TMI Blog2023 (11) TMI 1098X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate as it is a profit making Company - This reason by the CIT (E) is not in conformity with any of the provisions of the Income Tax Act. A profit-making Company can grant certain donation to the charitable trust, how can the activities of the trust become not charitable with this act. In our view, the fact that the CSR expenditure are not allowable expenditure under section 37 of the Act is relevant only for the taxability of the company incurring such expenditure. From the perception of the assessee trust the amount received as donation whether will be eligible for exemption under section 11 depends on the application of such fund for the charitable activities by the trust only. CIT(E) is empowered to satisfy himself only about two factors i.e. the objects of the trust and the genuineness of the activities of the trust or institution and such powers does not extend to the eligibility of the trust/institution for exemption u/s 11 r.w.s 13 of the Income Tax Act, 1961 which falls in the domain of the AO. In our view, in the present case the Ld. CIT(E) has neither pointed out any defect in the objects of the trust nor doubted the activities carried out to achieve these ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed to be created by the Board of the Company for the objects and activities as per Schedule-VII of the Companies Act. The Ld. CIT exemption while rejecting the exemption under section 12AB of the Income Tax Act, has observed as gender under: 2. The stated aims and objects of the society are to establish, develop, maintain and grant aid in cash or in kind to hospitals, medical institutions, nursing institutions, dispensaries, maternity homes, child care and welfare centres and/ or such other similar institutions for benefit and use of the general public; to establish, run, support and grant aid or other financial assistance to schools, colleges, libraries, reading rooms, universities, laboratories research and other institutions of the like nature for use of the students and the staff and also for the development and advancement of education and diffusion of knowledge amongst the public in general; to grant relief and assistance to the needy victims during natural calamities such as famine earth quake, food, fire pestilence etc and to give donations and other assistance to institutions, establishment or persons engaged in such relief work; to construct and give assistance in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the funds provided by its main contributors and settler M/s Stelco Ltd. as part of fulfilment of their CSR obligation. What the applicant has done is not pursue any of the stated objects. It has been claimed that donating to other entities amounts to pursuing its objects. From the above it is clear that the objects narrated regarding other charitable activities being claimed are ostensible addendum to the main activity which is proposed to conduct CSR in case of the parental company which in its obligation to spend CSR amount in the limited company has tried to give cover to the activities of the applicant company as a charitable one. 7. It has been emphasized in the provisions of CSR that the amount spent under the head CSR will not be deductible under Income Tax Act in the hands of the Company. In order to work around the provisions, the M/s Stelco Limited has created a trust where the Managing Directors or their family members are the Trustee of the applicant Trust. This is a close arrangement whereby a Limited company is not only able to redeem its CSR obligation but also at the same time able to control the finances of the Trust. Indirectly by seeking exemption th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, there are several activities, part of Schedule VII of the Companies Act, 2013, that enjoy exemptions under the Income Tax Act. 9.2 The amount spent by a Company cannot be claimed as business expenditure. The Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to Corporate Social Responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. 9.3 The companies have been mandated to spend 2% of the NP on social causes. It is also to be borne in mind that the corporates, as a group, bad waged a sustained campaign at the lime of inclusion of CSR provisions in the enactment of 2013 to elicit two concessions from the government i.e. allow tax exemption on expenditure incurred as a part of CSR and also allow them a leeway to have a control over the way their contributions are spent by the Government. 9.4 It reiterated that as per the provisions of CSR that the amount spent under the head CSR will not be deductible under Income Tax Act in the hands of the Company. In order to work around the provisions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls all the conditions required for granting registration under section 12AA of the I.T. Act and that he was wrong in holding that the applicant trust has been formed to implement the CSR activities and not amenable to public charity whereas as per explanation filed and material placed on record and in view of section 135(1) and Schedule VII of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014, the company as well as trust duly qualifies all the conditions as laid down under the Companies Act and Income Tax Act. Therefore, the trust is entitled to registration and the same has to be allowed. The Ld. AR has filed a written synopsis in support which reads as under: 1. The Worthy CIT(Ex.) has himself stated the condition as per the provisions of section 12AA for granting registration to an institution which is:- to check the aims and objects of the new trust and to correlate such objects with the activities of the institution in case the same is an ongoing entity, however, the CIT(Ex.) has wrongly applied the said provisions in the instant case. 2. The CIT(Ex.) has failed to interpret the meaning of ongoing entity as quoted in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CSR activity of M/s Stelco Limited except