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TMI Blog2012 (6) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... st v. CIT (1986) 160 ITR 3, the trust would be regarded as non-charitable. 1.1. Before us, the learned Sr. Counsel for the assessee submitted that the trust was formed in the year 1928 and is registered with Charity Commissioner. He referred to the trust deed contained at Pages-2 to 13 of the paper book. He submitted that in the trust deed, it is mentioned that the 5 Government of India stock 3½% of the face value of Rs. 2,00,000, under the certificate no. B0315, was transferred into the joint name of the parties mentioned in the indenture being Manockjee Cowasjee Petit and Nasserwanji Dady Dadyset, Furdunji Cowasji Petit, Bai Mithibai widow of Merwanji Dhunjibhoy Jeejeebhoy, Bai Virbaiji widow of Nusserwanji Muncherji Cama, Bai Soonubhai wife of Jehangirji Framji Batliboi and Cowasji Hormusji Petit. He further submitted that no benefit has ever been taken by settlor's family. Learned Sr. Counsel submitted that the first reason is that there was no transfer of asset to the trust. In this regard, learned Sr. Counsel submitted that the main objection was that the income was to be paid to the settlor. Learned Sr. Counsel in this regard referred to section 9 of the Indian T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xistence. He submitted that, in the present case, the property was in existence as noted in the indenture itself. Further, he submitted that the judgment of Hon'ble Madras High Court relied upon by the Commissioner in CIT v. G.D. Naidu Industrial Education Trust (1942) 10 ITR 358 , deals with the issue whether the trust was charitable trust or not and not whether the trust was valid. He submitted that neither of the two cases referred to by the Commissioner support the reasoning given by the Commissioner. As regards the second reason given by the Commissioner, learned Sr. Counsel submitted that while granting registration, it is not relevant to examine whether the trust is a family trust or public trust. This aspect assumes importance at the time of assessment while allowing exemption under section 11. He submitted that, at the time of assessment, it is to be examined whether the amount was actually paid or not to the beneficiaries who are family members. Learned Sr. Counsel submitted that since it is a trust created in the year 1928, therefore, restrictions contained under section 13(l)(b) did not apply. Learned Sr. Counsel referred to the decision of Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case inasmuch as the trustee spent the entire income of the trust for the support and maintenance of the relations of the settlor which were poor and indigent without exercising any preference. The poor relations of the settlor had been made direct recipients of the benefit of the trust. Thus, he submitted that the poor relatives are the only beneficiaries and not by way of preference. Learned Counsel further submitted that even other wise this benefit to relatives is outside the scope of registration. He submitted that the provisions of section 13(l)(c) can be examined only at the time of assessment and in case of non-compliance the income to that extent can be treated as income of the trust. Learned Counsel, therefore, submitted that the Commissioner be directed to grant registration from the date of application as it is not a case of family trust. 3. Learned Departmental Representative supported the order of the Commissioner and submitted that the property had not absolutely been transferred to the trust. He submitted that the direction in the trust deed regarding income to be given preferably to family members effectively, amounts to giving benefit only to the relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indenture, wherein, at point no. 3, it is mentioned as under:- "3. Subject to the forgoing clause the said trustees shall pay the said interest and income to the Settlor for and during his life and down to his death." We do not find any substance in this reasoning. According to section 3 of Indian Trust Act, 1882, a trust is an obligation annexed to the ownership of the property and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him, for the benefit of another or of another and the owner. In the present case, the subject matter of the trust is Government of India subscribed stock of 3½% of the face value of Rs. 2,00,000, which were transferred into the joint names of the trustees. This is evident from Pages-1 and 2 of indenture. The interest from this stock was to be paid to the settlor during his life time and, thereafter, the amount was to be applied towards various charitable acts including relief or aid to poor or indigent or infer or helpless Parsee who may be in temporary monitory distress. Further, there are other clauses also for utilizing the money for charitable purposes though related to Parsee. From the commentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some day the institution contemplated by the deed might be founded was not sufficient compliance. We do not find any similarity in the facts with the present case. In view of the above discussion, we cannot subscribe to the view taken by the Commissioner. The second reason given by the Commissioner is that it is a case of private trust or family trust because preference is to be given to lineal descendent of Cowaji Depshawji Patel, and such lineal descendent to those connected with him in the direct male line and partly through female line or wholly through the female line and