1992 (8) TMI 133 - AT - Income Tax

Summary

Issues Involved:

1. Whether the trust deed under which the Foundation was constituted was legally genuine.
2. Whether the donations received by the trust were genuine.
3. Whether the trust complied with the necessary legal formalities to be considered a valid public charitable trust.
4. Whether the trust was entitled to tax exemptions under sections 11 and 12 of the IT Act.
5. Whether the income of the trust was assessable in the hands of Shri D.C. Rastogi on a protective basis.

Issue-Wise Detailed Analysis:

1. Legality of the Trust Deed:
The primary issue was whether the trust deed, under which the Foundation was constituted, was legally genuine. The trust was created by late Shri R.N. Rastogi under a trust deed dated 31st January 1986, registered on 11th February 1986. The settlor's sister and her husband were constituted as trustees. The Income Tax Officer (ITO) concluded that the trust was not genuine based on the examination of the settlor, who failed to recall details about the trust and other related trusts. However, the appellate tribunal noted that the trust was registered under section 12A of the IT Act by the Commissioner of Income Tax (CIT) and had a declaration under section 80G, indicating that the trust was considered genuine by the CIT. The tribunal emphasized that the trust deed was duly executed and registered, fulfilling the legal requirements to create a valid public charitable trust.

2. Genuineness of Donations:
The ITO questioned the genuineness of donations amounting to Rs. 52,501 received from four parties, suspecting them to be spurious. Summons were issued to the donors, and while some admitted to making donations, their lack of knowledge about the trust's activities raised doubts. The tribunal, however, highlighted that the donations were received by account payee cheques, and the donors admitted to making the donations. It was noted that the suspicion about the source of the donated money did not affect the validity of the donations received by the trust.

3. Compliance with Legal Formalities:
The tribunal assessed whether the trust complied with the necessary legal formalities. It was established that the trust was registered under section 12A and had a certificate under section 80G of the IT Act. The tribunal cited precedents from the Calcutta High Court and Delhi High Court, affirming that a trust validly created and registered could not be declared non-genuine based on subsequent conduct or suspicions about donations. The tribunal concluded that the trust was validly created, and all necessary formalities were complied with.

4. Entitlement to Tax Exemptions:
The ITO and Dy. Commissioner (A) denied the trust exemptions under sections 11 and 12 of the IT Act, citing non-compliance with audit requirements under section 12A and improper application of donations for charitable purposes. The tribunal agreed that while the trust was genuine, the conditions for tax exemption, such as furnishing an audit report and proper application of funds, were not met. Therefore, the donations could not be exempted from the levy of tax.

5. Assessment of Income on Protective Basis:
The ITO assessed the trust's income on a protective basis in the hands of Shri D.C. Rastogi, influenced by findings from other related trusts. The tribunal criticized this approach, stating that each case should be decided on its own facts. The tribunal found no grounds to assess the trust's income in the hands of Shri D.C. Rastogi based on unrelated cases.

Conclusion:
The tribunal concluded that the trust was validly created and genuine. However, due to non-compliance with certain legal requirements, the donations could not be exempted from tax. The appeal was allowed in part, affirming the genuineness of the trust but denying tax exemptions for the donations.