2017 (7) TMI 1392 - AT - Income Tax

Exemption u/s 11 - denying the assessee registration u/s 12AA - transfer of the funds from M/s Mata Narayan Kaur Charitable Trust to the assessee trust of ₹ 1.57 crores appear to be a method to transfer funds from a non functional trust headed by the husband to a trust headed by wife to preclude the possibility of the dissolution of the donor trust - HELD THAT - Assessee trust had received donation of ₹ 1.57 crores from M/s Mata Narayan Kaur Charitable Trust. Whether the said donation was to preclude dissolution of the donor trust or that it was made from accumulated funds which had not been utilized in the specified time frame, have no effect nor do they affect the genuineness of the assessee trust. Whatever may have been done by the donor trust, may have an impact on the genuineness of the donor trust and there is no reason in holding the donee trust to be ingenuine on that account. Besides it is an uncontroverted fact that the donor trust was also enjoying exemption u/s 12AA of the Act and any such donation made by a charitable trust are entitled to be treated as donation of the said trust. For the above reason, we reject the contention of Ld.CIT(Exemptions) that since the donations were received from M/s Mata Narayan Kaur Charitable Trust, they make the activities of the assessee trust ingenuine. Author of the assessee trust is the sole trustee of the trust and since trust involves receipt and custody of money it has violated the provisions of Indian Trust Act, 1882 which requires the number of trustees to be atleast two in such cases - We find no merit in this contention of the Ld.CIT(Exemptions) also. Merely because the trust by virtue of clauses in the Trust Deed remain with a particular family has no reason to hold that it is a family trust for the benefit of particular family. Merely because the trusteeship remains with the particular family it does not mean that the trust is for the benefit of a particular family only. Trustees are only guardians of the trust and no benefit enures to them. In the absence of any finding by the Ld.CIT(Exemptions) that the benefits from the assessee trust accrue or arise to a family only, there is no merit in the finding of the Ld.CIT(Exemptions) that the assessee trust is family trust not intended for public benefit. Carried out no charitable activity in the year - Assessee has demonstrated before us that it had filed adequate replies before the Ld.CIT(Exemptions) demonstrating that it had carried out charitable activities in the impugned year which was the first year of coming into existence since it was formed only on 23.12.2015. We find that the assessee had adduced evidence of having carried out charitable activities thereafter also. Moreover, even before us the Ld. counsel for the assessee has adduced voluminous evidences to demonstrate that that it was involved continuously in carrying out charitable activities as per its stated objects. CIT(Exemptions), we find, has not dealt with and considered the submissions of the assessee. We, therefore, consider it fit to restore the issue back to the file of the Ld.CIT(Exemptions) to reconsider submissions of the assessee vis- -vis charitable activities carried out by it and thereafter adjudicate the issue of grant of registration under section 12AA of the Act in accordance with law.

Summary

Issues Involved:
1. Denial of registration under Section 12AA of the Income Tax Act, 1961.
2. Transfer of funds from another trust.
3. Sole trusteeship and alleged contravention of the Indian Trust Act, 1882.
4. Family arrangement in trusteeship.
5. Lack of evidence of charitable activities.

Issue-wise Detailed Analysis:

1. Denial of Registration under Section 12AA of the Income Tax Act, 1961:
The appeal was filed by the assessee against the order denying registration under Section 12AA. The grounds of appeal included the assertion that the Commissioner of Income Tax (Exemption) erred in refusing registration without considering the submissions made during the proceedings. The assessee sought the setting aside of the order and the granting of registration based on the activities carried out by the trust.

2. Transfer of Funds from Another Trust:
The CIT (Exemptions) highlighted that the assessee trust received ?1.57 crores from M/s Mata Narayan Kaur Charitable Trust. The CIT (Exemptions) suspected that this transfer was a method to preclude the dissolution of the donor trust, which was headed by the husband, and transfer funds to a trust headed by the wife. The CIT (Exemptions) presumed that the donor trust was non-functional and possibly transferred corpus or unutilized income. However, the Tribunal found no merit in this argument, stating that the genuineness of the assessee trust should not be questioned based on the donor trust's actions, especially since the donor trust enjoyed exemption under Section 12AA.

3. Sole Trusteeship and Alleged Contravention of the Indian Trust Act, 1882:
The CIT (Exemptions) contended that the sole trusteeship of the trust violated the Indian Trust Act, 1882, which requires at least two trustees for trusts involving receipt and custody of money. The Tribunal outrightly rejected this contention, clarifying that the provisions of the Indian Trust Act, 1882 do not apply to charitable trusts.

4. Family Arrangement in Trusteeship:
The CIT (Exemptions) argued that the trust deed's clause, which required the daughter to take over trusteeship, indicated a family arrangement not intended for public benefit. The Tribunal found no merit in this argument, stating that merely because trusteeship remains within a family does not mean the trust benefits only the family. Trustees are guardians, and no benefit accrues to them. The Tribunal emphasized that the CIT (Exemptions) provided no evidence that the trust's benefits were confined to the family.

5. Lack of Evidence of Charitable Activities:
The CIT (Exemptions) noted that the trust had not carried out any charitable activities in the year ending 31.3.2015 despite having assets worth ?1.62 crores and lacked evidence of systematic charitable activities. The Tribunal found that the assessee had demonstrated charitable activities in the first year of its existence and provided voluminous evidence of ongoing charitable activities. The Tribunal noted that the CIT (Exemptions) had not adequately considered these submissions and thus restored the issue back to the CIT (Exemptions) for reconsideration and adjudication in accordance with the law.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the CIT (Exemptions) to reconsider the submissions regarding the charitable activities carried out by the assessee and adjudicate the issue of granting registration under Section 12AA of the Income Tax Act, 1961, in accordance with the law. The order was pronounced in the open court.