to those who may be more nearly related to him over those who may be more remotely so related. We find that this issue is squarely covered by the following judgments:- Trustees of Charity Fund v. CIT (1959) 36 ITR 513 (SC); CIT v. Trustees of Seth Meghji Mathuradas Charity Trust (1959) 37 ITR 419 (Bom.); and CIT v. Moosa Haji Ahmad (1964) 52 ITR 147 (Guj.). In all the above judgments, it has been held that mere preference to settlors family does not affect the public charitable nature of the trust. It is the dominant object which is to be taken into consideration for deciding whether the assessee is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysical or mental disease or suffering or the care maintenance protection or relief of old infirm blind or maimed or otherwise diseased members of the Parsee community or Parsee orphans to the intent and on condition however that every such donation or subscription or its income shall be used and shall be used and employed towards one or other of the objects aforesaid and no other purpose whatsoever. (d) In such other charitable acts and purposes for the Parsees generally as to the said trustees may seem fit having regard to them prevailing times and circumstances. Provided always that in the giving or distribution or allocation of any relief and the payment of any allowance or other sums towards any of the charitable purposes aforesaid preference shall be given in all competing cases to the lineal descendants of Cowasji Dinshawji Petit the father of the Settlor and amongst such lineal descendants to those connected with him in the direct male line over those connected with him partly through the male line over those connected with him partly through the male line and partly through the female line or wholly through the female line and to those who may be more nearly related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the ld. AM, I find myself unable to concur and agree with the view and findings of the ld. AM. 2. Though, some of the facts of the case are discussed in the order of the ld. brother AM; however, the relevant facts are being reproduced hereunder wherever it is necessary for discussion of the issue. 3. At the time of registration u/s 12AA, the Commissioner has to satisfy himself about the genuineness of the activities of the Trust/institution and also about the objects of the trust/institution. On being satisfied about the genuineness of the activities of the trust/institution and also about the objects of the trust/institution, the Commissioner would either grant the certificate or would reject the prayer. It is settled proposition of law that Commissioner while considering the application for registration shall restrict the enquiry to the examination as to whether the assessee is actually in the activities which are genuine. The genuineness of the activities of the trust/institution has to be seen, keeping in mind the objects thereof, which necessarily means that the Commissioner shall satisfy himself about the fact that the activities, which are genuine and in consonance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion think fit, namely: (a) In providing relief or aid to poor or indigent or maimed or infirm or helpless Parsis or who may be in temporary monetary distress or unable to maintain themselves or their family or children or in defraying the expenses of or in supplying medicine or medical aid or physical relief in any form to any poor or helpless Parsis Provided always that such relief may be given by supplying monetary aid or aid in kind or in any other shape or form of eleemosynary relief and either by monthly or other periodic allowances or in lum sums or by providing other means of relief and the same may be either continuous or interrupted. (b) In providing means or assistance for acquiring primary, secondary or higher education or technical or commercial or industrial education or in providing instruction in any particular business profession calling handicraft manufacture, manufacturing process or industry or art to poor or indigent Parsis or in placing or introducing them in any particular business profession or calling and in rendering assistance in the shape of money or otherwise to any poor Parsis in the acquisition by or improvement in him of the knowledge of any servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of such management." 5. The word 'charitable purpose' has been defined u/s 2(15) of IT Act as under: "Chartable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or laces or objects of artistic or historic interest and the advancement of any other object of general public utility. Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or applicable, or retention, of the income from such activity. Provided further that the first proviso shall not apply of the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year." The very concept of 'charity' denotes altruistic thought and action for wellbeing of others. Its objects must necessarily be to benefit others rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans or assistance and aid for which such relief has to be given but only for the person of Parsis's community. All these objects as contained in clause '4' are subject to the provision below clause 4 which set out the relief and the payment of any allowance with the preference to be given in all competing cases to the lineal descendants of the father of the Settlor. As per this proviso in the case of relief or assistance such lineal descendants to those connected with him in the direct male line shall be given preference over those connected with him partly through male line and partly through female line or wholly through female line. Thus, income/funds of the trust were available in the order of preference as provided in the proviso to clause 4. The trustee has discretion subject to the clauses 2, 3 & 4 and further subjected to clause 10 of the trust deed to the selection of persons deserving of any relief support or assistance. 