INNOVATIVE EDUCATION FOUNDATION, MUMBAI V. DIT (E), MUMBAI

ITA 7756/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88206 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 28-01-2015
• Assessment Year: 2012-2013
• Appeal Filed On: 28-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Charitable institution
• Section: 12A; 12AA; 12; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, M UMBAI BEFORE S/SHRI D. KARUNAKAR RAO, (AM) AND AMIT SHUKLA, (JM) . , , ./I.T.A. NO.7756/MUM/2012 ( ! / ASSESSMENT YEAR :NOT APPLICABLE) M/S INNOVATIVE EDUCATION FOUNDATION, APOLLO TRADE LIMITED, TAJ BLDG, 3 RD FLOOR, 210, D N ROAD, FORT, MUMBAI-400001 / VS. DIRECTOR OF INCOME TAX (EXEMPTION), 6 TH FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI-400012 ( '# / APPELLANT) .. ( $%'# / RESPONDENT) ' ./ &' ./PAN/GIR NO. :AAATI9185Q '# ( / ASSESSEE BY SHRI PRAKASH JOTWANI $%'# ) ( / REVENUE BY SHRI KISHAN VYAS ) * / DATE OF HEARING : 28.1.2015 +,! ) * /DATE OF PRONOUNCEMENT : 28.1.2015 / O R D E R PER AMIT SHUKLA, (JM) THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST IMPUGNED ORDER DATED 25.10.2012, PASSED BY THE DIR ECTOR OF INCOME TAX (EXEMPTION), MUMBAI, UNDER SECTION 12AA OF TH E INCOME TAX ACT, 1961 (THE ACT) REFUSING TO GRANT OF REGISTRATI ON TO THE ASSESSEES TRUST. 7756/MUM/2012 2 2. FACT OF THE CASE ARE THAT THE ASSESSEE TRUST WAS FORMED ON 21.12.2011 THROUGH TRUST DEED. THE DOMINANT OBJECT OF THE SAID TRUST WAS TO CARRY OUT ESTABLISHING AND RUNNING OF SCHO OLS, COLLEGES AND EDUCATIONAL INSTITUTIONS, ETC. THE SAID TRUST WAS REGISTERED WITH CHARITY COMMISSIONER, MUMBAI ON 12.4.2012, IMMEDIAT ELY, IT APPLIED FOR THE REGISTRATION UNDER SECTION12A IN THE PRESCR IBED FORM 10A ON 12.4.2012, BEFORE THE DIRECTOR OF INCOME TAX (EXE MPTION), MUMBAI. THE DIT ON THE PERUSAL OF THE TRUST OBJECTS ENUMER ATED IN THE DEED HELD THAT THE APPLICANT TRUST HAS BOTH CHARITABLE A S WELL AS NON- CHARITABLE/COMMERCIAL OBJECTS, SUCH AS RUNNING OF I NSTITUTIONS TEACHING COMMERCIAL AND OTHER ARTS, HOBBY CENTERS, SPORTS ACADEMY, TUTORIAL CENTERS, LODGING, HOSTELS, BOARDING HOUSE ESTABLISHING TRAINING AND VOCATIONAL INSTITUTES AND CARRYING ON OTHER EDUCATIONAL AND ALLIED ACTIVITIES IN INDIA. THE OBJECTS FURTHE R LISTED THAT SUCH ACTIVITIES CAN BE CARRIED OUT IN ANY OTHER COUNTR IES EITHER ON JOINT VENTURE BASIS OR AS PARTNERS OR AS FRANCHISEE WITH IN AND OUTSIDE INDIA. HE FURTHER ANALYZED CERTAIN OTHER OBJECTS LIKE TO CARRY ON THE BUSINESS OF BUYING, SELLING AND /OR PROMOTION OF FR ANCHISED BUSINESS, MAKING INVESTMENT OR TO GIVE LOANS FROM THE MONEYS OF THE TRUST WHICH ARE NOT IMMEDIATELY REQUIRED FOR ITS PURPOSE. THUS, HE CONCLUDED THAT IT HAS MIXED, CHARITABLE AS WELL AS COMMERCIAL OBJECTIVES WHICH DO NOT FALL WITHIN THE AMBIT OF SE CTION 2(15) OF THE 7756/MUM/2012 3 INCOME TAX ACT. THEREFORE, ITS OBJECTS CANNOT E HELD TO BE GENUINE. REGARDING THE ACTIVITIES OF THE APPLICANT TRUST, HE OBSERVED THAT ,FROM THE PERUSAL OF INCOME AND EXPENDITURE ACCOUNT FOR T HE YEAR