2021 (6) TMI 621 - AT - Income Tax

Exemption u/s 11 - assessee was granted registration u/s 12A of the Act in the year 1980 since then the assessee was having registration u/s 12A - DIT(E) cancelled the registration u/s 12AA of the Act on the ground that the assessee violated the provision of section 13(3) of the Act for taking loan and donating the same to the sister concern without carrying out any charitable activity - DIT(E) while cancelling the registration, observed that the main objective of the assessee trust was running of a hospital but as per the examination of books of account for the Assessment Years 2005-06 to 2009-10, a very meager receipt from OPD was disclosed HELD THAT - In the opinion of DIT(E), it is clearly violation of provision of law to divert the property of assessee trust to others for non-charitable activities. In the opinion of Ld. DIT(E), there was unreasonable and excessive benefit which was given to the related parties which is clearly hit by section 13(1)(c) r.w. section 13(3) of the Act, hence, attracts action for denial of exemption u/s 12A - Undisputedly, the words as obtained registration at any time was inserted in section 12AA(3) of the Act w.e.f 01.06.2010. DIT(E) has cancelled the registration since inception - as contended by assessee that the cancellation could not have been made prior to the insertion of the provision thus, the DIT(E) clearly exceeded the jurisdiction. Assessee trust is also registered u/s 10(23C) of the Act, therefore, provision of section 13(5) of the Act is not applicable - The factum of registration u/s 10(23C) of the Act is not rebutted by the Revenue. DIT(E) is empowered to cancel the registration u/s 12AA(3) of the Act if he is satisfied that the activities of such trust or institution are not genuine and are not being carried out in accordance with its objectives of the trust/institution as the case may be - in the present case, the sole ground of cancellation of registration is that the assessee trust obtained a loan paid interest thereon and donated this sum to another trust. Admittedly, the other trust was also granted registration u/s 12A of the Act and its registration has not been cancelled and author of both the trusts is same person. We are unable to sustain the action of Ld.DIT(E) firstly, the registration has been cancelled from inception i.e. prior to even when the trust that had obtained registration were brought within the ambit of section 12AA (3) of the Act. DIT(E) has proceeded purely on the basis that the assessee trust had donated the amount which it had borrowed to other charitable trust without pointing out as to under what provision of law, such action is prohibited. Moreover, it is settled position of law that at the time dissolution of trust, the property of trust would go to another charitable trust. DIT(E) s apprehension that undue benefit is given to sister concern is misplaced. As the alleged sister concern is also a charitable trust, the donation from one charitable trust to another charitable trust is not prohibited under law.DIT(E) himself has recorded that the assessee trust has carried out some medical OPD in accordance with the objects of the trust. It cannot be construed that the activities of the assessee trust are not genuine. We, therefore, set aside the impugned order and restore the registration granted u/s 12A - Thus, grounds raised by the assessee in this appeal are allowed.

Issues Involved:
1. Cancellation of registration under section 12A of the Income Tax Act, 1961.
2. Alleged violations of sections 2(15), 10(23C)(iiiae), 11(5), 13(1)(c), and 13(1)(d) read with section 13(3) of the Income Tax Act, 1961.
3. Applicability of section 12AA(3) of the Income Tax Act, 1961 for cancellation of registration.
4. Legality of donation from one charitable trust to another.

Detailed Analysis:

1. Cancellation of Registration under Section 12A:
The primary issue was the cancellation of the appellant trust’s registration under section 12A of the Income Tax Act, 1961. The learned Director of Income Tax (Exemptions) [DIT(E)] cancelled the registration granted to the appellant trust since its inception, on the basis that the trust had given a donation of ?13.65 crores to another trust, Bhai Hospital Trust, using borrowed funds. The DIT(E) observed that the appellant trust had not carried out any significant charitable activity apart from providing minimal medical facilities.

2. Alleged Violations of Sections 2(15), 10(23C)(iiiae), 11(5), 13(1)(c), and 13(1)(d) read with Section 13(3):
The DIT(E) held that the appellant trust violated multiple provisions of the Income Tax Act:
- Section 2(15) defines charitable purposes.
- Section 10(23C)(iiiae) pertains to exemptions for certain charitable institutions.
- Section 11(5) specifies the forms and modes of investing or depositing trust money.
- Sections 13(1)(c) and 13(1)(d) along with section 13(3) deal with the conditions under which the income of the trust would not be exempt.

The DIT(E) noted that the donation to the sister entity was not permissible under these sections and observed that the trust’s activities were not genuine or in accordance with its objectives.

3. Applicability of Section 12AA(3) for Cancellation of Registration:
The appellant argued that the DIT(E) exceeded his jurisdiction by cancelling the registration since inception, as the power to cancel registration under section 12AA(3) was provided only from 1st June 2010. The tribunal noted that the DIT(E) could cancel registration if the activities of the trust were not genuine or not in accordance with its objectives. However, the tribunal found that the DIT(E) cancelled the registration from inception, which was not permissible as per the law.

4. Legality of Donation from One Charitable Trust to Another:
The appellant contended that the donation to another charitable trust was not prohibited by law. The tribunal observed that the DIT(E) had not pointed out any specific provision of law that prohibited such donations. The tribunal further noted that the other trust, Dr. Bhai Mohan Singh Foundation, was also registered under section 12A and its registration had not been cancelled. Therefore, the tribunal held that the donation from one charitable trust to another was not illegal.

Conclusion:
The tribunal concluded that the DIT(E) was not justified in cancelling the registration under section 12A. The tribunal noted that the DIT(E) had proceeded on the basis that the appellant trust had donated borrowed funds to another charitable trust without pointing out any specific legal prohibition. The tribunal found that the activities of the appellant trust were genuine and in accordance with its objectives. Therefore, the tribunal set aside the impugned order and restored the registration granted under section 12A of the Act. The appeal of the assessee was allowed.

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