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TMI Blog2012 (6) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 11 and 12 as reduced by that under section 13, it is sina qua non that, inter alia, the trust must be registered under section 12AA. The sequence of events is thus, evident that the person claiming exemption must firstly apply for and get the trust or institution registered under section 12AA, then return is filed for the relevant previous year and on the basis of such registration and other relevant factors, the Assessing Officer considers the applicability or otherwise of sections 11, 12 and 13. Registration under section 12AA - after the death of the settlor, the income from the trust property is to be used for charitable purposes, which are covered under section 2(15) of the Act - It was specifically claimed that not even a single paisa was applied for the benefit of any lineal descendants of the father of the settler – Held that:- Commissioner, despite the availability of audited accounts before him for the last three years, failed to point out any single instance in which the income of the trust was not utilized for the charitable purposes set out in the trust deed or the money was applied for the lineal descendants of the father of the settlor. Even if any amount i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was no transfer of asset to the trust. In this regard, learned Sr. Counsel submitted that the main objection was that the income was to be paid to the settlor. Learned Sr. Counsel in this regard referred to section 9 of the Indian Trust Act, 1882, which deals with the persons who can be beneficiary. He submitted that according to section 9, every person capable of holding property may be a beneficiary but cannot be the sole beneficiary. Learned Sr. Counsel further referred to the commentary on the Law of Trust by Austin Wakeman Scott, wherein, vide Para-114, it is observed as follows:- 114. The settlor as beneficiary. The person who creates a trust inter vivos may be one of the beneficiaries of the trust, or indeed, he may be the sole beneficiary. It is very common for an owner of property to transfer it to a trustee in trust to pay him the income for life and on his death to hold the property in trust for or to convey it to other beneficiaries. This is the type of trust commonly called a living trust . Sometimes the owner of property transfers it in trust for his own benefit alone as for example where it is provided that the income is payable to him for a term of ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s who are family members. Learned Sr. Counsel submitted that since it is a trust created in the year 1928, therefore, restrictions contained under section 13(l)(b) did not apply. Learned Sr. Counsel referred to the decision of Hon'ble Supreme Court rendered in Trustees of the Charity Fund v. CIT (1959) 36 ITR 513 and pointed out that in this case, the appellants were trustees of charitable fund known as the charity fund funded by Sir.... and in the clauses of trust deed, it was mentioned that in applying the income, the trustees shall give preference to the poor and indigent relations or members of the family of said Sir...., including co-lateral relations. It was held that this provision could not affect the public charitable trust and the income from trust properties was held to be eligible for exemption under section 4(3)(i). Learned Sr. Counsel further referred to the judgment of Hon'ble Bombay High Court in CIT v. Trustees of Seth Meghji Mathuradas Charity Trust (1959) 37 ITR 419. In this case, there was a direction in the deed that in carrying out the charitable intention, the trustees shall always prefer the members of the settlors' caste to the members of any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner and submitted that the property had not absolutely been transferred to the trust. He submitted that the direction in the trust deed regarding income to be given preferably to family members effectively, amounts to giving benefit only to the relatives. 4. We have heard the rival submissions, perused the orders of the lower authorities and the materials available on record. Section 12AA, inserted by Finance Act (No. 2), 1996, w.e.f. 1st April 1997, deals with the procedure for registration of a trust or institution. Section 12A, prescribes the conditions for applicability of sections 11 and 12 and as per the requirement of clause (a) to sub-section-(i) of these sections, a person in receipt of the income has to make an application for registration of the trust or institution in the prescribed form. As per the requirement of section 12AA, the Commissioner has to call for such documents or information from the trust or institution as he thinks necessary in or to satisfy himself about the genuineness of the activity of the trust or institution and he can also make such enquiries as he may deem necessary in this behalf. After satisfying himself about the objects of the trust o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table acts including relief or aid to poor or indigent or infer or helpless Parsee who may be in temporary monitory distress. Further, there are other clauses also for utilizing the money for charitable purposes though related to Parsee. From the commentary of the Indian Trust Act, 1882, by I.B. Rangacharya, it is clear that according to section 9 of the Indian Trust Act, 1882, the person who creates a trust intervivos may be one of the beneficiaries of the trust. The only restriction is that, he should not be the only beneficiary. Section 6 of the Indian Trust Act, 1882, provides