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2015 (8) TMI 709 - ITAT AHMEDABAD

2015 (8) TMI 709 - ITAT AHMEDABAD - TMI - Registration u/s 12AA(3) cancelled - assessee-trust donated a sum of ₹ 45 crores to another trust that is also engaged in the similar activity, thus this Act of trust tantamount to siphoning of the public money - Held that:- In the case in hand, the assessee-trust has demonstrated that the activities are being carried out as per objects o the trust and being assessed under the relevant provisions of Act. It is not in dispute that the registration u .....

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Academy of Education (2014 (7) TMI 909 - KARNATAKA HIGH COURT ), we do not agree with the reasoning of ld.DIT(E) for cancellation of registration. Therefore, the order under appeal is hereby set aside. - Decided in favour of assessee. - I.T.A. No.2076/Ahd/2014 - Dated:- 14-8-2015 - SHRI ANIL CHATURVEDI AND SHRI KUL BHARAT, JJ. For The Appellant : Shri J.P.Shah with Shri Sanjay R.Shah, ARs For The Respondent : Shri O.P. Vaishnav, CIT-DR ORDER PER SHRI KUL BHARAT, JUDICIAL MEMBER : This appeal by .....

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he following amongst other grounds, which are without prejudice to each other. 1. The order passed by the learned DIT(E) cancelling the registration u/s 12AA(3) of the Act is bad in law and is liable to be quashed. It is submitted that it be so done now. 2. The learned DIT(E) erred in holding that the appellant has violated the twin conditions essential for withdrawing the registration u/s 12AA(3) of the Act i.e. the activities of the trust are not genuine and not carried out as per the objects .....

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not have been transferred by the Appellant trust. Accordingly, the end use of the corpus donation made to IFIG of ₹ 45 crores was made only towards the objects of the trust i.e. for the purpose of microfinance activity. 4. The learned DIT(E) erred in not appreciating the fact that apart from microfinance activities, the appellant is also engaged in doing charitable activities in the field of solar energy, water and sanitation and education for female children and hence is essentially engag .....

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eby the sum of ₹ 45 crores has been siphoned off from the trust and this amount of public money is no more available for the activities of the assessee trust. ii. The assessee had never been doing activities of relief to poor women directly but through other organizations and therefore the assessee would be termed only as an organization which is engaged in general public utility and not in relief of poor women. iii. The assessee has obtained loans at an interest from various organizations .....

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st assets to Ananya. IFIG is a trust where deed consists of clauses whereby it can buy shares of companies and so it can do speculation and hence it cannot qualify for charitable trust. IFIG is created in this entire scheme to siphon off money. v. In this case the entire money which is supposed to have been given to a group charitable trust has been misused. Your appellant submits that the above findings are contrary to the facts & legal position and hence learned DIT(E) has erred in law and .....

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honing off of funds. 7. The learned DIT(E) erred in giving finding in Para 5.2 and 5.3 of his order that appellant is only an organization which is engaged in the general public utility and not in relief of poor women though in the same para he himself holds that this is not an issue here. Your appellant submits that these findings being not germane to the issue be expunged from the order. 8. Without prejudice to above grounds, Learned DIT(E) has erred in law in withdrawing the registration from .....

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the period prior to such date. ii. The observation/findings in para 5.2 and 5.3 of the order as mentioned in ground 7 earlier be expunged and iii. Pending the adjudication of this appeal, stay be granted against the operation of the impugned order passed by DIT(E) Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal. 2. At the outset, ld.counsel for the assessee submitted that he does not swish to press ground Nos.2 to 7. The ld.C .....

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ng the assessment proceedings for A.Y. 2011-12, it was noticed that the trust had transferred assets worth ₹ 45 crore to a group finance company and the amount so receivable was again given back to the same group finance company through book entries. It was therefore seen that the assessee had siphoned off assets worth ₹ 45 crore to a group finance company which actually belonged to the public as the same were created through donations and income-tax exemptions in the hands of the as .....

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03.02.1981 and has been given a Certificate of Registration U/S.12A dated 02.07.1982. The assessment order of the Asst. Year 2008-09 (which was given during the course of hearing) in col.9 records the nature of business of the Trust as "advancement and promotion of poor women" and records in para 3 thereof "The Assessee Trust is an organization established to advance and promote direct participation of poor women in the economy through access to national and international institu .....

