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2016 (2) TMI 77 - ITAT MUMBAI

2016 (2) TMI 77 - ITAT MUMBAI - TMI - Registration of the assessee trust u/s 12AA cancelled - exemption u/s 11 denied - cancellation on the grounds as the registration of the BMW car in the name of the trustee - Held that:- We have observed that the assessee trust had purchased the BMW car for ₹ 32,20,000/- which is registered in the name of Prof. (Retd) Abdulqadir Abdulla Kazi, chairman and trustee of the assessee trust although the said car has been capitalized and reflected in the Balan .....

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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'

The audited accounts for the financial year 2008- .....

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take and to transfer the motor car in the name of the assessee trust.

CIT(A) has rightly allowed the exemption u/s 11 of the Act to the assessee trust by passing a well reasoned order. We find no infirmity in the orders of the CIT(A) and accordingly we uphold the same and hold that the assessee trust is entitled for exemption u/s 11 of the Act - Decided in favour of assessee. - ITA No. 4789/Mum/2013 - Dated:- 13-11-2015 - Shailendra Kumar Yadav, JM And Ramit Kochar, AM For the Appella .....

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e case and in law, the Ld. CIT(A) erred in holding that there was no contravention of provisions of Section 13 ignoring the fact that BMW car was purchased in the name of the trustee whereby the funds of the trust were diverted and used for the benefit of excluded person as covered within the provision of Section 13(1)(c)(ii)& Section 13(2)(g) r.w.s. 13(3)(cc) of the Income Tax Act, 1961 and no log Book was produced to show that the said car was used only for the work of the trust. 2. That o .....

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r 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 as .....

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al treatment recommended by the specialist and thereby help them, as far as possible, to lead a healthy and normal life. During the course of assessment proceedings, the AO observed that the assessee trust has purchased BMW Car from the funds of the trust in the personal name of the trustee Shri Abdul Qadir Kazi vide bill dated 20.3.2009 from M/s Navnit Motors for ₹ 32,20,000/- for which the payment has been made by the trust from the funds of the trust. Hence, in the opinion of the A.O., .....

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excluded persons as covered within the provisions of section 13(1)(c)(ii) and section 13(2)(g) read with section 13(3)(cc) of the Act. 4. The assessee trust in reply to notice dated 25th November 2011 to AO submitted that the purchase of the car was for the benefit and use of the assessee trust and for the use of the chairman, trustees and influential donors in their role and activities as office bearers/well wishers of the trust. The assessee trust submitted that Prof.(Retd.) A.A. Kazi is the .....

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meeting government officials for approvals required for the activities 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 .....

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bject 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 capitalized and reflected in the financial accounts for the year 2008-09 and since the operating expenses of the car were very high, it was decided to sell the car. The sale proceeds were credited directly to the assessee trust bank ac .....

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disease of cancer and the same is recognized by leading national and international agencies. The assessee trust also submitted that the ICICI bank loan account statements clearly mentioned that the assessee trust is the applicant and the asset was always intended to be the official property of the assessee trust and loan has been availed by the assessee trust. 5. The A.O. after considering the contentions of the assessee trust referred to section13(1)(c)(ii),13(2)(g) and 13(3)(cc) of the Act and .....

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W car costing ₹ 32,20,000/-. Utilization of such huge funds for buying BMW car instead of using the same for charitable purposes for which said funds are raised and lying with the assessee trust refutes the basic concept of charity. Accordingly, the A.O. rejected the contentions of the asessee trust and held that the usage of BMW car, a luxurious car will create a doubt about the genuineness of the activities of the assessee trust. The A.O also held that no log book or any other evidence i .....

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f the trust on account of donations received of ₹ 3,34,58,111/-, income from other sources of ₹ 16,16,4021- and income of ₹ 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 deta .....

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on u/s. 11 on account of applicability of section 13 for purchase of BMW Car from the funds of the Trust in the personal name of the trustee. A. O. has also observed that Trust funds to the extent of ₹ 32,20,000/- have been diverted and used for the benefit of excluded persons. Accordingly after considering the submissions made by the assessee vide letter dated 02.12.2011 and 13.12.2011, it is held that the provisions of section 13(1)(c)(ii) and section 13(2)(g) r.w.s. 13(3)(cc)are attract .....

