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TMI Blog2016 (2) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... uced to show that the said car was used only for the work of the trust. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee was entitled to benefit of exemption u/s 11 and deleting the additions made on account of donations received of Rs. 3,34,58,111/-, income from other sources of Rs. 16,16,4021- and income of Rs. 5,13,384/- received on account of investment, ignoring the fact that there was contravention of provisions of Section 13 of the Income Tax Act, 1961. 3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 4. The appellant, therefore, prays that on the grounds stated above, the order of the CIT (A)-I, Mumbai may be set aside and that of the Assessing Officer be restored." 3. The brief facts of the case are that the assessee trust is registered as charitable organization with DIT (E), Mumbai u/s 12A of the Income Tax Act, 1961 (Hereinafter called "the Act") and also registered with the Charity Commissioner, Mumbai. The assessee trust case was selected for scrutiny under the selective scrutiny norms and notices u/s 143(2) & 142(1) of the Act along with questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities of the trust. The BMW car was purchased after a resolution approving the purchase was passed by the trustees in their Board meeting held on March, 07, 2009. The BMW car was financed by availing loan from the ICICI bank. The loan was approved as a purchase for the assessee trust and on the basis of the financial position of the assessee trust but the BMW car was erroneously registered in the name of Prof. A.A. Kazi due to gap in communication between the office staff of the assessee trust and the seller of the car and when it was discovered during the audit process, the error was immediately brought to the attention of Navnit Motors Pvt. Ltd, the sellers of the car and steps were taken to get the car transferred in the name of the trust. The auditors of the trust in the Notes to accounts for the financial year ended 31-3-2009 has clearly pointed out that the trust has purchased the motor car during the year for the object of the trust which is presently registered in the name of one of the trustee on account of mistake on the part of vendor and necessary steps has been initiated by the assessee trust to get the BMW car transferred in the name of trust. The purchase of car was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds and used for the benefit of excluded persons covered by provisions of section 13(1)(c)(ii), 13(2)(g) and 13(3)(cc) of the Act and in view of this, the exemption u/s 11 of the Act is denied to the assessee trust by the AO vide orders dated 28.12.2011 u/s 143(3) of the Act and accordingly additions were made to the income of the trust on account of donations received of Rs. 3,34,58,111/-, income from other sources of Rs. 16,16,4021- and income of Rs. 5,13,384/- received on account of investment. 6. Aggrieved by the assessment orders dated 28.12.2011 u/s 143(3) of the Act passed by AO, the assessee trust preferred an appeal before the CIT(A) and the assessee trust reiterated its submissions as made before the AO. The CIT(A) called for remand report from A.O. as the assessee trust submitted that the details submitted vide letter dated 2-12-11, 7-12-11 and 13-12-11 were not considered by the A.O. The A.O. in his remand report dated 05.12.2012 submitted that the contentions of the assessee trust were duly considered before passing the order dated 28.12.2011 u/s 143(3) of the Act. In reply to the remand report, the assessee trust once again reiterated its submissions as made earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the assessee trust vide orders dated 31.03.2013 by holding there is no contravention of Section13 of the Act and the assessee trust is entitled to exemption u/s11 of the Act by observing as under:- "8. I have carefully considered the facts of case, assessment order and submissions of the appellant. 8.1 As regards the objection that the AO cannot deny exemption u/s 11 for violation of section 13 without the DIT(E) cancelling the registration, there is no substance in this objection. Section 13 starts with a non obstante clause which stipulates that where there is any violation of section 13 then the benefit of section 11 will not be available. 