one that the management of both the organizations have a common director or family members which in itself is not sufficient to doubt the aims and objects of the Appellant trust and is vague reason to reject appellant application for registration u/s 12A of the Act. 2. Without prejudice to the above, even if the Applicant Trust has been created to redeem the CSR function of any company and it has been established by the objects that the Trust is fully engaged in charitable activities then the same is entitled of registration u/s 12AA of the Act. Reliance in this regard is paled on the following two judgments of ITAT, Delhi: Nanak Chand Jain Charitable Trust vs. CIT (Ex.) (2018) 91 taxmann.com 197 dated 09.02.2018 ( placed at Page No. 1-6 of Judgment Set) Escorts Skill Development vs. CIT(Ex.) in ITA No. 527/Del/2017 dated 26.04.2019 (placed at Page No. 7-18 of Judgment Set) 3. Moreover, your honor s kind attention is also invited to the Circular issue by Ministry of Corporate Affairs vide Circular No. 21/2014 dated 18.06.2014 wherein it has been clarified vide Point No. (viii) on Page 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised during the proceedings. Moreover, the Appellant Trust is not bound by any such clause in trust deed in order to fulfil the CSR requirements of the Settlor Company. D. Here in the concluding paragraph as well, the CIT(Ex.) has indirectly agreed to the fact that there is no defect in the aims and objects of the trust and that when after obtaining registration, the trust will pursue activities in consonance with the objects, the same will be considered as activities of charitable nature as per Section2(15) of the Act. THUS, THERE REMAINS NO VALID GROUND TO SUPPORT THE ACTION OF CIT(EX.) IN REJECTING THE APPLICATION OF THE APPELLANT TRUST u/s 12AA AND THE ORDER OF WORTHY [CIT(EX.) DESERVES TO BE QUASHED. 5. To further elaborate on ground of want of activities raised by CIT (Ex.) regarding the rejection of application of Appellant out rightly, it is again reiterated that the allegations imposed on the Appellant are without any cogent evidence and findings placed on record. The Worthy CIT (Ex.) has not pin pointed any defect in the objects of the Trust. It has been held by various Hon ble Courts that the Worthy CIT is not an assessing authority and unless there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for exemption under section 11 depends on the application of such fund for the charitable activities by the trust only. The CIT is empowered to satisfy himself only about two factors i.e. the objects of the trust and the genuineness of the activities of the trust or institution and such powers does not extend to the eligibility of the trust/ institution for exemption u/s 11 r.w.s 13 of the Income Tax Act, 1961 which falls in the domain of the AO. Once the CIT has not doubted about the genuineness of the activities of the assessee nor doubted its charitable object, his powers under section 12AA end. 8. Reliance in this regard is also being placed upon the following case laws wherein it has been held that when no defect in the objects of the trust has been pointed out, the application for registration cannot be rejected: a) CIT vs. IILM Foundation Academy as reported in 389 ITR 148 order dated 16.09.2016 ( placed at Page No. 34-48 of Judgment Set) b) Cyberstar Educational Society vs. CIT (Exemptions) in ITA No. 795/ASR/2017 ASR-Trib (placed at Page No. 49-54 of Judgment Set) c) CIT(Exemption) vs. Shri Shirdi Sai Darbar Charitable Trust (Dharmshala), Barnal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Facts of case of Appellant 1. There is no specific object in respect of CSR in the trust deed of the Appellant. There is no specific object in respect of CSR of Settler Company and to operate in consonance of directions of the Settlor Company. The Trust is not bound by any such clause. No such exemption has been claimed by our assessee trust and CSR claimed in the return has been added back in the return of the company. 2. The Appellant is not a captive Trust created and is neither operates under control of Settlor Company. 3. The Appellant has not donated all funds available to any single trust, but has in fact actually applied the funds for charitable activities by providing financial aid to needy and helps the public at large. 4. The Appellant has not relinquished its function and is acting as a charitable institution working for the welfare of the people from all walks of the society. Thus, in view of the above, order of Worthy CIT(Ex.) deserved to be quashed. 5. Per Contra, the Ld. CIT DR vehemently supported the impugned order passed by the CIT exemption. He relied on the decision of the Hon'ble ITAT, Amritsar in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts own programs to impact targeted beneficiaries by transferring its funds and the Trust received major donation from the Company actually running the Trust on their own terms and also contributed a major chunk of donation to single trust whereas in the instant case the Appellant has not donated all funds available to any single trust, but actually applied the funds for charitable activities by providing financial aid to needy and helps the public at large and that the Appellant has not relinquished its function and is acting as a charitable institution working for the welfare of the people from all walks of the society. 9. From the above, it is evident that in the present case the main aim and object was of course to implement the CSR activities of the Financing/ parental company, but surely per se to the benefit of general public at large. The observations given by Worthy CIT(E) are vague in the view of the judgment of Nanak Chand Jain Charitable Trust (Supra) that at the time of granting the registration under Section 12AA of the Income Tax Act, 1961, the CIT (exemption) need not go beyond two parameters that the object being charitable in nature and activities being genuine. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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