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TMI Blog2025 (5) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the trust deed and noted certain crucial provisions of trust deed which are as under: (i) Para 2: The trustee and his legal heirs shall be allowed to use the property of the Trust without any payment of rent (ii) Para 4: Benefit of the Trust is to be given only to Marwari Brahmin and Maheshwari Vaishyas and, in their absence, other Brahmins and Vaishyas may be benefitted. (iii) Para 7: The Trustees in future shall be a Brahmin or a Vaishya and at least one of the Trustees shall be the legal heir of the settlor. (iv) Para 9: The trust is a Private Trust" 3. In view of the above explicit provisions in the trust deed he was of the opinion that the trust is not a public charitable trust established with an aim/object of conducting charitable activities for the welfare of the people at large but is a private trust established for the benefit of a particular caste / community. Therefore, he was of the opinion that prima facie the provisions of section 13(1)(a) and 13(1)(b) of the Act applies to the case of the assessee. 4. He, therefore, issued a show cause notice asking the assessee to explain as to why the registration u/s 12A granted on 25.08.1975 in assessee's case shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such students through the daily pooja and other religious celebrations of Shri Mukund Bhagwanta. Object No.4(d) provides for library of books, daily, weekly, monthly magazines etc but with a restriction that they should be religious one. The note extended to the objects from 4(a) to 4(e) further specifically provides that the beneficiaries shall be with preference to Marwadi Brahmins and then to Vaishyas of Maheshwari Caste and if none from these castes is available, to other brahmin and Vaishya castes (iii) Further, Para 5 of the trust deed provides that the balance out of the income after expenditure on the above objects shall be expended for: To help other educational institutions who accept the Varnashrama elements and give religious and vedic education (iv) Para 6 of the Deed provides that students so admitted for vedic and religious education shall carry out the daily pooja and other religious rituals/celebrations of the deity of Shri Mukund Bhagwanta of the temple which has been transferred by the settlor to the trust (v) Para 7 of the Deed provides that amongst all the trustees, there shall always be a trustee the heirs of the settlor Thus, the purpose of the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e thereof if the trust or institution is created or established for the benefit of any particular religious community or caste. 5 In view of the above, prima facie it is seen that the activities of the trust are not genuine charitable activities and if at all they are considered to be genuine, the trust deed itself provides for application of its income for private religious purposes, which does not enure for the benefit of the people at large and also that the trust has applied its income for the benefit of a particular religious community/caste. Therefore, it is noticed that specified violation in terms of provisions of section 12AB(4) of the Income Tax Act, 1961 is occurred in your case 6. Without prejudice to the above, it further observed from the financial statements that the trust has made huge investments in various companies for eg. Indi Swift Ltd, Plethico Pharmaceuticals, Elder Pharmaceuticals, Net 4 India Ltd Network 18, Microtech Technologies Said investments are not in the forms and modes of investing or depositing the money as provided in Section 11(5) of the Income-tax Act, 1961. Thus, the trust has also violated provisions of section 11(5) of the Act as well. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f explanation to sub-section 12AB(4) ..........As per discussions in para 6.2.23 1. The assessee is a private trust as per the trust deed. Therefore, the trust cannot registered under the IT Act. As such the trust is found to be involved in specific violation under clause 'e' of explanation to sub-section 12AB(4). ..........As per discussions in para 7.3 1. The assessee is not registered with charity commissioner under the BPT Act. Further, it is not even registered under any other Act relevant to Public Charitable activities. Therefore, the same is violation of section 12AB(1)(b)(i)(B) By not registering itself with the Charity Commissioner or any other relevant law applicable to the Public Trust, the assessee is found to be involved in specific violation under clause 'f of explanation to sub-section 12AB(4) ..........As per discussions in para 8.7 1. The assessee is found to have substantial investment of funds in modes other than prescribed under section 11(5) regularly. The trust has further made such investment without receiving permission from Charity Commissioner. As such the trust is found to be involved in specific violation under clause 'e' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay Public Trust Act is violation of section 12AB(1)(b)(i)(B) of the Income Tax Act, 1961 thereby constituting a specific violation under clause "f" of the Explanation to subsection 12AB(4) of the Income Tax Act, 1961. - in observing that the appellant trust has made substantial investment of funds in modes other than prescribed under section 11(5) which is a specific violation under clause "e" and "f" of the Explanation to subsection 12AB(4) of the Income Tax Act, 1961. - in observing that the appellant trust is involved in activities on commercial basis earning rental income which cannot be said to be incidental to the main objects which is a specific violation under clause "b" of the Explanation to subsection 12AB(4) of the Income Tax Act, 1961. - in observing that the appellant trust has over the years not conducted activities related to the main object of the trust but donated substantial amount to other trust and therefore such set up to earn income cannot be said to be inspired by benevolence and raises serious doubt over its genuineness which is a specific violation under clause "e" of the Explanation to subsection 12AB(4) of the Income Tax Act, 1961. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en dealt with the judicial precedents relied on by the assessee. This clearly shows the lack of any opportunity of hearing given by the Ld. CIT(E). 9. So far as the allegation of the Ld. CIT(E) that the trust was established for a particular caste who had belief in Hindu Varnashram, which was in direct violation of the provisions of section 13(1) of the Act considered to be a violation of clause (e) of section 12AB(4) is concerned, he drew the attention of the Bench to provisions of section 13(1)(b) which reads as under: "13(1)... (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste" 10. He submitted that the Ld. CIT(E) conveniently ignored this provision. Since the assessee in the instant case was established in 1930 which is much prior to the commencement of this Act i.e. 1961 Act, therefore, the allegation of the Ld. CIT(E) that the assessee has violated the provisions of section 13(1)(a) r.w.s. 12AB(4)(e) is not in accordance with law. 11. He submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether a Thakurdwara of Sri Radheshyamji is a private temple or public one in which all Hindus are entitled to worship) For a trust to be considered public, they should be constituted for the benefit of the public. A trust would be private if the beneficial interest in vested in absolutely one or more individual who are uncertain and who will be competent to control, modify or determine that trust. A public trust is for the benefit of the members of an uncertain & fluctuating body and the trust itself in of permanent and indefinite character. (Farman All Khan v Mohd. Raja Khan (ALC) AIR1950 All 62 Para 18)." 14. He submitted that the Ld. CIT(E) does not controvert the above submissions of the assessee. The reasoning by the Ld. CIT(E) is fraught with numerous flaws. He submitted that the objects of the trust deed have to be read as a whole and the Ld. CIT(E) cannot engage in cherry-picking to suit his observation and conclusion. 15. Referring to the decision of Hon'ble Gauhati High Court in the case of Arunachal Pradesh Forest Corporation Ltd reported in 290 ITR 139 (Gau), he submitted that a literal interpretation of the objects, as has been attempted by the Ld. CIT(E), is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2AB. Further, the case of the New Noble was a pure educational trust, which could have a State law which directly applies to education. He submitted that the question before the Hon'ble High Court was "whether registration under AP Charities Act was a pre-requisite for registration or approval under the Income Tax Act" while the present case is not one of pre-requisite but a post registration alleged imperative. Referring to the decision of the Hon'ble Supreme Court in the said case, he submitted that the Hon'ble Supreme Court has clearly spelt out that compliance under other laws can weigh in deciding approvals under section 10(23C). Referring to various decisions, he submitted that the Ld. CIT(E) is not correct in cancelling the registration on this issue. 19. So far as the allegation of the Ld. CIT(E) that the assessee trust has made substantial investment of funds in modes other than prescribed under section 11(5) which is a specific violation under clause "e" and "f" of the Explanation to subsection 12AB(4) of the Act is concerned, he submitted that the investment is only specific to section 11(2), which fact is neither examined nor ascertained nor any finding given on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her charitable trusts. He submitted that in any case breach of trust which does not affect the vires of validity of the trust cannot lead to denial of benefits of section 11 and cancellation of registration. For the above proposition, he relied on the decision of the Hon'ble Jharkhand High Court in the case of CIT vs. Karimia Trust reported in 302 ITR 57 (Jha) where it has been held that the breach of the conditions of the trust deed, if any, committed by the assessee trust will not disentitle it from getting the benefits which it has been getting in the past, exemption u/s 11 cannot be denied to the assessee trust on the part of alleged violation of provisions of section 13(1)(bb). 22. The Ld. Counsel for the assessee while concluding his arguments submitted that the assessee has been granted approval and recognition u/s 12A which has not been usurped in any of the years of its existence. He submitted that though the principle of res judicata does not apply to tax matter, in questions of fundamental nature or questions which do not vary each year or questions on which the right of parties to be taxed are based, the principle of res judicata to that extent would apply. He submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xvi) CIT vs. Arya Vysya Kalyana Nilaya Sangam 159 ITR 324 (AP) xvii) Ramjanki Tapovan mandir vs. CIE(E) and Anr. 451 ITR 458 (Jha) xviii) CIT vs. Sarvodaya Ilakkiya Pannai (2012) 343 ITR 300 (Mad) 24. He accordingly submitted that the Ld. CIT(E) was not justified in cancelling the registration of the trust u/s 12A of the Act. 25. The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(E). He submitted that the Assessing Officer has no power to verify the objects / genuineness and the power vests only with the CIT(E). He submitted that the Ld. CIT(E) has considered each and every aspect of the submissions made by the assessee and has passed a speaking order. Therefore, the same should be upheld and the grounds raised by the assessee be dismissed. 