ENDING ON 31.3.2012, IT IS SEEN THAT TRUST HAS RECEIVED DONATION OF RS.1 LAKH AND INCURRED EXPENDITURE OF RS.26,801/-, ON AU DIT FEES, FORMATION EXPENSES, PRINTING AND STATIONERY AND FRANKING/NOTA RY CHARGES. NONE OF THE EXPENDITURE WAS INCURRED FOR THE OBJECTS OF THE TRUST. THUS, IT HAS NOT CARRIED OUT ANY CHARITABLE ACTIVITY TILL 31 .3.2012. HE FURTHER OBSERVED THAT THE DONATION OF RS.1 LAKH RECEIVED FR OM M/S JAY BHAGWATI TRADING AND AGENCIES PVT.LTD., HAS THE SAME ADDRESS AS THAT OF THE APPLICANT TRUST. THE ASSESSEE HAD ALSO RECEIVED UNSECURED LOAN FROM THE SAID CONCERN OF RS.20.50 L AKHS, BUT THE OPERATIONS OF THE SCHOOL HAD NOT YET STARTED. THE A PPLICANT TRUST HAS NOT FURNISHED FULL COPIES OF BANK ACCOUNT FOR VERIF ICATION. ACCORDINGLY, HE HELD THAT THERE IS A LACK OF SUFFICIENT MATERIA L TO ENABLE HIM TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVI TIES OF THE TRUST. HE, THEREFORE, HE REJECTED THE APPLICATION OF ASSE SSEE FOR GRANT OF REGISTRATION. 3. BEFORE US, SHRI PRAKASH JOTWANI, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, FROM THE PERUSAL OF THE OB JECTS IT WOULD BE SEEN THAT THE DOMINANT OBJECT WAS FOR PROVIDING ED UCATION THROUGH ESTABLISHING AND RUNNING OF SCHOOLS AND EDUCATION AL INSTITUTIONS. THE 7756/MUM/2012 4 VARIOUS OBJECTS WHICH HAVE BEEN REFERRED BY THE LD. DIT ARE IN THE NATURE OF INCIDENTAL ACTIVITIES ENTIRELY CONNECTED WITH THE FIELD OF EDUCATION. OTHER THAN THE OBJECTS RELATING TO EDUCA TION, NO OTHER COMMERCIAL OBJECTS HAVE BEEN MENTIONED IN THE TRUST DEED. THE OBJECTS WHICH HAVE BEEN ADVERSELY VIEWED BY THE LD . DIT ARE RELATING TO FIELD OF EDUCATION ONLY, WHICH HAS A V ERY WIDE HORIZON AND INCLUDES ARTS, HOBBY CENTERS, SPORTS ACADEMY, TUTOR IAL ACTIVITIES, SPORTS AND OTHER EDUCATIONAL ALLIED ACTIVITIES RAIS ING OF FUNDS BY GIVING THE LOAN OF SURPLUS MONEY IS ALSO FOR THE PURPOSE OF FULFILLING THE OBJECTS AND ARE NOT COMMERCIAL IN NATURE. REGARDI NG THE GENUINENESS OF THE ACTIVITIES, HE SUBMITTED THAT , THE ASSESSEE TRUST ITSELF WAS ESTABLISHED IN DECEMBER 2011 AND WITHI N THREE MONTHS IT COULD NOT HAVE CARRIED OUT ANY ACTIVITY. THE STATU TE DOES NOT PRESCRIBE THAT THE ASSESSEE TRUST OR INSTITUTION HA S TO WAIT FOR CERTAIN PERIOD TO START ITS ACTIVITY AND THEN ONLY CAN APPL Y FOR REGISTRATION. IN FACT, THERE IS A TIME LIMIT PRESCRIBED FOR APPLYIN G FOR REGISTRATION BEFORE THE CIT/DIR UNDER SECTION 12A AND THIS HAS B EEN SPECIFICALLY PROVIDED IN CLAUSE (AA) OF SECTION 12(1) OF THE AC T. IN SUPPORT OF THIS CONTENTION, HE STRONGLY RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX VS. FOU NDATION OF OPHTHALMIC AND OPTOMETRY RESEARCH EDUCATION CENTRE (2013) 355 ITR 361 AND THE DECISION OF PUNJAB AND HARYANA HI GH COURT IN THE 7756/MUM/2012 5 CASE OF CIT V/S GLOBAL EDUCATIONAL SOCIETY REPORTED IN (2014) 225 TAXMAN 20 (P & H). HE ALSO BROUGHT TO OUR NOTICE THAT NOW THE ASSESSEE HAS ALREADY OPENED THE SCHOOL AT BHUJ, G UJARAT AND SCHOOL HAS BEEN STARTED. THUS, HE SUBMITTED THAT L OOKING INTO THE OBJECT OF THE ASSESSEE, REGISTRATION UNDER SECTION 12A SHOULD BE GRANTED TO THE ASSESSEE. 4. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT, N OT ONLY THE OBJECTS OF THE TRUST BUT ALSO ACTIVITIES OF THE TRU ST HAVE BEEN FOUND TO BE NOT IN THE NATURE OF CHARITABLE PURPOSES OR GENU INE. THIS HAS BEEN ELABORATELY DISCUSSED BY THE LD. DIT AFTER POINTING OUT CERTAIN OBJECTS, WHICH CANNOT BE HELD TO BE FOR A CHARITABLE PURPOSE S. NOT ONLY THAT THE ENTIRE DETAILS OF BANK ACCOUNTS AND OTHER RECO RDS REQUIRED BY THE DIT WERE ALSO NOT FURNISHED BY THE ASSESSEE, THEREF ORE, GENUINENESS OF THE ACTIVITY CANNOT BE LOOKED INTO. THUS, HE S TRONGLY RELIED UPON THE ORDER OF DIT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD RELIED UPON BY THE PARTIES AND THE FINDING GIVEN IN THE IMPUGNED ORDER. THE REQUISITE CONDITION FOR REGISTRATION OF TRUST U/S 12A/12AA IS THAT, THE COMMISSIONER OR DIRECTOR OF INCOME TAX (EXEMPTION) SHOULD SATISFY HIMSELF ABOUT THE OBJECTS OF THE TRU ST AND THE GENUINENESS OF THE ACTIVITIES OF THE TRUST. THE OB JECTS OF THE TRUST MUST BE IN THE NATURE OF CHARITABLE PURPOSE WITHI N THE AMBIT AND 7756/MUM/2012 6 DEFINITION OF SECTION 2(15) OF THE ACT. ONE OF T HE OBJECT OF THE CHARITABLE PURPOSES AS DEFINED IN THE SAID SECTION IS EDUCATION. FROM THE PERUSAL OF THE TRUST DEED, IT IS SEEN THA T THE DOMINANT OBJECT IS TO OPEN AND ESTABLISH SCHOOL, COLLEGES, EDUCATI ONAL INSTITUTES, TECHNICAL INSTITUTES AND CARRYOUT EDUCATION IN FIEL D OF ARTS, ESTABLISH HOBBY CENTERS, SPORTS ACADEMY, TUTORIAL CENTERS ETC . BASICALLY THESE OBJECTS ARE FOR ESTABLISHING, CARRYING ON AN EDUCAT IONAL AND ALLIED ACTIVITIES. THE LD. DIT HAS PICKED UP CERTAIN PHRA SES AND LINES FROM THE OBJECTS FROM THE DEED OF TRUST SO AS TO COME T O A CONCLUSION THAT THESE OBJECTS ARE MIXTURE OF CHARITABLE AND NON-CH ARITABLE OBJECTS. THE OBJECT AS A WHOLE HAS TO BE READ WITH AND THE CONTEXT IN WHICH THE OTHER ALLIED OBJECTIVES HAVE BEEN MENTIONED. IF THE ALLIED OBJECTS ARE NOT INDEPENDENT BUT SOLELY FOR ATTAINING THE DOMINANT OBJECT, THEN THE SAME SHOULD BE EXAMINED IN THAT LIGHT. FUR THER, THE ACTIVITIES OF THE ASSESSEE TRUST ITSELF HAS NOT STARTED, THERE FORE, TO HOLD THAT THE ACTIVITIES OF THE APPLICANT TRUST IS NOT GENUINE IS TOO PREMATURE. THERE IS NO PROHIBITION IN THE ACT THAT, IF THE ACTIVITY OF THE ASSESSEE HAD NOT STARTED, THE COMMISSIONER SHOULD DECLINE IN GRANTIN G THE REGISTRATION. THE STATUTE DOES NOT PRESCRIBE ANY WAITING PERIOD FOR THE TRUST TO QUALITY FOR REGISTRATION. IF A TRUST HAVE BEEN FORM ED, THEN THE APPLICANT ASSESSEE CAN SEEK FOR REGISTRATION WITHIN A SHORT P ERIOD U/S 12A OF THE ACT. THIS VIEW IS FULLY SUPPORTED BY THE DECISION OF THE HONBLE 7756/MUM/2012 7 KARNATAKA HIGH COURT IN THE CASE OF DIT (E) V. ME ENAKSHI AMMA ENDOWMENT TRUST (2013)354 ITR 219 (KARN) AND THE DE CISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF FOUNDATION OF OPHTHALMIC AND OPTOMETRY RESEARCH EDUCATION CENTRE (SUPRA). I T IS VERY IMPORTANT TO NOTE THAT SUB-SECTION (2) OF