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tration of the assessee as a Charitable Trust should not be cancelled. The assessee gave a reply dated 21.04.2014. The reply also annexed a message of appreciation of activities of the Trust from Deputy Governor of Reserve Bank of India. Entire message is at page 36 of the paper book of the assessee. Some portion of this message of the Governor is as follows: "In this backdrop, I am delighted to note that Friends of Women's World Banking (FWWB) has done commendable work in addressing th .....

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uccess stones of women in Manipur engaged in different economic activities, clearly show how the FWWB, working through six partner organizations in the State, has successfully reached out to local communities in supporting women to form self-help groups (SHGs)." 2. The Director passed an exhaustive order incorporating the above notice, the summary of the assessee's reply thereto and the arguments of the assessee and his own decision on the matter, which starts from para 5.1 of his order .....

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of the economy, particularly those women who have not generally had access to services of established financial institution. (b) To provide loan, guarantees or other securities to banks and other financial institutions to advance loan to women for their business or occupations or other related activities. (c) To provide technical or other advice and assistance to direct or indirect participant of programmes of the Society. (d) To serve as a link for women with banking institutions, agencies prov .....

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York and to promote its programmes in India. (h) To provide a forum and platform to take up issues relating to financing and money. (i) To link to women's groups with existing programmes and schemes of the Government, especially anti-poverty programmes for the benefits of poorest of the poor. (j) In the broad sense, everything connected with and conducive to the above mentioned purposes shall be part of the objects of the Society. 3. The order also records that the Assessee Trust has been c .....

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with funding support from SIDBI and partnership with give mutual funds institutions of Manipur. (iii) Water and Sanitation programme was started in the year 2000 to support women beneficiaries for renovation of construction of new sanitation facilities and the financial support was taken from National Housing Bank and Michel and Susan Dell Foundation. (iv) Micro financing activities was started to meet the basic object of development and uplifting of poor women. These activities were formerly c .....

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er annum. It has been stated that the gap between borrowing and lending in money on account of meeting administrative expenses, meeting contingencies. The loans given to the needy poor women through micro finance institutions are unsecured loans and for specific programme. 4. As recorded in the order of the Director of Income Tax (Exemptions), it was in the air that the Reserve Bank wanted some supervision on this activity of microfinancing, and therefore, was wanting the corporatization thereof .....

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a Foundation for Inclusive Growth (hereinafter 'IFIG') and said Ananya paid said ₹ 45 crores by allotting its shares to said IFIG Trust. The Director of Income Tax (Exemptions) was of the view that (as recorded in para 2.3 of his notice): "The trustees have robbed your trust/institution off assets worth ₹ 45 Crores. " and finding is repeated in the order as well; in fact that is the only basis of the order. It must be immediately pointed out that there is no robbing .....

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. ", there is direct authority of the Karnataka High Court that in such a fact situation, registration cannot be cancelled but the matter can be looked at during the course of assessment of the Trust u/s.11. This decision is at Page 204 to 207 of the paper book and is reported as Islamic Academy of Education - (2015) 229 Taxman 274 (annexed herewith for ready reference), wherein the Hon'ble Court stated: "If the misappropriating the funds, ..... ..... ..... it is open to the author .....

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on at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) and subsequently the [Principal Commissioner or] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section .....

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the activities of the Trust are not genuine or are not being carried out in accordance with the objects of the Trust In fact and the case, such finding is impossible and totally wrongly arrived at because the transfer is genuine, donation is genuine and the Trust was continuing with all activities other than micro finance after the transfer and inclusive of micro finance before transfer thereof and there is no allegation that anything is ingenuine or not in accordance with the objects of the Tru .....

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ive donation to another Charitable Trust and that is application of income u/s.ll of the Income Tax Act. The Court also quoted Instruction No. 1132 of CBDT dated 05.01.1978 as follows: "A question has been raised regarding the availability of exemption in the hands of charitable trusts of amounts paid as donation to other charitable trusts. The issue has been considered by the Board and it has been decided that as the law stands at present, the payment of a sum by one charitable trust to an .....

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Ananya was donated as corpus donation to a trust registered under Documents & registration Act, 1908 namely Indian Foundation for Inclusive Growth [IFIG], which had the objects more or less in consonance with the objects of the appellant trust. A copy of the trust deed of IFIG is attached at page Nos.178 to 191 to corroborate the same. This trust had applied for the registration u/s 12AA of the Act. However, due to some reasons, the concerned professional, who was looking after this work cou .....