13. From the trust deed, it is clear that benefits are only to the Settlor himself for lifetime and thereafter the first lineal descendants of the father of the Settlor. Even among the lineal descendants of father of the Settlor preference h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of Income Tax (Exemption) (Mumbai) had erred in not registering the assessee's institution u/s. 12AA of the Income Tax Act, inter alia, on the ground that indenture of the assessee Trust is not charitable." The above issue is, therefore, referred u/s. 255(4) of the Income Tax Act, 1961 to the Hon'ble President of the Income Tax Appellate Tribunal for referring the case to a Third Member. THIRD MEMBER ORDER R. S. Syal (Accountant Member) (AS A Third Member) The following point of difference has been referred to me by the Hon'ble President u/s. 255(4) of the Income-tax Act, 1961 :- "Whether on the facts and circumstances of the case, Director of Income Tax (Exemption) (Mumbai) had erred in not registering the assessee's institution u/s 12AA of the Income Tax Act, inter alia, on the ground that indenture of the assessee Trust is not charitable?" 2. The factual matrix of the case has been elaborated by my learned colleagues' in their respective proposed orders. However I am briefly recapitulating the undisputed facts. The assessee-trust was created by late Shri Manockjee Cowasjee Petit by way of a trust deed dated 20.09.1928, settling Government of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cowasiee Petit Charities" and the funds for the time being subject to these presents shall always be designated "The Manockjee Cowasiee Petit Charity Funds". 2. The said Trustees shall (subject and without prejudice to clause ten hereof) collect and get in the interest dividends and other the income of the said trust funds and shall from and out of the same pay in the first place all the proper costs, charges and expenses of and incidental to the collection or realization thereof and the costs and expenses of the management and administration of the said trust funds and the said interest and income including the costs of appointment from time to time of new trustees of the said trust funds and of these presents as occasion may require. 3. Subject to the foregoing clause the said trustees shall pay the said interest and income to the Settlor for and during his life and down to his death. 4. After the death of the Settlor the said trustees shall (subject nevertheless to the provisions of clause one hereof in so far as the same may be subsisting) apply and expend the said interest and income towards and in the following charitable acts and purposes in such proportions and in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of any allowance or other sums towards any of the charitable purposes aforesaid preference shall be given in all competing cases to the lineal descendants of Cowasji Dishawji Petit the father of the Settlor and amongst such lineal descendants to those connected with him in the direct male line over those connected with him partly through the male line and partly through the female line or wholly through the female line and to those who may be more nearly related to him over those who may be more remotely so related. 5. The said trustees shall subject as aforesaid have absolute discretion as to the selection of persons deserving of any relief support or assistance under any of the provisions hereof and as to the mode of distribution and application of such relief or assistance. 6. The said trustees shall not be bound to use or employ towards the charitable purpose aforesaid the whole of the income of the said trust funds arising in any particular year but shall be at liberty to accumulate the surplus or unexpended income or interest for so long as they having regard to the demand for assistance for the time being or likely to rise in future and to all other circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust funds and income resulting there from during his life time. He mainly relied on clause (10) of the deed by which the settlor having the cap of managing trustee had the full power to collect interest income from the trust property and manage the trust funds without any intervention by the trustees. It was argued that clause (10) has an overriding effect on the other clauses including clause (4) of the trust deed, which in turn, deal with the charitable objects. It was therefore, argued that the settlor during his life time and thereafter his relatives were entitled to the benefits of trust and there was no effective divesting of the trust property. All these submissions were countered on behalf of the assessee. 5. Clause (1) of the trust deed refers to its name as Manockjee Cowasjee Petit Charity and stipulates that the trust shall always be known by this name alone. In other words during the lifetime of the settlor or after his death, no trustee is empowered to change the name of the trust. Clause (2) provides that the trustees shall collect the gross income of the trust and shall firstly, pay the expenses relating to realization of income and thereafter, the expenses of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther there was no provision for the application of income for any charitable purpose. 