Vildirect: IncomeTax-caselaws-2007-VIL-323-ITAT-DEL

2007-VIL-323-ITAT-DEL

Equivalent Citation: [2009] 27 SOT 423

Income Tax Appellate Tribunal DELHI

IT APPEAL NO. 3114 (DELHI) OF 2007

Date: 27.06.2007

SHRI SAI SAMARPAN TRUST CO.

COMMISSIONER OF INCOME-TAX, ROHTAK

R. Wadhwa, for the Appellant
Ms. Anshu Khurana, for the Respondent

BENCH

GEORGE MATHAN AND P. M. JAGTAP, JJ.

JUDGMENT

George Mathan, Judicial Member.

This is an appeal filed by the assessee against the order of the ld. CIT, Rohtak dated 23-5-2007 rejecting the application for registration under section 12AA of the Income-tax Act. Shri R. Wadhva, CA represented on behalf of the assessee and Ms. Anshu Khurana, D.R. represented on behalf of the revenue.

2. The facts that have led to this appeal are that the assessee is a Trust which was created by an instrument dated 17-8-2006 registered in the Sub-Registrar's Office on 17-8-2006. The assessee had applied for registration under section 12AA as a charitable Trust vide an application dated 9-11-2006. The ld. CIT had vide his order dated 23-5-2007 rejected the application for registration under section 12AA. Aggrieved the assessee has filed this appeal.

3. At the time of hearing the ld. AR made submissions in regard to the various reasons given by the ld. CIT for rejection of the Registration under section 12AA. It was the submission of the ld. AR that in regard to para 2 of the order of the ld. CIT, the ld. CIT had held that the assessee had not supplied audit report in form 10B alongwith the annexure thereto even though the same had been called for vide his office letter dated 1-5-2005. Ld. AR drew attention to page 6 of the paperbook, which was the copy of the letter mentioned by the ld. CIT. It was the submission that the ld. CIT was wrong in stating that he had called for the audit report in form 10B along with annexure thereto whereas in fact what has been asked for was only a statement of income and expenditure account and balance sheet for the last three years or since inception of the Trust, if not given already. It was his submission that the Trust had come into existence only on 17-8-2006 and the letter was issued on 1-5-2007 when the audit of the assessee's accounts was under process. It was his submission that even the time for filing of return had not expired but still the assessee has placed income expenditure account and balance sheet since its inception. It was thus his submission that the ground for rejection of the registration as mentioned in para 2 was not correct. In reply, the ld. DR vehemently supported the order of the ld. CIT.

4. We have considered the submission. It is noticed that the Trust had come into existence only on 17-8-2006 and its first year ending is 31-3-2007. The due date for filing its return as provided under section 139(4A) read with section 139(1) would be October 31st. It is noticed that when the assessee files its return the assessee is duty bound to file the audit report in the prescribed form. It is noticed further that the letter of the ld. CIT in F. No. 503 dated 1-5-2007 is much before the due date of filing the return along with the audit report. It is also noticed from clause (1) of the said letter dated 1-5-2007 that the ld. CIT has not asked for the audit report along with the annexures. All that has been asked for is the statement of income and expenditure accounts and balance sheet for the last three years or since the inception of the trust in regard to this assessee, which it is noticed, has been duly submitted as is evident from the letter of the assessee addressed to the Commissioner, Rohtak dated 8-5-2007 which was found at pages 1 to 3 of the paperbook.In these circumstances, we are of the view that the reasons given in para 2 of the order of the CIT for the purpose of rejecting the grant of registration under section 12AA of the Act is invalid and liable to be quashed and we do so.

5. In regard to para 3 of the order of the ld. CIT it was submitted by the ld. DR that the ld. CIT has not accepted the photocopy of the trust deed submitted. It was his submission that the original copy of the instrument of the creation of the trust had been produced before the ld. CIT. He further drew attention to form 10A wherein it has been specifically specified that the original or the certified copy of the instrument under which the trust was created/established along with the copy thereof was to be provided. He also drew our attention to rule 17A of the Income-tax Rules which specify that the original of the instrument along with one copy is to be submitted along with the application for registration and the proviso permitted that if the instrument of document in original cannot be conveniently produced, it was open to the authority to accept a certified copy in lieu of the original. He further drew attention to para 8 of his reply to the ld. Commissioner wherein it was specifically mentioned that the original trust deed was being produced for verification. It was thus his submission that the original trust deed though not enclosed along with the form 10A the same had been produced before the ld. Commissioner for verification and the ld. CIT was not right in law in rejecting the photocopy of the trust deed. It was his submission that the original document could not be enclosed along with the application as the same was required for production before other authorities also. In reply the ld. DR vehemently supported the order of the ld. CIT.

