT ITS CSR ACTIVITIES. THE COMMISSIONER OF INCOME TAX (EXEMPTIONS) REJECTED THE APPLICATION FOR REGISTRATION U/S 12AA ON THE GR OUND THAT PARA 10 OF THIS APPLICATION ARE HELD AS UNDER:- 10 . CONSIDERING ALL OF THE ABOVE IT IS SAFE TO CONCLUDE (I) THAT THE MAIN AIM APPEARS TO BE FORMING A TRUST MERELY FOR COMPLY ING TO C.S.R REQUIREMENTS (II) THAT THE TRUST HAS BEEN STATED TO BE FORMED TO IMPLEMENT THE CSR ACTIVITIES OF THE SETTLER COMPANY (III) THAT THE COMPOSITION O F THE TRUST IS RESTRICTIVE AND TO THAT EXTENT NOT AMENABLE TO PUBLIC CHARITY (IV) THA T NO ACTIVITY IN SYNC WITH THE REQUIREMENTS OF THE COMPANIES ACT HAS TAKEN PLACE I N THE TRUST SO FAR (V) THAT THE ACTIVITIES SO FAR FURTHER SHOW THAT THE TRUST H AS RELINQUISHED ITS FUNCTION, AS THE PRIMARY IMPLEMENTATION AGENCY AND UNDERTAKIN G ITS OWN PROGRAMMES TO IMPACT TARGETED BENEFICIARIES, BY TRANSFERRING I TS FUNDS TO OTHER SOCIETIES (VI) IT ALSO MILITATES AGAINST THE LEGAL PRINCIPLE THAT SOCIAL ENTERPRISES CANNOT BE A DIRECT RECIPIENT OF MONEY FROM A CORPORATE AS IT IS A PROFIT MAKING COMPANY. 5. BESIDES THE COMMISSIONER OF INCOME TAX (EXEMPTIO NS) ALSO REJECTED APPLICATION U/S 80G (V) WHICH IS HOLDING THAT, THE APPLICATION VOID AB INITIO IN TERMS OF PROVISIONS OF RULE 11AA. 6. BEING AGGRIEVED BY THE SAID ORDERS, THE ASSESSEE IS BEFORE US BY FILING TWO APPEALS. 7. THE LD. AR SUBMITTED THAT AS PER THE COMPANIES A CT, 2013 WHEREIN U/S 135 OF THE COMPANIES ACT, 2013, THE COMPANIES ARE A LLOWED TO SETTLE A TRUST TO CARRY OUT CORPORATE SOCIAL RESPONSIBILITY (CSR) AND FOR THAT THE TRUST IS FORMED 4 ITA NOS. 6527 & 6528/DEL/2016 BY THE ASSESSEE COMPANY AND INCOME TAX ACT ALSO REC OGNIZE THE SAID SECTION OF THE COMPANIES ACT. THE LD. AR SUBMITS THAT THE OBJ ECTS OF THE TRUST ARE PUBLIC CHARITY ONLY. THEREFORE, THE COMMISSIONER SHOULD H AVE ALLOWED THE REGISTRATION U/S 12AA AND APPLICATION U/S 80G(5)(VI) OF THE INCO ME TAX ACT. THE LD. AR SUBMITTED ONCE THE CIT HAS NOT DOUBTED ABOUT THE GE NUINENESS OF THE ACTIVITIES OF THE ASSESSEE NOR DOUBTED ITS CHARITABLE OBJECT, HIS/HER POWERS UNDER SECTION 12AA DOES NOT EMPOWER TO REJECT THE REGISTRATION OF THE ASSESSEE TRUST. THE LD. AR ALSO RELIED UPON THE FOLLOWING CASE LAWS ON THIS ISSUE: I. SHRI SAIN JI DHARMARTH TRUST VERSUS COMMISSIONER OF INCOME- TAX [2006] 8 SOT 446 (DELHI) II. COMMISSIONER OF INCOME-TAX-LL, CHANDIGARH VERSU S SURYA EDUCATIONAL & CHARITABLE TRUST [2013] 355 ITR 280 (P& H -HC) III. ST. DON BOSCO EDUCATIONAL SOCIETY V. CIT [2004 ] 90 ITD 477 (LUCK.); IV BABA GANDHA SINGH EDUCATION TRUST VS. CIT, (20 11) 138 TTJ (CHD) (UO) 1; V. RELIABLE EDUCATIONAL ALLIANCE SOCIETY V. CIT' [2 009] 126 TTJ 407 (DELHI); AND VI DREAM LAND EDUCATIONAL TRUST VS. CIT, (200 7) 109 TTJ (ASR) 850. THE LD. AR FURTHER SUBMITTED THAT ON THE ISSUE OF D ONATION GIVEN TO OTHER CHARITABLE SOCIETIES AND OTHER ACTIVITIES ARE THE M ATTER TO BE TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER IN ASSESSMEN T PROCEEDINGS WHILE GRANTING EXEMPTION U/S 11 OF THE ACT AND NOT THAT B Y COMMISSIONER IN CAPACITY OF SECTION 12AA OF THE ACT. THE LD. AR RELIED UPON THE FOLLOWING CASE LAWS: I. CIT VS HINDUSTAN