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ied that the activities of the trust or institution to whom registration was granted are not genuine or are not being carried out according to the objects of the trust, by passing an order on writing cancelling the registration of such trust or institution. However, such order for cancelling the registration can only be passed after giving the assessee a reasonable opportunity of being heard." The assessee trust further submitted in its same reply that the payment for BMW car was made from .....

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AO, the assessee trust also relied upon the decision in the case of CIT v. Dilip Singh Sardarsingh Bagga (1993) 201 ITR 995 (Bom) and Addl. CIT vs. U.P. State Agro Industrial Corporation Ltd. (1981) 127 ITR 97(All). 7. The CIT(A) after considering the submission of the assessee trust allowed the appeal 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 un .....

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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 .....

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ying such cars except that the user should be for the purposes of the trust. The A.O. has not given any finding that the car was used for non-trust purposes. In view of the Hon. Bombay High Court decision in CIT v. Dilip Singh Sardarsingh Bagga (1993) 201 ITR 995 wherein it was held that registration under the Motor Vehicles Act is not an essential pre-requisite for the acquisition of ownership of the motor vehicles and in view of the fact that the loan for purchasing the car was taken in the na .....

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ction 13(1)(c)(ii) and section 13(2((g) r.w.s. 13(3)(cc) of the Act., hence the A.O. has rightly disallowed the exemption u/s 11 of the Act vide orders of assessment dated 28.12.2011 and he relied upon the orders of the A.O. 10. On the other hand, the assessee trust submitted that the BMW car is purchased by the trust but by mistake registered in the name of Prof. A.A. Kazi, the trustee and chairman of the assessee trust. The assessee trust reiterated its submissions before us as made before the .....

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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 Fou .....

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g that there is no violation of section 13. It has also been brought on record that the said car was sold in the next year. Such an objection of the learned DIT(E) in the present case, cannot be the subject matter of cancellation of registration under section 12AA(3), firstly, it is still a dabatable matter which is 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 nee .....

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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 .....

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celling the registration can be held to be sustainable either on facts or in law, so as to hold that the activities of the trust are either not genuine or they are not being carried out in accordance with the objects within the scope of section 12AA(3). Moreover, nothing has been brought on record to show that the application of the income of the trust from year-to-year has not been made towards attainment of the objects i.e., for the charitable purposes. If no discrepancy has been found in the .....

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nnot 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 ₹ 32,20,000/- in the name of the trustee instead of the assessee trust using the funds of the assessee tr .....

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were credited in the bank account of the assessee trust. The loan re-payments to ICICI bank was also paid from the bank account of the assessee trust as well as payment of the initial funds for the purchase of the BMW car was also paid from the bank account of the assessee trust and these all evidences that the said BMW car was purchased by the assessee trust for its activities and was owned by the assessee trust. The assessee trust submitted in paper book which is placed on record the followin .....

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ICICI Bank car loan reflecting that the repayments of loan are from the assessee trust bank account 4. Affidavit dated 16.12.2011 by Prof. (Retd) Abdulqadir Abdulla Kazi, the chairman cum trustee of the assessee trust whereby he solemnly affirmed in nutshell that he is devoting his full time to the activities of the trust without drawing any salary and about the activities of the trust in spreading awareness about prevention and early detection of cancer as well providing financial aid to cancer .....

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alized and reflected in the Balance sheet of the assessee trust and also in the audited accounts. The depreciation on the afore-stated BMW car was 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 ac .....

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trust purchased a motor car for ₹ 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 name of the Trust said motor car has been shown as fixed asset in the books of accounts." The audited accounts for the financial year 2008-09 was .....

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d to transfer the motor car in the name of the assessee trust. We have also observed that the registration of the assessee trust u/s 12AA of the Act was cancelled by the Revenue and one of the grounds for cancellation of registration of the assessee trust was the registration of the afore-stated BMW car in the name of the trustee and the Mumbai Tribunal in ITA No. 1782/Mum/2014 vide orders dated 16-07-2014 has restored the registration of the trust u/s 12AA of the Act by holding as under : " .....

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ficer 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 b .....

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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 o .....

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at The Cancer Aid & Research Foundation the most, it can be a violation of provisions of section 13. Thus, this objection of the learned DIT(E) cannot be held to be sufficient ground for cancellation of the registration. …… ……. …… 20. In view of the aforesaid discussion, we find that none of the objections and the grounds which have been taken by the learned DIT(E) in the impugned order for cancelling the registration can be held to be sustainable ei .....

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