2014 (1) TMI 538 - AT - Income Tax

Confirmation of Change of status u/s 12AA(3) of the Act - Status changed from a Charitable Trust to An AOP Held that - There were no proceedings of cancellation of registration granted to the assessee by the competent authority - the authorities below has grossly erred in changing the status of the assessee from that of a charitable trust to an association of person (AOP) without following a due process of law as stipulated under Section 12AA(3) of the Act - the authorities should have brought some incriminating material or evidence to show that the activities of assessee trust were not genuine or were not being carried out in accordance with the objects of the trust or institution - the CIT (A) grossly erred in confirming the change of status of assessee from that of a charitable trust to an (AOP) Thus the status of the assessee trust would remain a charitable trust till the registration granted to assessee under Section 12A of the Act exists - Decided in favour of Assessee. Facts and the documents produced ignored Trust deed not appreciated Registration u/s 12A of the Act Entitlement for Deduction u/s 80G of the Act - Held that - Neither the Assessing Officer nor the CIT(A) has either noted or observed any fact that the receipts of the assessee trust were misappropriated misused or used contrary to the charitable objects of the assessee trust as stipulated in the trust deed - the authorities below have not made any allegation that the assessee trust had carried out any activities contrary to its object and misusing the funds of the assessee trust - The status of the assessee trust cannot be changed from charitable trust to AOP until and unless the registration granted to the assessee is cancelled by following the due procedure as mentioned in Section 12AA(3) of the Act - thus the Assessing Officer was not justified in completing the assessment of the assessee in the status of AOP instead of charitable trust. As per provisions of the Act this is not a pre-condition for conducting a charitable activity that the persons or institutions towards which the assessee charitable trust is providing donation and conducting charitable activity should be registered under Section 12A of the Act coupled with entitlement to enjoy benefits of Section 80G of the Act - the issue claim of expenses towards a charitable activity deserved to be examined by the Assessing Officer de novo after affording due opportunity of hearing to the assessee the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee. Error in admitting additional evidence under Rule 49A of the Act Held that - There was no perversity ambiguity or any other valid reason to interfere with the findings of CIT(A) - the CIT (A) decided the issue of admissibility of additional evidence following a due procedure as laid down in Rule 46(A) of the Rules - Decided against Revenue. Nature of Donation Donation can be termed as corpus donation or not Held that - The assessee was prevented due to sufficient reason for submitting relevant evidence before the Assessing Officer and the same was submitted before the Ld CIT (A) as additional evidence - the CIT (A) allowed and admitted the additional evidence of the assessee by properly following due procedure as laid down under Rule 46A of the Rules - the CIT (A) after examination of additional evidence held that the donation of Rs.50, 00, 000/- made by Seagram India Pvt. Ltd was a corpus donation for the appellant trust and the same could not be treated as general receipt - the donor contributed to the assessee trust as corpus donation for specific purposes and objects Decided against Revenue.

Summary

Issues Involved:
1. Status of the assessee as a Charitable Trust vs. Association of Persons (AOP)
2. Undertaking of charitable activities by the assessee
3. Admissibility of additional evidence under Rule 46A
4. Treatment of Rs. 50,00,000/- received from Seagram India Pvt. Ltd. as corpus donation

Detailed Analysis:

1. Status of the Assessee as a Charitable Trust vs. Association of Persons (AOP):
The primary issue was whether the assessee should be treated as a Charitable Trust or an Association of Persons (AOP). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the Assessing Officer's (AO) decision to change the status of the assessee from a Charitable Trust to an AOP. The assessee argued that once granted registration under Section 12A of the Income Tax Act, the status cannot be changed without following due process under Section 12AA(3). The Tribunal agreed with the assessee, stating that the AO and CIT(A) erred in changing the status without cancelling the registration. Thus, the status of the assessee remains as a Charitable Trust until the registration is formally cancelled.

2. Undertaking of Charitable Activities by the Assessee:
The AO and CIT(A) concluded that the assessee did not undertake any charitable activities during the year under consideration, which led to the denial of benefits under Sections 11 and 12. The assessee claimed expenses for donations to Khushii, Kalyanam Karoti, and for the construction of a school at Nasik. The Tribunal found that the authorities below did not examine the evidence properly and had a wrong legal notion that donations must be to entities registered under Section 12A and enjoying 80G benefits. The Tribunal restored the issue to the AO for a fresh examination of the evidence to determine whether the expenses were for charitable purposes as per the trust deed.

3. Admissibility of Additional Evidence under Rule 46A:
The CIT(A) admitted additional evidence under Rule 46A, which the AO had objected to. The Tribunal noted that the assessee was prevented from presenting evidence due to a public holiday on the date of the hearing. The CIT(A) followed due procedure in admitting the additional evidence. The Tribunal found no reason to interfere with this decision and upheld the CIT(A)'s admission of additional evidence.

4. Treatment of Rs. 50,00,000/- Received from Seagram India Pvt. Ltd. as Corpus Donation:
The AO treated the Rs. 50,00,000/- received from Seagram India Pvt. Ltd. as a general receipt, not a corpus donation. The CIT(A) accepted additional evidence showing that the donation was indeed meant for the corpus of the trust. The Tribunal upheld the CIT(A)'s decision, noting that the minutes of the donor's meeting confirmed the donation was for the corpus. Thus, the amount was correctly treated as a corpus donation.

Conclusion:
- The status of the assessee remains as a Charitable Trust.
- The issue of whether the assessee undertook charitable activities is remanded to the AO for fresh examination.
- The CIT(A)'s admission of additional evidence under Rule 46A is upheld.
- The Rs. 50,00,000/- received from Seagram India Pvt. Ltd. is confirmed as a corpus donation.

Result:
The appeals of the assessee and the revenue are partly allowed with directions for a fresh examination by the AO. The Tribunal's order was pronounced in open court on 26th March 2013.