26. We have heard the rival arguments made by both the sides, perused the order of the Ld. CIT(E) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case is a trust registered in the year 1930 and was granted registration u/s 12A on 25.08.1975 and u/s 12AB(1)(ac)(i) of the Act on 24.09.2021. The trust is regularly asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.09.2021. We find the provisions of section 13(1)(b) of the Act read as under: "13(1)... (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste" 29. A perusal of the same would show that the provisions of section 11 not to apply in certain cases if such trust has been created or established before the commencement of this Act to any income thereof, if the trust or institution is created or established for the benefit of any particular religious community or caste. Since in the instant case the trust was already created in the year 1930 i.e. much prior to the Income Tax Act, 1961, therefore, the Ld. CIT(E) in our opinion was not justified in holding that the assessee has violated the provisions of section 13(1)(b) of the Act. Further, it is also an admitted fact that the trust was granted registration by the Commissioner u/s 12A of the Act on 25.08.1975 and u/s 12AB(1)(ac)(i) of the Act on 24.09.2021. The trust is also regularly assessed to tax with most of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. "On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter and if there was no change it was in support of the assessee we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken". 31. We find the Hon'ble Supreme Court in the case of Excel Industries Ltd reported in 358 ITR 295 (SC) has observed that "the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it." 32. In view of the above discussion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, there is no requirement under the Act that an institution constituted for advancement of any object of general public utility must be registered as a trust." 36. We further find merit in the submissions of the Ld. Counsel for the assessee that if this was a mandate u/s 12A, then it would have been so specified as is the case u/s 80G(5)(v). We find the provisions of section 80G(5)(v) read as under: "80G(1).... .... (5)..... (i)..... ....... (v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under section 2571 of the Companies Act, 1956 (1 of 1956), or is a University established by law, or is any other educational institution recognised by the Government or by a University established by law, or affiliated to any University established by law, or is an institution financed wholly or in part by the Government or a local authority." 37. We find the procedure for fresh registration (introduced w.e.f. 01.04.2021) for applications made under section 12A(1)(ac) is provided in section 12AB. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it was a case of a pure educational trust which could have a State law which directly applies to education whereas in the instant case it is not so. We find the question before the Hon HC was "whether registration under AP Charities Act was a pre-requisite for registration or approval under the Income Tax Act" while the present case is not one of pre-requisite but a post registration alleged imperative. It is not a case of one arm of law being utilized to defeat another arm of law as no advantage is being taken under any other law of the fact that it is registered under Income Tax law. We find Hon'ble Supreme Court clearly spelt out that compliance under other laws can weigh in deciding approvals under section 10(23C). In view of the above discussion, we are of the considered opinion that the Ld. CIT(E) is not justified in cancelling the registration for not being registered under the Charity Commissioner under the BPT Act. 41. So far as the allegation of the Ld. CIT(E) that the assessee trust has substantial investment of funds in modes other than prescribed under section 11(5) which is a specific violation under clause (e) and (f) of the Explanation to subsection 12AB(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be said to be inspired by benevolence and raises serious doubt over its genuineness which is a specific violation under clause "e" of the Explanation to subsection 12AB(4) of the Act is concerned, we find the Courts have time and again held that it is not necessary for the trust itself to carry out charitable activities and that it is permissible to donate to other charitable trusts. 45. We find the Hon'ble Delhi High Court in the case of CIT vs. Shri Ram Memorial Foundation reported in 269 ITR 35 (Del) has held that the donation by a charitable trust to another charitable trust with condition that the amount will form part of corpus of the donee trust is application of income by the donor trust within the meaning of section 11(1)(a) eligible for exemption u/s 11 of the Act. 46. We find the Hon'ble Gujarat High Court in the case of CIT vs. Sarladevi Sarabhai Trust (1988) 172 ITR 698 (Guj) has held that when a donor trust which is itself a charitable and religious trust donates its income to another trust, provisions of section 11(1)(a) can be said to have been met by such donor trust and the donor trust can be said to have applied its income for religious and charitable pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome could be utilised through the medium of another charitable institution which applies its funds or income to charitable purposes. The Tribunal is, in our view, right in holding that the assessee was entitled to the relief under s. 11 (1)(a) of the IT. Act, but the propriety of the direction given by the Tribunal need not be dealt with in this reference." 50. In view of the above discussion and decisions cited (supra), we are of the opinion that the Ld. CIT(E) is not justified in cancelling the registration on this ground. 51. So far as the objection of the Ld. CIT(E) that the assessee is found to be involved in activities on commercial basis earning rental income which cannot be said to be incidental to the main objects which is a specific violation under clause "b" of the Explanation to subsection 12AB(4) of the Act is concerned, we do not find any merit in the above allegation of the Ld. CIT(E). A perusal of the Act would shows that it lays emphasis on income derived from property. If rental income is derived from property owned by the Trust, there is no reason to call it activity on commercial basis. In our opinion, there is no reason to characterize the rental income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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