that the trust is created when the author of the trust indicates with reasonable certainty by any words or goods viz. (a) intention on his part to create thereby a trust; (b) the purpose of trust; (c) the beneficiary; (d) the trust property and transfers the trust property to the trustee. We find that all these conditions are fulfilled in the present case. Further, from the commentary of Law of Trust by Austin Wakeman Scott, it is evident that the person who creates trust intervivos may be one of the beneficiaries of the trust. It has been observed in the said commentary that it is very common for the own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52 ITR 147 (Guj.). In all the above judgments, it has been held that mere preference to settlors family does not affect the public charitable nature of the trust. It is the dominant object which is to be taken into consideration for deciding whether the assessee is a charitable trust or not. In the trust deed, it is clearly mentioned that out of charitable motives and considerations, the settlor had settled the Government of India subscribed stock of the 3 % of the face value of ₹ 2,00,000, upon the charitable and other trust. It is further provided in Para-4 of the trust deed as under:- 4. After the death of the Settlor the said trustees shall (subject nevertheless to the provisions of clause one hereof insofar as the same may be subsisting) apply and expend the said interest and income towards and in the following charitable acts and purposes in such propositions and in such manner and subject to such conditions as the said trustees may in their absolute discretion think fit, namely - (a) In providing relief or aid to poor or indigent or maimed or infirm or helpless Parsees or who may be in temporary monetary distress or unable to maintain themselves or their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o those connected with him in the direct male line over those connected with him partly through the male line over those connected with him partly through the male line and partly through the female line or wholly through the female line and to those who may be more nearly related to him over those who may be more remotely so related. A bare perusal of the above objects clearly shows that the dominant object of the trust was to help poor persons and also to donate the amounts to educational institutions. Merely because it was provided that preference was to be given to lineal descendant of the father of the settlor does not, in any manner, dilute the dominant charitable object of the trust. We, therefore, do not find any substance in this reasoning given by the Commissioner. The Commissioner has relied on the judgment in Mallick Somnath Charitable Trust (supra), wherein, as noted earlier, the trust was only for the purpose of support and maintenance of the relations of the settlors family who were poor and indigent. Therefore, this decision is not applicable to the facts of the present case. Further, in any view of the matter, the submissions made by the applicant dated 25th J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is actually in the activities which are genuine. The genuineness of the activities of the trust/institution has to be seen, keeping in mind the objects thereof, which necessarily means that the Commissioner shall satisfy himself about the fact that the activities, which are genuine and in consonance with the objects of the trust or the institution. Thus, it is clear that in order to satisfy himself, the Commissioner has to see whether the activities of the trust/institution are genuine to achieve the objects of the trust/institution. These two aspects are required to be looked into by the Commissioner at the time of registration u/s 12A/12AA of the Act whether the Trust/Institution is for charitable purposes and genuineness of existence of Trust and activities. In other words, the objects of the trust/institution for which the trust/institution has been brought into existence are charitable in nature and second, the existence of genuineness of the activities to achieve the objects of the trust. To ascertain whether the objects of the Trust/institution are charitable purpose, the words used by the Settlor in the trust deed are decisive. 4. The relevant clauses of the trust deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture, manufacturing process or industry or art to poor or indigent Parsis or in placing or introducing them in any particular business profession or calling and in rendering assistance in the shape of money or otherwise to any poor Parsis in the acquisition by or improvement in him of the knowledge of any service art or industry provided always that such assistance may be given either by supplying deserving applicants with the necessary monetary help or in the shape of scholarships or by supplying them with books of instruments and other materials or otherwise. (c) In donations or subscriptions to any educational institution or institutions for the Parsis or to any charitable institution or instructions for the Parsis having for its or their object the alleviation of physical or mental disease or suffering or the care maintenance protection or relief of old infirm blind or maimed or otherwise diseased members of the Parsis community or Parsi orphans to the intent and on condition however that every such donation or subscription or its income shall be used and employed towards one or other of the objects aforesaid and no other purpose whatsoever. (d) In such other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. Provided further that the first proviso shall not apply of the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year. The very concept of 'charity' denotes altruistic thought and action for wellbeing of others. Its objects must necessarily be to benefit others rather than one's self. The action, which flows from charitable thinking, is always directed at benefiting others. Thus, it is this direction of thought and effort, which determines that it is charitable purposes. 