7. Clause (4) of the trust deed indicates that 'after the death of the settlor' the trustees shall apply the trust income for charitable acts and purposes. Charitable purposes have been set out in sub-clauses (a) to (d) of clause (4), being providing relief to the poor or indigent or maimed or helpless Parsis in the shape of medical relief or education assistance or subscription to any educational institutions for the Parsis or any other charitable acts for the Parsis. Proviso to clause (4), which has become the bone of contention, states that "in all competing cases'" the preference shall be given to the lineal descendants of the father of the settlor and amongst such lineal descendants to those connected with him in the direct male line over those connected with him partly through the male line and partly through the female line or wholly through the female line and to those who may be more nearly related to him over those who may be more remotely so related. Some of the salient features of clause (4) can be profitably noticed. Firstly, the charitable activities have been provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he general poor Parsis. If this argument is taken to a logical conclusion that the trust income shall be applied for the benefit of lineal descendants of the settlor de hors the charitable purpose, then there will remain nothing with the trust for distributing amongst the general Parsis as the entire amount would be pocketed by such lineal descendants of the father of the settlor. The further contention of the learned Departmental Representative that clause (4) of the trust deed is also subject to clause (10) is also sans merit for the reason that it is only clause (2) which is subject to clause (10) and that too during the lifetime of the settlor. Clause (4) which contains the objects of the trust no where makes itself subordinate to clause (10). Further this hypothetical proposition is patently impossible because clause (4) comes into play only after the death of the settlor. When the settlor has died, naturally there cannot be any question of his exercising any control through clause (10). 8. A brief overview of the relevant clauses brings out that no charitable trust subsisted during the lifetime of settlor as he had full power to hold the trust income and use it in any manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lineal descendants of the father of the settlor. In that view of the matter it was opined that the elements of public trust were missing. The ld. DR reiterated the view of the ld. CIT for bolstering his submission that it was a case of family trust. I am not impressed with this submission put forth on behalf of the Revenue. A family trust is a trust set up for the benefit of the members of the family of the settlor. In a family trust the beneficiaries normally include every member of the settlor's family including the possible future family members such as future grandchildren also. There is nothing like any public charitable activity done in family trusts as the very object of the family trust is to transfer the assets to the trust so that the trust holds the trust property for the benefit of the family members of the settlor. On the other hand a public trust is a trust for either a public, religious or charitable purposes or both and includes temple and church etc. formed for religious or charitable purposes. Further in case of a public trust, the benefits are made available to a sufficiently large number of the members of public who are uncertain or fluctuating as distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 with the marginal note -Income of trusts or institution from contributions - provides that any voluntary contributions (other than corpus donations) received by a trust created wholly for charitable or religious purposes shall be deemed to be income derived from property held under trust as per section 11. Thus the non-corpus voluntary donations, by virtue of the deeming provision in section 12, assume the character of income derived from property to be applied in the year of receipt or accumulated as per the specified limit so as to qualify for exemption. These two sections therefore, enable an assessee to claim exemption in the given circumstances. On a conjoint reading of sections 11 and 12, it transpires that whereas corpus donations are exempt u/s 11, non-corpus donations or other income derived from property held under trust wholly for charitable or religious purposes must be applied in the year of receipt or accumulated as per the limit so as to eligible for exemption. Then comes section 13 with the title : 'Section 11 not to apply in certain cases.' It is a disabling provision which excludes the items of income covered under sections 11 and/or 12 from the purvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firstly apply for and get the trust or institution registered u/s 12AA, then return is filed for the relevant previous year and on the basis of such registration and other relevant factors, the AO considers the applicability or otherwise of sections 11, 12 and 13. 