CHARITY TRUST REPORTED IN (1983) 1 39 ITR 913 (CAL) II. CIT VS TRUSTEES OF THE JADI TRUST REPORTED IN (1982 ) 133 ITR 494 (BOM) 5 ITA NOS. 6527 & 6528/DEL/2016 III. CIT VS SARLADEVI SARABHAI TRUST NO. 2 REPORTED IN ( 1988) 172 ITR 698 (GUJ) IV. SHRI SAIN JI DHARMARTH TRUST VS. CIT (2006) 8 SOT 4 46 (DEL) V. CIT VS. SURYA EDUCATIONAL & CHARITABLE TRUST (2013) 355 ITR 280 (P&H) VI. ST. DON BOSCO EDUCATIONAL SOCIETY VS. CIT (2004) 90 ITD 477 (LUCK.) VII. BABA GANDHA SINGH EDUCATION TRUST VS. CIT (2011) 13 8 TTJ 1 (CHD) VIII. RELIABLE EDUCATIONAL ALLIANCE SOCIETY VS. CIT (2009 ) 126 TTJ 407 (DEL) IX. DREAM LAND EDUCATIONAL TRUST VS. CIT (2007) 109 TTJ 850 (ASR) 8. THE LD. DR SUBMITS THAT THE COMMISSIONER OF INCO ME TAX (EXEMPTIONS) RIGHTLY REJECTED THE APPLICATION OF THE ASSESSEE CO MPANY AS THE OBJECT OF THE TRUST WERE NOT CHARITABLE IN NATURE. THE LD. DR RE LIED UPON THE KERALA HIGH COURT DECISION IN CASE OF SELF EMPLOYER SERVICE SOC IETY VS. CIT(A) 247 ITR 18 AS WELL AS ITAT AGRA BENCH DECISION IN CASE OF SHRI AGRAWAL SABHA VS. CIT 40 TAXMAN.COM 117. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE REASONS (I ) AND (II) GIVEN BY THE CIT (EXEMPTION) IS THAT THE MAIN AIM APPEARS TO BE FORM ING A TRUST MERELY FOR COMPLYING TO CSR REQUIREMENTS. WHEN A TRUST IS CREA TED FOR THE PURPOSE OF CARRYING OUT CSR ACTIVITIES, THE REGISTRATION UNDER SECTION 12AA OF THE INCOME TAX ACT, 1961 CANNOT BE DENIED. VIDE NOTIFICATIONS DATED 27/02/2014 THE MINISTRY OF CORPORATE AFFAIRS IN THE RULES FRAMED F OR THE PURPOSE OF CSR HAS IMPLICITLY PROVIDED FOR FORMING THE DEDICATED TRUST UNDER SUB RULE 2 TO RULE 4. IT HAS BEEN STATED AS UNDER: (2) THE BOARD OF A COMPANY MAY DECIDE TO UNDERTAKE IT I S CSR ACTIVITIES PROVIDE BY THE CSR COMMITTEE, THROUGH THE REGISTERE D TRUST OR A REGISTERED SOCIETY OR A COMPANY ESTABLISHED BY THE COMPANY OR ITS HOLDING OR SUBSIDIARY OR ASSOCIATE UNDER SECTION 8 OF THE ACT OR OTHERWISE. 6 ITA NOS. 6527 & 6528/DEL/2016 EVEN COMPANIES ACT PROVIDE FOR COMPLIANCE OF CSR PR OVISION THROUGH A DEDICATED TRUST OR SOCIETY. JUST BECAUSE THE TRUST HAS BEEN FORMED FOR COMPLYING CSR REQUIREMENTS IT CANNOT PER SE BE THE REASONS FOR DENYING REGISTRATION UNDER SECTION 12AA OF THE INCOME TAX A CT. AS REGARDS THE REASONS (III) GIVEN BY THE CIT (EXEMPTION) THAT THE OBJECT OF TRUST ARE TO BE NOTED WHEREBY APART FROM THE CSR ACTIVITIES, THE ACTIVITI ES IN THE NATURE OF ERADICATING HUNGER AND POVERTY, PROMOTION OF EDUCAT ION, PROMOTING GENDER EQUALITY ETC. ARE ALSO PROVIDED. THESE ACTIVITIES A RE IN THE NATURE OF PUBLIC CHARITY. FURTHER, THE CSR ACTIVITIES ITSELF ARE IN THE NATURE OF PUBLIC CHARITABLE ACTIVITIES. AS REGARDS THE REASONS (IV) GIVEN BY TH E CIT (EXEMPTION), NO ACTIVITIES IN SYNC WITH THE REQUIREMENT OF THE COMPANIES ACT H AS TAKEN PLACE IN THE TRUST SO FAR. FOR THE PURPOSE OF GRANTING REGISTRATION UN DER SECTION 12AA ONLY TWO FACTORS ARE TO BE SEEN BY THE CIT (E) WHICH ARE THE OBJECTS OF THE TRUST BEING CHARITABLE IN NATURE AND THE GENUINENESS OF ACTIVIT IES. THERE IS NO REQUIREMENT TO SEE WHERE THE ACTIVITIES ARE IN SYNC WITH COMPAN IES ACT OR NOT. REASONS (V) GIVEN BY THE CIT (EXEMPTION) THAT THE ACTIVITIES SO FAR FURTHER SHOW THAT THE TRUST IS RELINQUISHED ITS FUNCTION AS THE PRIMARY I MPLEMENTATION AGENCY AND UNDERTAKING ITS OWN PROGRAMS TO IMPACT DIRECT BENEF ICIARY BY THE TRANSFERRING ITS FUNDS TO OTHER SOCIETY. EVEN THE FUNDS GIVEN TO ANOTHER CHARITABLE SOCIETY FOR THE PURPOSE OF CHARITY ARE CONSIDERED AS APPLIC ATION OF INCOME FOR THE PURPOSE OF EXEMPTION UNDER SECTION 11 OF THE INCOME TAX ACT, 1961. AT THE TIME OF GRANTING THE REGISTRATION UNDER SECTION 12A A OF THE INCOME TAX ACT, 1961, THE CIT (EXEMPTION) NEED NOT GO BEYOND TWO PA RAMETERS THAT THE OBJECT BEING CHARITABLE IN NATURE AND ACTIVITIES BEING GEN UINE. ALL OTHER ACTIVITIES ARE THE MATTERS TO BE TAKEN CARE OF BY THE ASSESSING OF FICER AT THE TIME OF ASSESSMENT FOR GRANTED EXEMPTION UNDER SECTION 11 O F THE ACT. REASONS (VI) GIVEN BY THE CIT (EXEMPTION) THAT IT ALSO MILITATES AGAINST THE LEGAL PRINCIPAL THAT SOCIAL ENTERPRISES CANNOT BE A DIRECT RECIPIEN TS OF MONEY FROM CORPORATE AS IT IS A PROFIT MAKING COMPANY. THIS REASONS BY THE CIT (EXEMPTION) IS NOT IN CONFORMITY WITH ANY OF THE PROVISIONS OF THE INCOME TAX ACT. A PROFIT MAKING COMPANY CAN GRANT CERTAIN DONATION TO THE CHARITABL E TRUST, HOW CAN THE 7 ITA NOS. 6527 & 6528/DEL/2016 ACTIVITIES OF THE TRUST BECOME NOT CHARITABLE WITH THIS ACT. THE FACT THAT THE CSR EXPENDITURE ARE NOT ALLOWABLE EXPENDITURE UNDER SEC TION 37 OF THE ACT IS RELEVANT ONLY FOR THE TAXABILITY OF THE COMPANY INC URRING SUCH EXPENDITURE. FROM THE PERCEPTION OF THE ASSESSEE TRUST THE AMOUN T RECEIVED AS DONATION WHETHER WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTIO N 11 DEPENDS ON THE APPLICATION OF SUCH FUND FOR THE CHARITABLE ACTIVIT IES BY THE TRUST ONLY. THE CIT IS EMPOWERED TO SATISFY HIMSELF ONLY ABOUT TWO FACT ORS I.E. THE OBJECTS OF THE TRUST AND THE GENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTITUTION AND SUCH POWERS DOES NOT EXTEND TO THE ELIGIBILITY OF THE TR UST/ INSTITUTION FOR EXEMPTION U/S 11 R.W.S 13 OF THE INCOME TAX ACT, 1961 WHICH F ALLS IN THE DOMAIN OF THE AO. ONCE THE CIT HAS NOT DOUBTED ABOUT THE GENUINEN ESS OF THE ACTIVITIES OF THE ASSESSEE NOR DOUBTED ITS CHARITABLE OBJECT, HIS POWERS UNDER SECTION 12AA END. THE CASE LAWS RELIED BY THE LD. AR ARE APPLICA BLE IN THE PRESENT CASE. THE CASE LAWS RELIED BY THE LD. DR ARE NOT APPLICABLE A S THE FACTUAL MATRIX IN THOSE CASES ARE TOTALLY DIFFERENT. THUS, THE ORDER PASSED U/S 12AA AND U/S 80G(5)(VI) OF THE INCOME TAX ACT, 1961 ARE SET ASIDE. WE DIREC T THE CIT TO GRANT THE REGISTRATION U/S 12AA OF THE ACT AND ALSO THE APPRO VAL U/S 80G(5)(VI) OF THE ACT TO THE ASSESSEE. 10. IN RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH FEBRUARY, 2018 . SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 09/02/2018 R. NAHEED * 8 ITA NOS. 6527 & 6528/DEL/2016 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 27/11/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 28/11/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 09.02.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 2 .02.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 9 ITA NOS. 6527 & 6528/DEL/2016