2018 (12) TMI 1552 - AT - Income Tax

Denial of registration u/s 12A - non-incorporation of dissolution clause - Trust is controlled and managed by the Government - Held that - The trust has been supposed to be governed by the officials of the Government under the Chairmanship of Chief Minister of Punjab as pleaded by the assessee society, itself, before the CIT(E) but has now given its control to the private persons who are no more in the Government. This fact has been conveniently concealed from the CIT(E) that the term of Board of Governors has not been extended since 15.5.2007 and that after year 2007, there is no control of the Government or any official of the Government on the trust after the year 2007 and that the Members of the trust, who are private persons, themselves have established control over the Trust. A totally false and wrong pleadings have been made by the assessee Trust before the Income Tax Authorities that it is a Government controlled organization. The facts on the file speaks that the trustees in violation of the MOA and Regulations of the trust have shifted control & management of the Trust from the state and central government officials unto themselves. Under the circumstances, the Ld. CIT(E) had a valid and reasonable apprehension that in case of dissolution, the properties of the trust, which admittedly have been created and constituted out of 100% grants given by the State and Central Government and have now been attempted to be shifted in the hands of the private management, may be distributed amongst the private individual members of the trust. The above facts and circumstances also cast doubt about the functioning and genuineness of the objects of the trust. In view of this, we do not find any infirmity in the order of the CIT(E) in rejecting the application of the trust for registration u/s 12A of the Act. A clear and visible attempt on behalf of the trust to mislead this Bench of the Tribunal by way of concealing the real and true facts that the Members of the Trust have, by not extending the term of Board of Governors, conveniently entrusted unto themselves the control and management of the Trust. Had the case of the Trust been not carefully examined, these important and relevant facts would have remained wrapped under the carpet, and the Trust could have managed to get the relief of exemption from taxation by presenting wrong and false facts. This is a clear case of an attempt to play fraud not only with the lower Income Tax authorities, but also upon this Tribunal - Decided against assessee.

Summary

Issues Involved:
1. Denial of exemption under Section 12A of the Income-tax Act, 1961.
2. Absence of a dissolution clause in the Memorandum of Association (MOA).
3. Governance and control of the trust by private individuals versus government control.
4. Misrepresentation of facts by the trust before the Income Tax authorities and the Tribunal.

Detailed Analysis:

1. Denial of Exemption under Section 12A of the Income-tax Act, 1961:
The appellant, Sri Dashmesh Academy Trust, appealed against the denial of exemption under Section 12A by the Commissioner of Income Tax (Exemptions) [CIT(E)]. The CIT(E) denied the exemption primarily due to the absence of a dissolution clause in the trust's Memorandum of Association (MOA). The CIT(E) observed that without a dissolution clause, there was a presumption that the assets and liabilities of the society would be distributed among its members upon dissolution, attracting the provisions of Section 13(1)(c) of the Act.

2. Absence of a Dissolution Clause in the Memorandum of Association (MOA):
The CIT(E) noted that the trust's MOA lacked a dissolution clause, which is crucial to ensure that the income and property of the trust are applied solely for charitable or religious purposes and not for the benefit of any private individuals. The trust later amended its MOA to include a dissolution clause, which stated that upon dissolution, any remaining property would be transferred to the Punjab Government/Punjab Defence & Security Relief Fund Committee. However, the Tribunal found that the amended MOA was not valid as the persons proposed to be admitted as members of the trust were themselves signatories of the amended MOA, making the document invalid and illegal.

3. Governance and Control of the Trust by Private Individuals versus Government Control:
The original MOA of the trust, dated 17.02.1978, stipulated that the management of the trust's affairs would be entrusted to a Board of Governors, with the Chief Minister of Punjab as the ex-officio Chairman. However, the Tribunal found that the trust's members had not extended the term of the Board of Governors since 15.05.2007, effectively transferring control to private individuals. This was contrary to the trust's original and amended MOA, which required government officials to be part of the governing body. The Tribunal noted that the trust had accumulated land, buildings, and funds from the State and Central Government but had shifted control to private individuals, violating the trust's regulations.

4. Misrepresentation of Facts by the Trust Before the Income Tax Authorities and the Tribunal:
The Tribunal found that the trust had made false and misleading representations to the Income Tax authorities, claiming that it was still controlled by the government. The trust had concealed the fact that the term of the Board of Governors had not been extended since 2007, and private individuals had taken control. The Tribunal concluded that the trust had attempted to mislead the Tribunal by presenting false facts and pleadings. This was deemed an attempt to play fraud on the court.

Conclusion:
The Tribunal upheld the CIT(E)'s decision to deny the exemption under Section 12A. It found that the trust had violated its original and amended MOA by transferring control to private individuals and had made false representations to the Income Tax authorities and the Tribunal. The Tribunal dismissed the appeal with exemplary costs of ?1,00,000 to be recoverable as arrears of tax revenue by the Department.