6. We have considered the submissions. The copy of the trust deed was found at pages 11 to 17 of the paperbook. This also noticed from the letter addressed to the CIT in reply to his letter dated 1-5-2007 that the assessee had produced the original trust deed for verification. It is further noticed that this being the first year of the assessee's functioning obviously the original document would be required for production before other authorities and consequently the assessee was prevented by sufficient cause in not submitting the original trust deed along with the application for registration.In these circumstances, we are of the view that the ld. CIT was wrong in not accepting the certified copy of the trust deed especially when the original of the same had also been produced before him.In these circumstances, the reason as given by the ld. CIT in para 3 of his order for rejecting the registration under section 12AA is found to be on an invalid footing and the same is set aside.

7. In regard to paras 4 and 5 of the order of the ld. CIT it was the submission by the ld. AR that the ld. CIT had rejected the registration on the ground that the trust deed does not contain as to what treatment would be given to its net assets/income in the case of any dissolution of the trust. It was the submission by the ld. AR that as per clause 27 of the trust deed the trust was an irrevocable trust and consequently the provisions of Indian Trust Act would come into play. It was his submission that the question in regard to this had not been even placed to the assessee. It was the submission that in the event of the dissolution of an irrevocable trust the charity commissioner would step into the shoes of the trustees. It was the submission that the provisions of Income-tax Act also did not call for any specification, which required the assessee to specify in the deed as to the treatment to be given to its net assets/incomes in the case of dissolution. It was thus his submission that even the provisions of section 12AA required that before rejection of the application for registration of the trust it was incumbent upon the ld. CIT to given the assessee reasonable opportunity of being heard. It was the submission that this opportunity had not been granted especially in view of the fact that this issue had not been brought to the attention of the assessee trust. In reply the ld. DR vehemently supported the order of ld. CIT.

8. We have considered the rival submissions. The provisions of section 12AA which are in regard to the registration of the trust shows that the Commissioner on receipt of an application for registration of the trust or institution could call for such documents or information from the trust as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust and he may also make such enquiries that he may feel necessary in this behalf. The provisions of section 12AA(1) further specify that if the ld. CIT is satisfied about the objects of the trust and the genuineness of its activities he shall pass an order in written registering the trust and if he is not so satisfied pass an order in writing refusing to register the trust. Here a proviso has also been provided that no order refusing to reject the trust was to be passed unless the applicant has been given reasonable opportunity of being heard.In the present case it is noticed that the ld. CIT had not given the assessee an opportunity to substantiate the allegation that the trust deed does not contain any clause as to what treatment would be given to its net assets/income in case of any dissolution of the Trust. This is evident from the copy of the letter of the ld. CIT dated 1-5-2007 addressed to the assessee. Further the fact that the assessee trust is registered with the sub-registrar as a charitable trust and also due to the fact that the trust is an irrevocable trust, in the event of the failure of the trust the net assets/income would obviously be taken over by the Charity Commissioner.In these circumstances the rejection of the registration of the trust by the ld. Commissioner on the ground that there is no specific clause in the instrument in regard to the treatment to be given to the net assets and incomes of the trust in the event of dissolution is not on a sound footing and the same is set aside.

9. In regard to para 6 of the order of the ld. CIT, it was the submission by the ld. AR that the ld. CIT was wrong in assuming that the amount of Rs. 18,770 as shown by the assessee in its income and expenditure account from the running of the ambulance was the net income of the assessee. It was the submission that it was the gross receipts of the assessee from the running of the ambulance. He further drew attention to pages 223 to 225 of the paperbook which was the copy of the log-book maintained by the driver of the assessee. It was the submission that the assessee had been charging nominal amounts for the ambulance and no income had been generated from the running of the ambulance. He further drew attention to the log-book to show that in substantial number of cases the nominal amount of Rs. 100 had been charged for the use of the ambulance and in a few cases no charges had also been collected. It was his submission that the ld. CIT had erred in holding that the trust deed had not made any mention that it was to perform the various services as mentioned therein free of charge. It was his submission that it is from the Act of the assessee that the issue as to whether the assessee is a charitable institution or not has to be considered.

10. In reply, the ld. DR submitted that the genuineness of the activities of the Trust was questionable. It was her submission that the object of the trust was not clear. She vehemently supported the orders of the ld. CIT.