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ore, on no account it could be said that such donation of ₹ 45 crores given to the IFIG trust is meant for private benefit of the trustees. 9. The paid up capital of the Ananya is held by IFIG to the extent of the 99.98% which was acquired out of the funds donated by the appellant in order to ensure that such trust retains control over the activities of Ananya for which regular utilization certificates from their Chartered Accountants are obtained to see that the microfinance activities ar .....

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n by appellant are considered to be genuine and charitable and as per the objects of the trust and development activities are still continued even after the hiving off of the micro-finance activities it cannot be said that activities carried on by appellant that are none genuine or not as per the objects of the trust. Hence the power exercised by the learned DIT (Exemption) are without the authority of law, bad in law and hence the order passed by him cancelling registration is required to be qu .....

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es on the Trust and the objects and the weaker members of the society are itself and has been serving all these years. Assuming while denying that the Director of Income tax (Exemptions) is right in his view that "The trustees have robbed - trust - all assets worth 45 crores. " even then it does not support in any manner or by any stretch of imagination that "the activities of- trust - are not genuine or are not being carried out in accordance with the objects of the Trust" a .....

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e appeal of the assessee. 14. Alternative Ground In case the Hon'ble bench is inclined to uphold the order of DIT (Exemption) cancelling the registration, it is submitted that the learned DIT (Exemption) does not have power to revoke the same prior to A.Y. 2011-12 as held by the Hon'ble Agra Bench of ITAT in the case of Agra Development Authority v/s CIT 141 ITD 336, a copy of which is attached at page Nos. 70 to 88 of the paper book No. I. Since the learned DIT (Exemption) has cancelled .....

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1. The ld.CIT-DR opposed the submissions and supported the orders of the authorities below. He submitted that what kind of activities have been carried out is to provide finance to the women after charging a higher rate of interest, so it cannot be said that the activities as carried out by the assessee is essentially a charitable activity. He submitted that under the facts of the present case, the DIT(E) was justified in cancelling the registration of the assessee-trust. 5. We have heard the ri .....

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ion of ld.DIT(E), this Act of trust tantamount to siphoning of the public money. The finding of ld.DIT(E) is reproduced hereinbelow for the sake of clarity:- 5.1. I have considered the submissions made by the assessee. With respect to point no.(i) of para 4.1 made by the assessee, it is stated that there is no dispute that the provisions of section 12AA(3) can only be invoked when either the activities of the trust are found to be not genuine or the activities are not carried out in accordance w .....

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ts own objects, there would not have been any issue. However, in this ease, the assessee has entered into an activity whereby the sum of ₹ 45 crores has been siphoned off from the trust and this amount of' public money is no more available for the activities of the assessee trust. 5.2 Points no.(ii), (iii), (iv) and (v) of para 4.1 show that the assesses had never been doing activities of relief to poor women directly but through other organization and therefore even though this is not .....

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ted that the assessee was in fact engaged only in the activity of general public utility as it was not directly doing relief of poor women etc. 5.4 With respect to point no,(vii), the argument of the assessee is not correct. As slated above, the activity of siphoning off of funds of ₹ 45 crorcs cannot be stated to be genuine activity or activity as per the objects of the trust. No charitable trust would permit siphoning off of money from its own corpus and accumulated funds and even curren .....

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e IFIG trust and Ananya's date of creation shows that motive was to make this arrangement. The said group charitable trust was refused registration u/s 12AA(l) by the Commissioner of Income-tax at Faridabad and hence the said donation cannot be stated to be for the objects of the assessee trust. Further, even this amount did not remain with this said charitable group trust but the trust invested in the group finance company the entire amount and purchases its shares. No charitable trust unde .....

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pect to point no.(ix) of para 4.1, it is stated that the assessee has been engaged in the activity of only "advancement of any other object of general public utility'" and not in the activity of' relief of poor". Further it is reiterated that this issue has not been invoked for the purpose of cancellation of registration because as stated by the assessee himself the Board circular is clear that whenever an assessee is hit by the provisions of proviso to section 2(15) and f .....

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o another trust namely IFIG which was stated to be charitable trust but whose registration has been refused by the Income-tax department in view of the its objects. In any case, the so-called charitable trust IFIG has admittedly purchased the shares of a group finance company "Ananya" which is again, by no stretch of imagination stated to be charitable activity or tar the purpose of charitable activity whatsoever. The argument of the assessee that Ananvia's majority shares are with .....