6. The Hon'ble Supreme Court in the case of CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 observed that if primary purposes is advancement of objects of general public utility, it would remain charitable even if there is an incidental entry in to the political domain for achieving any purpose. Thus, the primary/predominant purpose of the Trust/institution should be charitable. In case of D.V. Arur v. CIT (1945) 13 ITR 465 (Bom.), the jurisdictional High Court has observed that the benefit should not exclusively be for the family members. A trust's object and scope of which is limited to the education of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further subjected to clause 10 of the trust deed to the selection of persons deserving of any relief support or assistance. 13. From the trust deed, it is clear that benefits are only to the Settlor himself for lifetime and thereafter the first lineal descendants of the father of the Settlor. Even among the lineal descendants of father of the Settlor preference has been given to the direct lineal descendants of the male line over the partly male and partly female or wholly female line. 14. Therefore, domain and primary objects for which the trust has been brought into existence is the benefit to the Settlor himself and after his death to the lineal descendants and at last the members of the Parsi communities. Though, the object clauses talk about poor or indigent or maimed or infirm or helpless parsis but only those who are connected with the Settlor which means other person are placed as residual or secondary object of the trust. The expression or language used in the various clauses of the trust deed clearly distinguished the real beneficiary of the trust, which indicates that the trust was not created as a public charitable trust but for the benefit of the Settlor and clas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia, on the ground that indenture of the assessee Trust is not charitable? 2. The factual matrix of the case has been elaborated by my learned colleagues' in their respective proposed orders. However I am briefly recapitulating the undisputed facts. The assessee-trust was created by late Shri Manockjee Cowasjee Petit by way of a trust deed dated 20.09.1928, settling Government of India Inscribed Stock of the three and a half per cents Rupees Loan of 1900-01 of the face value of ₹ 2 lakhs for charitable motives and considerations, which he earlier possessed as full beneficial owner. The settlor himself became the first trustee along with Nusserwanji Dady Dadyset, Furdunji Cowasji Petit, Bai Mithibai widow of Merwanji Dhunjibhoy Jeejeebhoy, Bai Virbaiji widow of Nusserwanji Muncherji Cama, Bai Soonubai wife of Jehangirji Framji Batliboi and Cowasji Hormusji Petit. The settlor died on or about 30.11.1935 as emanates from affidavit filed by Shri Homa Dinshaw Petit, the trustee who filed application with the Commissioner for registration in Form No. 10A. The settlor was the eldest brother of Shri Homa Dinshaw Petifs grandfather's eldest brother. Prior to Shri Homa Din ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said trustees shall pay the said interest and income to the Settlor for and during his life and down to his death. 4. After the death of the Settlor the said trustees shall (subject nevertheless to the provisions of clause one hereof in so far as the same may be subsisting) apply and expend the said interest and income towards and in the following charitable acts and purposes in such proportions and in such manner and subject to such conditions as the said trustees may in their absolute discretion think fit, namely:- (a) In providing relief or aid to poor or indigent or maimed or inform or helpless Parsis or who may be in temporary monetary distress or unable to maintain themselves or their family or children or in defraying the expenses of or in supplying medicine or medical aid or physical relief in any form to any poor or helpless Parsis Provided always that such relief my be given by supplying money aid or aid in kind or in any other shape or form of eleemosynary relief and either by monthly or other periodic allowance or in lump sums or by providing other means of relief and the same may be either continuous or interrupted. (b) In providing means or assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such relief or assistance. 6. The said trustees shall not be bound to use or employ towards the charitable purpose aforesaid the whole of the income of the said trust funds arising in any particular year but shall be at liberty to accumulate the surplus or unexpended income or interest for so long as they having regard to the demand for assistance for the time being or likely to rise in future and to all other circumstances may reasonable think fit. And shall until the same is applied in the manner herein provided invest the said surplus or unexpended interest in any of the investments hereby authorized With Liberty However to the said trustees to employ the unexpended surplus of any particular year or years and the accumulations representing the same and the resulting income thereof in any subsequent year or years in the same manner as if it was interest or income arising during such subsequent year or years. 