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2024 (7) TMI 1638 - AT - Income TaxRejection of provisional registration granted u/s 12AB r/w section 12A(1)(ac)(vi) - CIT(E) came to the conclusion that the assessee has failed to file details of loan lenders their address PAN details identity of such persons date and mode of payment received etc. - HELD THAT - Observations of the CIT(E) are absurd because of the fact that taking into consideration the locality in which the assessee trust is running the educational institution and parting education to the poor tribal people in Naxal affected remote and backward areas of Gadchiroli District the amount of money borrowed by the assessee trust being a temporary arrangement need to be taken into consideration. The assessee trust inspite of those difficulties is running the educational institutions to help the poor tribal students and to bring those students at par with the main stream of the society. Assessee trust is working for a noble cause for the upliftment of the tribal students in our opinion small borrowing made by the assessee that too as a temporary arrangement and since the loans were not availed from banks or financial institutions neither violates any provision of the Maharashtra Public Trust Act 1950 nor any provisions of the Income Tax Act 1961. Hence we hold that the CIT(E) doubted the genuineness of activities and non compliance of transactions of borrowings made by the assessee trust is without any basis. Consequently we reverse the order passed by the CIT(E) and direct him to grant registration under section 12A(1)(ac(iv). The grounds of appeal raised by the assessee are allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Rejection of final registration and cancellation of provisional registration under section 12AB and 12A(1)(ac)(vi) of the Income Tax Act, 1961 Relevant legal framework and precedents: Section 12AB of the Income Tax Act governs registration of charitable or religious trusts for exemption purposes. Clause (iii) of section 12A(1)(ac) sets out conditions for registration including genuineness of activities and compliance with applicable laws. The registration process involves scrutiny of the trust's activities and documents to satisfy the authority of the trust's bona fide nature. Court's interpretation and reasoning: The Tribunal noted that the assessee trust is registered under the Maharashtra Public Trust Act, 1950, and has been carrying out educational activities for the benefit of poor tribal students in a Naxal-affected, backward district. The trust runs two educational institutions funded by government grants. The learned CIT(E) did not doubt the genuineness of the trust's activities but rejected the application based on concerns regarding loans borrowed by the trust from private persons without furnishing lender details such as PAN and addresses. Key evidence and findings: The assessee furnished voluminous details of its activities and financial transactions. The loans borrowed were relatively small amounts except one loan of Rs. 4,69,867 for which the assessee explained the delay in government grants necessitated temporary borrowing. The learned CIT(E) found absence of lender details and held this as non-compliance and questioned genuineness. Application of law to facts: The Tribunal held that the trust's borrowing of small amounts from private persons as a temporary arrangement to meet exigencies due to delayed government grants does not violate provisions of the Income Tax Act or Maharashtra Public Trust Act. The absence of lender PAN details for petty loans was considered immaterial given the nature and locality of the trust's operations. The trust's core educational activities for tribal upliftment were genuine and deserving of registration. Treatment of competing arguments: The Revenue emphasized non-submission of lender details and doubted genuineness. The assessee argued the loans were temporary, necessary, and did not contravene any law. The Tribunal accepted the assessee's explanation, noting the remote and backward area context and the noble objectives of the trust. Conclusion: The Tribunal found no valid basis for cancellation of provisional registration or rejection of final registration on the grounds of genuineness or loan details. The order of the learned CIT(E) was reversed and registration was directed to be granted. Issue 2: Alleged violation of Maharashtra Public Trust Act, 1950, particularly section 36A Relevant legal framework: Section 36A of the Maharashtra Public Trust Act requires prior permission from the Charity Commissioner for borrowing money by a public trust. Compliance with this provision is mandatory to ensure transparency and regulatory oversight. Court's interpretation and reasoning: The learned CIT(E) held that the assessee trust violated section 36A by borrowing loans without obtaining permission from the Charity Commissioner. However, the CIT(E) failed to produce any objection or communication from the Charity Commissioner or competent authority substantiating this violation. Key evidence and findings: The Tribunal noted the absence of any formal objection or adverse communication from the Charity Commissioner. The loans were small and temporary, taken in exigent circumstances due to delayed government grants. Application of law to facts: Considering the nature of loans and the lack of evidence of any official objection, the