11. We have considered the rival submissions. At the outset what is to be understood by charitable purpose is defined in section 2(15) of the Income-tax Act. Charitable purpose is definite to include relief of the poor, education, medical relief and the advancement of any other object of general public utility. Sections 11, 12 and 13 grant the benefits of exemption and registrations to a trust or institution doing charitable activity. What is being misunderstood in most cases of charitable activities is that if any income is generated or if any donation is collected for the purpose of charity then it is not charity but is a business. If no income arises to an institution then there is no requirement of it to file its returns or pay any taxes. If one is to do charity on from one's own sources one does not need the permission under the Income-tax Act because it is his own personal funds that he is using to do charity. It is because an institution is created and the institution acts as intermediary for collecting the funds from various charitably inclined persons and transmits the same for the benefit of the needy, to protect such intermediary institutions, the provisions of sections 11, 12 and 13 are made available under the Act. Just as it is said little drops of water, little grains of sand made the mighty ocean and the pleasant land, it is the charitable institutions which collect those drops of water and the little grains of sand which are the contributions from the charitably inclined persons and make it available to the needy. The charity that can be done by an individual out of his own funds are limited to ones capacity but the effect of doing charity as a group would be much more larger and fruitful to the charitable intention. It is for this purpose the Income-tax Act recognizes charitable trusts and institutions. The requirement of registration and filing of the returns and its assessment is the safeguard that is put up by the Government to see to it that the collective charitable efforts are spent on charity itself and are not diverted for personal gains. The provisions of section 12AA specifically required the ld. CIT to call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of trust or the institution and to also make such enquiries as he may deem necessary in this behalf. Thus what is evident here is the genuineness of the activities of the trust. Just because a trust has got multiple activities permitted under its instrument of creation it does not mean that it would have to do all those activities. It could do one or even some of the activities. What the Commissioner is expected to do is to verify the activities and see if it is genuinely charitable or otherwise. He is not expected to use defects in the clauses of the instrument of creation of the trust for the purpose of rejecting its registration. A quasi-judicial authority is respected for his ability and boldness to mitigate the difficulties caused to the public by removal of technicalities and not for using technicalities to the detriment of the public. This is just the reason why the provisions of section 12AA specify that registration cannot be denied without granting adequate opportunity to an assessee. An adequate opportunity is not a term in thin air, adequate opportunity is required for granting substantial justice. Primarily the Commissioner is expected to look into the genuineness of the activities of the trust. A perusal of the income expenditure account as was placed before the CIT clearly show that the amount of Rs. 18,770 shown in the income expenditure account was the gross receipts. Further the log-book shows that in some cases free use of the ambulance has been permitted and in most cases a nominal charge of Rs. 100 to Rs. 150 charged. As against this it is also noticed that the running and maintenance of Rs. 11,220 has been incurred along with the salary expenses of Rs. 10,500. The Schedule to the fixed assets shows the cost of the ambulance to be Rs. 2,65,744 and no depreciation on the same has also been claimed. The rate of depreciation available during the relevant assessment year was 30 per cent and if that is also considered, obviously the depreciation itself would have been more than Rs. 70,000. If the assessee had thought to do business obviously after investing so much of money he would never have given the ambulance for free or for nominal amounts of Rs. 100 to Rs. 150 especially when today even the minimum charge of a taxi is more than Rs. 100.In these circumstances, we are of the view that the ld. CIT was wrong in holding that the assessee was not a charitable institution.

12. In regard to paragraphs 7 and 8 of the ld. CIT it was the submission that the ld. CIT had questioned the application of the donation received by the assessee holding that the same was by diversion of the general funds of trust. It was the submission that there was no diversion of the funds of the trust in the purchase of the ambulance or medical equipment or the mobile phone. It was the submission that these were in-fact the application of the income of the trust. It was the submission that the purchase of the Ambulance and the medical equipment was as per the objects of the trust and the mobile phone was for the access to the ambulance services that was provided by the trust. It was the submission that no portion of the funds of the trust had been used for any purpose other than the objects for which the trust had been created and there was no allegation even in regard to the misuse of the funds of the trust. In reply, the ld. DR vehemently supported the orders of the ld. CIT.

13. We have considered the rival submissions. What has to be noticed here is that when a trust is created and it receives donations sometimes the donors makes specific directions that the funds that they donate should be used for specific purposes which are provided in the objects. A perusal of the confirmations issued by the various donors of the trust, clearly show that none of the donors have given any specific directions in regard to the use of the trust funds. In such a situation the trust fund is to be used for attaining the objects of the trust. One of the objects of the trust is the running of the ambulance, which is provided in clause 12 of the trust deed. This being so, the purchase of the ambulance and the medical equipment as also the mobile phone used for communicating with the driver of the ambulance cannot be said to be for any other purpose other than attaining the objects of the trust. This being so, we are of the view that the ld. CIT erred in holding that there was violation of the provisions of the Indian Trust Act, 1982 and the provisions of section 11(1)(a) and 11(1)(d) of the Income-tax Act.

14. A perusal of the trust deed along with various documents which had been produced before the ld. CIT, which have been produced before us clearly show that the activities of the trust are genuine. This being so, we are of the view that the assessee trust is entitled to the grant of registration under section 12A of the Act.In these circumstances, the order of the ld. CIT, Rohtak passed under section 12AA(1)(b)(ii) of the Income-tax Act dated 12-5-2007 in the case of the assessee is set aside and the ld. CIT is directed to grant the assessee the registration under the provisions of section 12AA(1) as a charitable trust.

15.In the circumstances, the appeal of the assessee is allowed.

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