SECTION12 A PROVIDES THAT, WHERE ANY APPLICATION HAS BEEN MADE ON OR AFTER 1.6 .2007, THE PROVISIONS OF SECTION 11 AND 12 SHALL APPLY TO THE INCOME OF SUCH TRUST FROM THE ASSESSMENT YEAR IMMEDIATELY FOLLOWING THE FINANCIAL YEAR IN WHICH SUCH APPLICATION IS MADE. IN OTHER WORDS, IF THE ASSESSEE HAS MADE AN APPLICATION AFTER A GAP OF FEW YEARS OF CO MING INTO EXISTENCE FOR REGISTRATION U/S 12A, THEN FOR THE EA RLIER YEARS, BENEFIT OF SECTIONS 11 AND 12 WILL NOT BE AVAILABLE AND ONLY FROM THE ASSESSMENT YEAR IMMEDIATELY FOLLOWING THE FINANCIAL YEAR IN WHICH THE APPLICATION IS MADE, THE BENEFIT WOULD BE AVAILABLE . IN SUCH A SITUATION, IT CANNOT BE EXPECTED THAT THE ASSESSEE WILL IMMEDIATELY CARRYOUT THE CHARITABLE ACTIVITIES MOMENT A TRUST I S CREATED. HERE IN THIS CASE, IF THE ASSESSEE IS IN THE PROCESS OF EST ABLISHING THE SCHOOL OR EDUCATIONAL THEN, THAT SHOULD SUFFICE ACTIVITIES . FOR EXAMPLE, STARTED IF THE TRUST HAS THE CONSTRUCTION OF THE SCHOOL/COLLEGE, THEN IT CAN BE VERY WELL SAID THAT TRUSTS ACTIVITIES HAVE BEEN STARTED. MERELY BECAUSE, CERTAIN LOANS HAVE BEEN RECEIVED AND PRIMA RY EXPENSES HAVE BEEN INCURRED, IT CANNOT BE CONCLUSIVELY HELD THAT THE 7756/MUM/2012 8 ASSESSEES ACTIVITIES ARE NOT FOR CHARITABLE PURPOS ES OR FOR ATTAINING THE OBJECTS. STATUTE ENVISAGES THAT, WHEN THE ACTI VITIES OF THE TRUST ARE NOT CARRIED OUT FOR THE ATTAINMENT OF OBJECTS OR ITS ACTIVITIES ARE NOT GENUINE, THEN REGISTRATION CAN BE CANCELLED. OTHERWISE ALSO THE BENEFIT OF SECTION 11 CAN ALSO BE DENIED IN THE CO URSE OF THE ASSESSMENT PROCEEDINGS. MERELY GRANT OF REGISTRATI ON DOES NOT MEAN THE ACTIVITIES CANNOT BE SCRUTINIZED FOR THE PURPOS E OF DENYING BENEFIT OF SECTION 11. 6. THUS, UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE FEEL THAT THE ENTIRE MATTER SHOULD GO BACK TO THE FILE O F DIT (E), FOR EXAMINING THE ISSUE AFRESH NOT ONLY ON THE POINTS OF OBJECTS OF THE TRUSTS, WHETHER THEY WERE FOR EDUCATIONAL PURPOSES OR NOT, BUT ALSO TO EXAMINE WHETHER THE ASSESSEE HAS INITIATED OR STARE D ACTIVITIES FOR THE FULFILLMENT OF OBJECTS. THE ASSESSEE SHALL FURNISH ALL THE REQUIRED DOCUMENTS, BANK STATEMENT AND OTHER EVIDENCES TO ES TABLISH ITS GENUINENESS OF ACTIVITY AND ALSO TO SUBSTANTIATE I TS CASE BEFORE DIT. IF ASSESSEE IS UNABLE TO SATISFY THE DIT, THEN HE CAN DRAW ADVERSE INFERENCE. THUS, GROUNDS OF APPEAL TAKEN BY THE AS SESSEE IS REMITTED BACK TO THE FILE OF THE DIT(E) TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 7756/MUM/2012 9 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28TH JAN, 2015 . +,! - ./ 28TH JAN, 2015 , ) 0 1 SD SD ( . / D. KARUNAKAR RAO) ( / AMIT SHUKLA ) / ACCOUNTANT MEMBER ! / JUDICIAL MEMBER 4 MUMBAI: 28TH JAN,2015. . . ./ SRL , SR. PS # $ %&' (')% / COPY OF THE ORDER FORWARDED TO : 1. '# / THE APPELLANT 2. $%'# / THE RESPONDENT. 3. ( ) / THE CIT(A)- CONCERNED 4. / CIT CONCERNED 5. 560 $7 , * 7 , 4 / DR, ITAT, MUMBAI CONCERNED 6. 0 8 / GUARD FILE. / BY ORDER, TRUE COPY 9 & (ASSTT. REGISTRAR) * 7 , 4 /ITAT, MUMBAI