13. It can thus be seen that whereas the registration is granted by the Commissioner only once, which remains valid unless cancelled by the Commissioner under sub-section (3) of section 12AA, the act of granting actual exemption on year to year basis is done by the AO. The AO has no jurisdiction in the matter of granting or refusing registration. In the like manner, the Commissioner has no jurisdiction in granting exemption on year to year. 14. In the present appeal the issue is concerning the registration of the trust and not the granting of exemption. Thus it will be productive to consider section 12A which inter alia provides that the provisions of sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the person in receipt of income has made the application for registration of trust in the prescribed form and in the prescribed manner for registration u/s 12AA. The procedure f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the trust can be gone examined from the trust deed and the decision as to the genuineness of its activities is possible only after consideration of the relevant documents or information or on making of needful inquiries in this regard. 16. The learned CIT has relied on the judgment of the Hon'ble Calcutta High in Mallick Somnath Charitable Trust (supra) to canvas the view that where a relative of a settlor obtains any benefit even by way of preference, the entire trust deed would be regarded as non-charitable. It can be seen from the facts of that case that the trustees therein were to spend the entire income of the trust for the support and maintenance of the relatives of the settlor without exercising any preference. The poor relations of the settlor were made direct recipients of the benefit of the trust. It was under such circumstances that the Hon'ble Calcutta High Court held that the assessee was not entitled to exemption from income tax. Firstly, this case is on granting or non-granting of exemption u/s 11 and not on registration. Secondly, the trustees therein were required to spend the income on the poor and indigent relations of the settlor. The benefit was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are distinguishable. In the present case the settlor expired several decades ago and after his death, the trust property vested in the name of the trust and income there from was being continuously utilized for the benefit of general Parsis in need of help. This case is also, therefore, does not justify the refusal of registration. Similar is the position with the last case considered by the learned CIT in G.D. Naidu Industrial Educational Trust (supra ). In that case the deed provided that the contemplated institution was not to be brought into being immediately and that the companies in which the settlor was interested were to have the benefit of these assets set apart by him. 18. During the course of hearing, the learned Departmental Representative has relied on the judgment of the Hon'ble Bombay High Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. CIT (1952) 21 ITR 231 (Bom.) for contending that the registration was rightly denied by the CIT in the given circumstances. On the perusal of the facts of that case it can be clearly noticed that the trust deed therein provided that the primary object of the trust was to provide maintenance and meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or charitable purposes with a proviso that in carrying out the charitable intentions, the trustees shall always prefer the members of the settlor's caste and further preference to the members of his family and relatives. Exemption from income was denied on the ground that the relatives of the settlor were entitled to preference in carrying out the charitable intentions. Rejecting this view point, the Hon'ble Bombay High Court held that the property was held under trust wholly for religious or charitable purposes, and the income there from was exempt from taxation. Similar view has been taken in Moosa Haji Ahmed ( supra). In this case also the trust was created with the object of helping the poor but the trust deed provided that the relation of settlor would have preference over others. The Hon'ble Gujarat High Court held that this clause would not make the trust any less charitable. 20. A survey of above judgments including that of the Hon'ble Supreme Court in Trustees of the Charity fund (supra) the Hon'ble jurisdictional High Court in Trustees of Seth Meghji Mathuradas Charity Trust (supra) manifestly divulges that the relative criteria is to consider the dom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistration u/s 12AA. As such it is noticed that both the conditions u/s 12AA warranting the registration of the trust, are fully satisfied in the present case. In my considered opinion the learned CIT was not justified in refusing the registration from the assessment year immediately following the financial year in which such application was made. I, therefore, answer the question in affirmative by holding that the Director of Income Tax (Exemption) (Mumbai) erred in not registering the assessee's institution u/s 12AA of the Income Tax Act. 23. For the foregoing reasons I agree with the view expressed by the learned Accountant Member. The registry of the Tribunal is directed to list this matter before the Division Bench for passing of order in accordance with majority view. ORDER Vijay Pal Rao (Judicial Member) This appeal by the assessee is directed against the order dated 29.6.2009 passed by the DIT(Exp) u/s 12AA(l)(b)(ii) r.w.s. 12A of the IT Act whereby the application of the assessee for registration was rejected. 2. Aggrieved by the order of the DIT(Exp), the assessee filed an appeal before the Tribunal. There was a difference of opinion between the Members of the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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