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inter-charitable trust donations are allowed are correct and there is no dispute. So these decisions are not relevant, It is stated that the issue is not whether donations to other charitable trust carrying on similar activity is allowed or not. There is no dispute that in the Income-tax Act, donation out of current income only and not out of accumulated funds or corpus is allowed to charitable trusts carrying on similar activities but in the present case, as stated above, the issue is very cle .....

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an be stated to be genuine activity or cannot be stated to be an activity for the objects of the trust. The dates mentioned in point no.(xi) of para 4.1 Show that the trust IFIG and the group finance company Ananya were floated on dates which make it clear that the intention of the assessee trust was to siphon off the money through a scheme which could be given a cover of donation to charitable trust. Interestingly IFIG was formed on 13/03/2009. ₹ 5 crore was given as advance by the assess .....

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2009-10) to IFIG as advance which later on was called corpus donation. Therefore, the entire process was done from March 2009 onwards especially when ₹ 5 crores was advanced on 25/03/2009 and later converted to donation. These transactions pertain to A.Y.2009- 10 onwards. This is not a simple case of violation of section 13(l)(c) but taking away huge income earning assets of ₹ 45 crores. 5.1. Under these facts, we need to examine whether the Act of ld.DIT(E) (cancellation of registra .....

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ut the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : P .....

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already been carried out since the assessee trust was granted registration. However, section 12A(3) empowers the DIT(E) in following terms:- (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A {as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 2009)}] and subsequently the [Principal Commissioner or Commissioner] is satisfied that the activities of such trust or in .....

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he assessee-trust on the basis that the way assessee-trust has donated ₹ 45 crores to another entity, as per assessee a charitable trust, admittedly which is not granted registration under section 12AA of the Act. There is no dispute with regard to the contention of the assessee that there is no prohibition under the law for giving of donation by one charitable society to another. The ld.DIT(E) is of the view that activity of the assessee-trust in view of the fact that it has given money t .....

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e to demonstrate that the activities of the trust are not genuine and as such activities are not being carried out in accordance with the objects of the trust. The ld.DIT(E) has elaborately examined the issue in the impugned order. The contention of the assessee is that the ld.DIT(E) misdirected itself and exceeded jurisdiction by cancelling registration. It is contended that assuming that the trustees have siphoned off money, in that eventuality cancellation of registration would not be permiss .....

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t (1988) 172 ITR 698(Guj.). Further, reliance was placed on the judgment of Hon ble High Court of Allahabad rendered in the case of CIT and Another vs. Sisters of Our Lady of Providence Education Society reported at (2014) 368 ITR 662) (All). In this case, the Hon ble High Court held as under:- 12. From the perusal of the order of the Commissioner, we find that no finding has been recorded with regard to the satisfaction that the activities of the present respondent are not genuine or are not be .....

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ction (3) of Section 12AA, are to be fulfilled. It is true that the refusal of the exemption under Section 10 (23C)(vi) may be relevant for the purposes of cancellation of registration, but to arrive to the conclusion that the activities of the trust or the institution are not genuine or are not being carried out in accordance with the objects of the trust or the institution, finding in this regard is necessary, based on the relevant material. 6.1. In the case in hand, it is not in dispute in th .....

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The contention of ld.counsel for the assessee is that assuming the activity of donation to another charitable entity is not as per the objects of the trust, the single activity would not make the trust liable for cancellation of registration. So far as the issue whether the word activities to be construed only in plural form or in a singular form is concerned, in our considered view, in case, a particular activity is substantially carried out by a trust would partake character of activities, he .....

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ideration. Such activity is not in accordance with the objects of trust, i.e. the trust cannot transfer its business to a private finance company albeit may be routed through another trust. The contention of the assessee is that even if the entire activity is transferred such act per se would not attract the provisions of section 12AA(3) but same can be examined at the time of making assessment. In support of this argument, reliance is placed on the judgement of Hon ble High Court of Karnataka r .....

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activity of the trust was not genuine and was not being carried out in accordance with the objects of the trust? 7.2. The Hon ble High Court after taking note of law in para-7 of the judgement held as under: 8. In the instant case, the material on record shows that the Trust has established educational institution and imparting medical education. Every year, students are admitted. Huge investment is made for construction of buildings for housing the college, hostel and to provide other faciliti .....

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being carried out in accordance with the objects of the Trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are misappropriating the funds of the Trust the registration of the Trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11 of the Income Tax Act, but that is not a ground for cancelation of registration itself. That is prec .....

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