8.2 As regards the other objections however, I find substance in them. The appellant stated that the car was purchased for the purpose of the trust and not for the personal user of the trustee. The loan was applied in the name of the trust. The loan was also granted in the name of the trust. It is only by mistake the car dealer mentioned the trustee as the purchaser. The AO had also not conducted any independent inquiries as regards the actual user of this vehicle. He merely depended on one fact i.e. the name mentioned in the invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in ITA No. 1782/Mum/2014 vide orders dated 16-07-2014 has restore the registration of the trust u/s 12AA of the Act by holding as under : "18. The second objection of the learned DIT(E) is that the assessee had purchased BMW 325i car in personal name of the trustee Mr. A.A. Kazi, vide bill dated 20th March 2009. The car was purchased out of the funds of the trust. The learned DIT(E) held that nothing has been brought on record to show the need of buying such a luxury car. As brought on record, this issue was subject matter of scrutiny in the The Cancer Aid & Research Foundation assessment year 2009-10, wherein the Assessing Officer has invoked the provisions of section 13 to deny the exemption to the assessee trust. The matter had travelled up to the stage of first appellate proceedings, wherein the learned Commissioner (Appeals) has reversed the findings and the conclusion of the Assessing Officer by holding that the car was used for the purpose of the trust only and after recording detail reasons, he decided the issue in favour of the assessee trust by holding that there is no violation of section 13. It has also been brought on record that the said car was sold in the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is a proper application of income towards the objects in accordance with the provisions of section 11, then neither the charitable nature of the trust should be doubted nor it can be held that its activities are not genuine or are not in accordance The Cancer Aid & Research Foundation with the objects for which registration was granted. Accordingly, we reverse the findings of the learned DIT(E) and hold that the registration granted to the assessee cannot be cancelled under section 12AA(3) on the ground stated by the learned DIT(E) in the impugned order. The grounds thus raised by the assessee are allowed. 20. In the result, assessee's appeal is allowed." The assessee trust reiterated that one of the grounds for cancelling of the assessee's registration u/s 12AA(3) of the Act was purchase of the aforestated BMW car for Rs. 32,20,000/- in the name of the trustee instead of the assessee trust using the funds of the assessee trust and Mumbai Tribunal in ITA appeal 1782/Mum/2014 has held that the registration of the assessee trust cannot be cancelled u/s 12AA(3) of the Act on the grounds stated by DIT(E) which, inter-alia, included this purchase of BMW car in the name of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also availed by the assessee trust as provided under the Act. The assessee trust has also availed the loan facility from ICICI bank in the name of the assessee trust for which repayments of loan has been made from the asseseee trust bank accounts and ultimately the car has been sold in the subsequent year and sale proceeds were credited in the bank account of the assessee trust. The assessee trust has also submitted before us that there was a mistake inadvertently committed by the staff of the assessee trust in getting the same registered in the name of trustee of the assessee trust while buying the BMW car instead of getting it registered in the name of the assessee trust and it has been stated in the audited accounts for the financial year 2008-09 of assessee trust in 'Schedule P -Notes forming part of Accounts' as under : "4. The trust purchased a motor car for Rs. 32,34,853/- during the year for the object of the Trust which is presently registered in the name of one of the trustee on account of mistake on the part of vendor. The trust has initiated necessary formalities to transfer the said motor car in the name of the Trust. Pending such transfer formalities in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjudice, whether there is any violation of section 13 or any misuse of trust fund; secondly, even if the car has been purchased in the name of the trustee, then at the most, it needs to be examined within the scope of section 13, and if at all there is any violation, then the income of the previous year in which such a violation took place, gets excluded from the exemption provided under section 11 i.e., surplus income becomes taxable for that year. If there is any kind of misuse of trust funds by the trustee or a related person of the trustee, then the statute provides enough power to the Assessing Officer to forfeit the exemption and tax the surplus. However, in such a situation, it cannot be held that the entire activities of the trust have been rendered non-genuine or its activities are not carried out in accordance with the objects of the trust. Similar issue had also come up for consideration before the Bangalore Bench of the Tribunal in Krupanidhi Educational Trust (supra), (as relied upon by the learned Counsel for the assessee), wherein on similar purchase of the BMW car purchased in the name of the trustee, the Tribunal held that it cannot be the basis for cancellation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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