Tribunal concluded that section 36A was not attracted in the given circumstances. The borrowing did not amount to a violation warranting cancellation of registration. Treatment of competing arguments: The Revenue relied on the statutory provision and absence of permission. The assessee relied on the absence of any objection and the temporary nature of borrowing. The Tribunal sided with the assessee on the factual matrix. Conclusion: The Tribunal held that the learned CIT(E) erred in holding violation of section 36A without evidence and that the provision was not applicable to the facts of the case. Issue 3: Alleged failure to comply with natural justice principles Relevant legal framework: Principles of natural justice require that no adverse order be passed without giving the affected party an opportunity to be heard and explain the matter. Court's interpretation and reasoning: The assessee contended that adverse findings were arrived at without any opportunity to explain, violating natural justice. The Tribunal observed that the learned CIT(E) did not provide any such opportunity before cancelling the registration. Key evidence and findings: The record indicated that the assessee had submitted voluminous details and explanations but was not given a chance to clarify issues specifically concerning loan details and compliance with section 36A before adverse action. Application of law to facts: The Tribunal found that the learned CIT(E)'s order was contrary to principles of natural justice as no opportunity was granted to the assessee to explain or rectify alleged deficiencies. Treatment of competing arguments: The Revenue did not specifically address the natural justice issue. The Tribunal emphasized the mandatory nature of natural justice in quasi-judicial proceedings. Conclusion: The Tribunal held that the learned CIT(E) erred in passing adverse order without affording opportunity to the assessee, thereby violating natural justice. Issue 4: Genuineness of the activities of the assessee trust Relevant legal framework: Registration under section 12AB requires satisfaction regarding the genuineness of the trust's activities and compliance with law. Court's interpretation and reasoning: The Tribunal noted that the assessee trust's objects are to provide quality education to poor tribal students without discrimination in a backward, Naxal-affected district. The trust runs two educational institutions funded by government grants, and does not charge fees from students. The activities were found to be genuine and in furtherance of charitable purposes. Key evidence and findings: The assessee submitted detailed information about its institutions, objectives, and financials. No doubt was raised regarding the activities themselves. The only issue related to loans and compliance. Application of law to facts: The Tribunal applied the legal standard of genuineness and found that the trust's activities clearly satisfied the requirements for registration. Treatment of competing arguments: The Revenue raised doubts only with respect to loan transactions, not the core activities. The Tribunal rejected the Revenue's attempt to impugn genuineness based on peripheral financial matters. Conclusion: The Tribunal held that the activities of the assessee trust were genuine and lawful. 3. SIGNIFICANT HOLDINGS "The assessee trust is solely existed for the purpose of providing free education to the poor, tribal people belonging to Scheduled Caste and Scheduled Tribes under Naxal affected Gadchiroli District within the State of Maharashtra and does not charge any fee from the students." "The learned CIT(E) has not doubted the activities carried on by the assessee. The only doubt of the learned CIT(E) is that, the assessee trust borrowed certain loans from private parties which are contrary to the provisions of Maharashtra Public Trust Act, 1950 and the assessee trust has not provided PAN details." "The amount of money borrowed by the assessee trust being a temporary arrangement need to be taken into consideration. When the assessee is running the educational institutions with the support of Government of Maharashtra in the form of grant-in-aid and whenever there is a delay in releasing the funds from the Government of Maharashtra, for the purpose of meeting the exigency expenses like payment of salary to the teaching and non-teaching staff and other necessary payments, the assessee trust borrows money from the private individuals which is a temporary arrangement for which providing PAN details are not necessary." "The learned CIT(E) doubted the genuineness of activities and non-compliance of transactions of borrowings made by the assessee trust is without any basis." "Hence, we hold that the learned CIT(E) erred in holding that there is violation of provisions of section 36A of the Maharashtra Public Trust Act, 1960, from the Charity Commissioner when said provisions are not attracted in given circumstances." "The grounds of appeal raised by the assessee are allowed." The Tribunal's final determination was to allow the appeal, reverse the order of the learned CIT(E), and direct grant of registration under section 12A(1)(ac)(iv) of the Income Tax Act, 1961, recognizing the genuineness of the assessee trust's activities and rejecting the Revenue's objections regarding loan transactions and alleged statutory violations.
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