TMI Blog2002 (3) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... ade mandatory as per the procedure laid down in section 12AA. Under clause (a) of section 12AA(1), the Chief CIT/CIT was empowered on receipt of an application for registration under section 12A(a) to call for such documents or information as he thought necessary in order to satisfy himself about the genuineness of the activities of the trust or institution. Further, the authority concerned was also empowered to make such inquiries as he may deem necessary in this behalf. 4. As provided in clause (b) of section 12AA(1) after the authority concerned was satisfied about the objects of the trust or institution and the genuineness of its activities he was to pass an order granting registration but if it was not so satisfied it would pass an order in writing refusing registration. The proviso to section 12AA(1)(b) however stipulated that no order refusing registration was to be passed unless the applicant had been allowed reasonable opportunity of being heard. 5. CBDT Circular No. 762, dated 18-2-1998 explained the scope and effect of the newly inserted section 12AA as also the amendment of section 12A by the Finance (No. 2) Act, 1996 as follows:-- "Under the existing provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institutions and organizations, for setting up various Satsang Halls, Yagshalas, education of poor and needy, for medical research, for hospitals, for dispensaries, for medical centre and various other religious educational, charitable and philanthropic purposes. The donation may also be made to other charitable, religious or philanthropic trusts. The executor shall in her/his sole discretion be entitled to give and donate any amount to all or any of the aforesaid objects as she/he may deem fit and proper." 7. The residuary estate comprised of a sum of Rs.2,13,60,528 kept in various banks. This amount was utilised by the executors of the Will as the corpus of the trust created w.e.f.1-4-2001by means of the Trust Deed executed and registered on31-3-2001. There were five trustees including the two executors of the Will. 8. The appellant applied for registration under section 12A of the I.T. Act, 1961 and pursuant thereto the "DI" gave a hearing when the appellant was required to file copy of the Will of late Smt. Prem Lata Dawar as also to produce the original Trust Deed. The "DI" examined the Will and the Trust Deed observing that "the objects of the Trust are charitable in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the appellant that it could use the residual estate for setting up an institution, which would perform charitable, educational and philanthropic activities the "DI" was of the view that there was no such direction contained in the Will. That the direction was to donate money to certain types of institutions for carrying on specified types of activities and even for giving a donation, two persons were required and the appellant was not in existence to take the donation at the relevant point of time; (v) on the submission of the appellant that one charitable trust could make payments to another charitable trust and which could be regarded as application of money, the "DI" accepted the proposition put forward but distinguished it from the present case where the taker did not exist. 12. In conclusion, the "DI" rejected the claim for registration under section 12A observing as under:-- "In view of the aforesaid discussion, it is held that the executrixes did not have any mandate under the Will to set up a new trust and, therefore, they were not legally competent to transfer the estate to a trust to be newly set up by them. It, therefore, follows automatically that the resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel referred to/relied on the following decisions: (i) M. Visvesvaraya Industrial Research Development Centre v. ITAT [2001] 251 ITR 852 (Bom.). (ii) Nachimuthu Industrial Association's case. (iii) Hanmantram Ramnath's case. (iv) K. Narayana Setty Ramarathanamna Trust's case. 16. Reliance was also placed on the judgment of the Hon'ble Delhi High Court in the case of Parivar Seva Sanstha v. Director of Income-tax (Exemption) [2002] 255 ITR 132. 17. The ld. DR on behalf of the Revenue vehemently supported the order of the "DI". According to him the term "make such inquiries" was wide enough to include an examination of the Will to ascertain whether the subject-matter of the trust i.e., the property with which it was impressed was one which the settlors were competent to dispose. The plea in other words was that the "DI" was competent to examine the validity of a trust including the origin of its initial corpus. The inquiry according to him was not an empty formality. 18. During the course of his arguments, the ld. DR referred to the trust deed as also the relevant clause of the Will which provided in clear terms what was to be done with the residue estat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a copy of such order shall be sent to the applicant." 23. The provision is covered in terms which are wide enough to cover any type of inquiry which would satisfy the authority concerned about the objects of the trust or institution and the genuineness of its activities. It may be appreciated that at the stage of registration, the authority may have before it only the objects which are to be carried out and not actually being undertaken and therefore we would observe that grant of registration does not ensure the benefits of sections 11 and 12 since that would be the subsequent stage when activities are undertaken with reference to the document by which the trust or institution is created/set up. 24. In the present case, the "DI" does not doubt the charitable nature of the purported activities of the appellant trust and his main objection is that the Will does not authorise the Executrixes to set up a trust and further he is entitled to look into the Will to satisfy himself about the genuineness of the trust and its activities. As against this, the argument of the learned counsel for the appellant is that the Will cannot be looked into and what the law provides is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequent to the funds being given to it as "trust property". We must emphasise that at the moment, it is only the registration under section 12A which is under consideration and subsequently the Department would examine whether exemption under sections 11 and 12 is available on merits. 30. Would the Department have been satisfied and considered it as due compliance with the provisions of law in case a sum of Re. 1 would have been impressed as "trust property" and the "residual estate" than donated to the appellant trust? As per the narration of the facts, in the order of the "DI" most probably "yes", since the trust would have come into existence with the sum of Re. 1. 31. In the final analysis, we hold that there is no violation of the mandate of the Will of Late Smt. Prem Lata Dawar. 32. We now deal with some of the decisions relied upon by the parties observing at the outset that none of these refer to the newly inserted provisions of section 12AA which came on the statute book with effect from1-4-1997. 33. In the case of Ananda Marga Pracharaka Sangha their Lordship of the Hon'ble Calcutta High Court were considering a situation where the assessee had raised an argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim and no further appeal, the AAC held that as there was no donation out of the income of the previous year, the assessee was not entitled to the deduction but he held that the assessee would be eligible for relief in respect of 25 per cent of the income, which could be accumulated for application in future for charitable purposes. The Tribunal, on further appeal, confirmed the view taken by the AAC and on a reference under section 256(1), their Lordships confirmed the view taken by the Tribunal. The facts before us are entirely different and the aforesaid judgment would therefore, not be applicable. 37. In the judgment of Hanmantram Ramnath, their Lordships of the Hon'ble Bombay High Court took the view that mere entries in the books of account did not lead to the creation of the valid trust since there was no setting apart of an ascertained property and there was no evidence to show that the settlor had divested himself of the ownership. The facts before us are entirely different and this judgment would therefore not apply. 38. In the case of New Life in Christ Evangelistic Association (NLC) the Hon'ble Madras High Court took the view that at the stage of grant of certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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