2015 (8) TMI 709 - AT - Income Tax

Registration u/s 12AA(3) cancelled - assessee-trust donated a sum of ₹ 45 crores to another trust that is also engaged in the similar activity, thus this Act of trust tantamount to siphoning of the public money - Held that - In the case in hand, the assessee-trust has demonstrated that the activities are being carried out as per objects o the trust and being assessed under the relevant provisions of Act. It is not in dispute that the registration u/s.12AA of the Act was granted vide letter dated 2nd July- 1982. No doubt is casted upon the genuineness of the activities, throughout this period. Moreover, the reliance was placed on the decision of Asst.DIT(Exemption) vs. Bhartha Swamukti Samsthe reported at (2008 (12) TMI 310 - ITAT BANGALORE ), wherein it is held that giving of loan to poor women is charitable activity. In the light of above discussion and respectfully following the judgment of CIT Karnataka (Central) vs. Islamic Academy of Education (2014 (7) TMI 909 - KARNATAKA HIGH COURT ), we do not agree with the reasoning of ld.DIT(E) for cancellation of registration. Therefore, the order under appeal is hereby set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed by the DIT(E) cancelling the registration u/s 12AA(3) of the Income Tax Act.
2. Alleged violation of the twin conditions essential for withdrawing the registration u/s 12AA(3).
3. Transfer of assets worth Rs. 45 crores to Ananya Finance for Inclusive Growth Pvt. Ltd. (Ananya) and the end use of the corpus donation.
4. Engagement of the appellant in other charitable activities apart from microfinance.
5. Observations and findings of the DIT(E) regarding the transfer of assets and the nature of the appellant's activities.
6. Legally enforceable rights created by the transfer of undertaking to Ananya.
7. Findings in Para 5.2 and 5.3 of the DIT(E)'s order.
8. Effective date of the withdrawal of registration.

Detailed Analysis:

1. Validity of the Order Cancelling Registration u/s 12AA(3):
The appellant challenged the order of the DIT(E) cancelling its registration under section 12AA(3) of the Income Tax Act. The Tribunal noted that the DIT(E) issued a show-cause notice to the assessee-trust, questioning the transfer of assets worth Rs. 45 crores to a group finance company and the subsequent book entries that bypassed the money back to the same company. The DIT(E) viewed this as siphoning off public assets and not in line with the trust's objectives.

2. Alleged Violation of Twin Conditions for Withdrawal:
The DIT(E) held that the appellant violated the conditions for registration by engaging in activities that were not genuine and not carried out as per the objects of the trust. The Tribunal, however, found that the assessee-trust had been carrying out multiple activities, and there was no adverse finding in respect of other activities. The sole basis for cancellation was the donation of Rs. 45 crores to another trust, which the DIT(E) considered as siphoning off funds.

3. Transfer of Assets and End Use of Corpus Donation:
The assessee-trust transferred its microfinance business to Ananya for Rs. 45 crores and donated this amount to India Foundation for Inclusive Growth (IFIG), which then received shares of Ananya. The DIT(E) argued that this arrangement was designed to siphon off funds. The Tribunal noted that there is no prohibition under law for one charitable trust to donate to another, but the DIT(E) viewed the transaction as not in accordance with the trust's objectives.

4. Engagement in Other Charitable Activities:
The appellant argued that apart from microfinance, it engaged in other charitable activities like solar energy, water and sanitation, and education for female children. The Tribunal acknowledged these activities and noted that the revenue did not dispute the genuineness of these activities.

5. Observations and Findings of the DIT(E):
The DIT(E) observed that the assessee had transferred Rs. 45 crores to Ananya and bypassed the money back to the same company, which he considered as siphoning off funds. He also noted that the assessee was engaged in activities of general public utility and not directly in relief of poor women. The Tribunal found that the DIT(E)'s findings were not sufficient to cancel the registration under section 12AA(3).

6. Legally Enforceable Rights Created by Transfer:
The appellant argued that the transfer of the microfinance business to Ananya was at arm's length and created legally enforceable rights. The Tribunal noted that the DIT(E) did not dispute the legality of the transfer but questioned the genuineness and alignment with the trust's objectives.

7. Findings in Para 5.2 and 5.3 of the DIT(E)'s Order:
The appellant requested that the findings in Para 5.2 and 5.3 of the DIT(E)'s order be expunged as they were not germane to the issue. The Tribunal did not specifically address this request but focused on the overall validity of the cancellation order.

8. Effective Date of Withdrawal of Registration:
The appellant argued that if the withdrawal of registration was upheld, it should only apply from the date of the order and not retrospectively. The Tribunal did not need to address this issue as it allowed the appeal on the primary ground.

Conclusion:
The Tribunal set aside the order of the DIT(E) cancelling the registration of the assessee-trust under section 12AA(3), stating that the DIT(E) had not demonstrated that the activities of the trust were not genuine or not in accordance with its objects. The Tribunal allowed the appeal of the assessee, emphasizing that the genuineness of the trust's activities had not been doubted for over 30 years, and the issue of donation could be examined during the assessment process.