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2017 (2) TMI 697

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..... aims, objectives and activities of the assessee in reference to objects shall have to be considered. Application of income for charitable purposes can be examined at the stage of assessment when trust would file the return of income. Considering the fact that there is no denying the fact that assessee's main aims and objects are charitable in nature i.e. running educational and medical institutions, we are of the view assessee would be entitled for registration under section 12AA of the Act. - Decided in favour of assessee. - ITA No. 864/CHD/2016 - - - Dated:- 12-1-2017 - Shri Bhavnesh Saini, Judicial Member And Ms. Annapurna Gupta, Accountant Member Appellant by : Shri Ajay Jain Respondent by : Shri Ravi Sarangal, CIT-DR ORDER Per Bhavnesh Saini, JM This appeal by the assessee has been directed against the order of ld. CIT(Exemptions) Chandigarh dated 31.05.2016 rejecting the application under section 12AA of the Income Tax Act on the following grounds : 1. That the learned CIT(E) has wrongly passed order u/s 12AA of the Income Tax Act, 1961 refusing the grant of registration 12AA to appellant trust who was formed mainly for purpose of educational .....

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..... educational institution and after registration of the trust, an OD limit from PNB Baddi of ₹ 9.56 Crores was taken by pledging the FDRs of another trust namely M/s Vishav Manav Roohani Kendra which has been claimed to be registered under section 12A of Income Tax Act through no proof of registration has been filed. Loan is, therefore, not free from encumbrances. The OD limit was sanctioned for purchase of land, copies of the Registered Deed have been filed which revealed that payments have been made from OD limit of PNB, Baddi and amounts have been paid through DD. However, in case of land purchased for ₹ 1.40 Crores on 28.08.2015, an amount of ₹ 37,85,000/- was paid in February,2015 predates the opening of the trust and as such, apparently the amount have been paid before start of the trust and to that extent, is not part of the property of the trust. It was also transpired that assessee has taken another OD limit of ₹ 10 Crores from State Bank of India Sector 17, Chandigarh which was sanctioned on 09.06.2015. This OD limit is separate from OD limit of PNB, Baddi. When enquired, the submission made by the assessee was that the another OD limit which have b .....

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..... to be utilized for attainment of the purpose/objects of a trust. Instead it is to be retained as a source from which trust can earn income which in-turn can be utilized as well as accumulated. In the case of the assessee, corpus fund has been taken as the explanation for all expenditure incurred by the trust. The funds so received have been deposited at the sweet will of the assessee either in OD limit of PNB Baddi or in State Bank of India Chandigarh. The assessee submitted details of donations received and deposited in different OD limit accounts apart from cash receipts of the donations. The donations have been received even prior to filing of the registration application. The corpus donations are identifiable as per provisions of Section 11(1)(d) of the Income Tax Act which can be termed as corpus donations only after recognition and registration of the trust by prescribed authority. In the absence of registration certificate, these amounts may simply be treated as unsecured loans. 5. The ld.CIT, considering the above aspects, noted that assessee has taken the garb of donations for re- payment of the OD which in turn was taken by pledging security of FDR of another trust wh .....

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..... at page 20 of the Paper Book. 6(i) He has further submitted that when the land was purchased out of OD limit from bank, there is no prohibition in Section 12AA of the Act to purchase land out of over draft limit. M/s Vishav Manav Roohani Kendra has been allowed registration under section 12AA of the Act by the CIT, Panchkula vide order dated 17.09.2007 as per direction of the ITAT. Copies of both the orders are filed in the Paper Book. He has further submitted that for purchase of land, advance was given by Shri Balbir Singh and Shri Jasvir Singh to the owners, however, they could not arrange the balance money and requested trust to purchase the land from the owners as there was a standard clause in the 'Agreement to sell' that buyers shall have the right to get the Deed registered in his own name or any other person. It has nothing to do with the grant or refusal of registration. It is not the case of CIT that trust has paid the money and registration has been done in the name of some other person. Copy of the sale deed is filed at page 29 of the Paper Book. He has submitted that donor has given donation for specific purpose i.e. to purchase the land for aims and objec .....

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..... or the establishment of such institution. The procedure for registration of the trust or institution is prescribed under s. 12AA. In terms of cl. (a) of s. 12AA, the CIT is to satisfy himself about the genuineness of the activities of the Trust on such inquiries as he may deem necessary. Sub-ss. (1A) and (2) of s. 12AA, are procedural in nature, whereas Sub-s. (3) of s. 12AA, empowers the CIT to cancel the registration of the Trust or Institution, if he is satisfied that the activities of such Trust or Institution are not genuine or are not carried out in accordance with the objects of the trust or institution. Therefore, the object of s. 12AA, is to examine the genuineness of the objects of the trust but not the income of the trust for charitable or religious purposes. The stage for application of income is yet to arrive i.e. when such trust or institution files its return.--CIT vs. Devi Educational Institution Ors. (1984) 43 CTR (Mad) 48 : (1985) 153 ITR 571 and Aditanar Educational Institution Etc. vs. Addl. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC)-distinguished. 7(ii) Decision of ITAT Chandigarh Bench in the case of Yodha Samarak Samity Vs CIT 138 ITD 512 in w .....

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..... Act, CIT is required to examine the objects of the assessee trust and genuineness of its activities. At the time of registration under section 12AA of the Act, which is necessary for claiming exemption under section 11 and12, the CIT (Exemption) is not required to look into the activities, where such activities have not or are in the process of its initiation. Where assessee trust is set up to achieve its objectives of establishing educational/medical institutions, is in the process of establishing such institution and receives donations, registration under section 12AA cannot be refused on the ground that trust has not yet commenced charitable activities. At this stage only, genuineness of the objects has to be tested and not the activities which have not commenced. 8(i) We are fortified in our view by judgement of Allahabad High Court in the case of Hardayal Charitable Educational Trust Vs CIT 355 ITR 534, in which it was held as under : At the time of registration under section 12AA of the Income-tax Act, 1961, which is necessary for claiming exemption under sections 11 and 12, the Commissioner is not required to look into the activities, where such activities have not o .....

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..... sessee is still in the process of acquiring land and yet to start construction of building for educational and medical institution therefore, at that initial stage, the test of genuineness of the activities cannot be a ground for rejection of the registration application under section 12AA of the Act. Merely because there was some defects in the confirmation of donor, by itself is no ground for rejection of the registration application. The genuineness of the activities of the trust has to be seen keeping in mind the objects of the trust. The CIT (Exemption) has to satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust. The other points noted by CIT (Exemption) in the impugned order have been satisfactorily explained by ld. counsel for the assessee. Since the assessee was in process of acquiring land for achieving the aims and objects of the assessee trust, therefore, there is nothing wrong in acquiring land by the assessee. Preparation of the balance sheet for part period is no ground to reject application for registration under section 12AA of the Act because assessee field application for registration on 23.11.2015 and as s .....

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