7. The said trustees shall have absolute control superintendence management and administration of the charities hereby constituted and the funds for the time being belonging thereto and of all the affairs and concerns relating thereto and shall be entitled to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust deed refers to its name as Manockjee Cowasjee Petit Charity and stipulates that the trust shall always be known by this name alone. In other words during the lifetime of the settlor or after his death, no trustee is empowered to change the name of the trust. Clause (2) provides that the trustees shall collect the gross income of the trust and shall firstly, pay the expenses relating to realization of income and thereafter, the expenses of management of the trust. Clause (2) is subject and without prejudice to clause (10) of the trust deed. Clause (10), in turn, provides that the settlor shall be the managing trustee during his life time with the power to collect the entire income from trust by himself and manage its affairs without any interference by other trustees. Clause (3) which is subject to clause (2) makes it abundantly clear that after realizing the interest income and meeting of the trust expenses, the trustees shall pay net income to the settlor. It shows that during the life time of the settlor, the trustees had a very little role to play as the settlor was competent enough to realize the income and spend such income in the way he liked. When clause (3) and clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her of the settlor and amongst such lineal descendants to those connected with him in the direct male line over those connected with him partly through the male line and partly through the female line or wholly through the female line and to those who may be more nearly related to him over those who may be more remotely so related. Some of the salient features of clause (4) can be profitably noticed. Firstly, the charitable activities have been provided in sub-clauses (a) to (d) of clause (4). Secondly, the trust income is to be applied for such charitable activities only after the death of the settlor. Thirdly, this clause is subject to clause (1) which means that the name of the trust could never be changed by the trustees after the death of the settlor. The last and the most important feature of this clause is that in distributing or allocating relief, the preference shall always be given in all competing cases to the lineal descendants of the father of the settlor. The proviso makes it richly clear that the preference is to the descendants of the father of the settlor in all competing cases. When clause (4) is read in entirety, it clearly emerges that the trust income is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o clause (10). Further this hypothetical proposition is patently impossible because clause (4) comes into play only after the death of the settlor. When the settlor has died, naturally there cannot be any question of his exercising any control through clause (10). 8. A brief overview of the relevant clauses brings out that no charitable trust subsisted during the lifetime of settlor as he had full power to hold the trust income and use it in any manner he liked. The charitable activity of the trust commenced only after the death of the settlor in 1935. The charitable objects set out in clause (4) came to be pursued by the trustees only after the death of the settlor by employing trust income for the benefit of poor and helpless Parsis and in case of competing cases by giving preference to lineal descendants of the father of the settlor. During the life time of the settlor, the trust was not carrying out any charitable activity and hence no registration or exemption under the Income-tax Act was claimed or could have been envisaged. It is only after his death that the charitable activities became possible. It is further imperative to note that the assessee trust got registered wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust so that the trust holds the trust property for the benefit of the family members of the settlor. On the other hand a public trust is a trust for either a public, religious or charitable purposes or both and includes temple and church etc. formed for religious or charitable purposes. Further in case of a public trust, the benefits are made available to a sufficiently large number of the members of public who are uncertain or fluctuating as distinct from the specified individuals in a family trust. Thus it can be seen that there is a vast difference between a public and a family trust. From the objects and other relevant clauses of the present trust deed, as extracted above, it can be noticed with utmost ease that the trust property or the income there from has been directed to be used for the charitable purposes set out in clause (4) for the benefit of poor and indigent Parsis in need of medical or educational help. As the beneficiaries as a class are poor and indigent Parsis, it is difficult to hold that it is a family trust. The reference to the descendants of the father of the settlor has to be seen in a proper context. It is only a preference which has been accorded to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corpus donations are exempt u/s 11, non-corpus donations or other income derived from property held under trust wholly for charitable or religious purposes must be applied in the year of receipt or accumulated as per the limit so as to eligible for exemption. Then comes section 13 with the title : 'Section 11 not to apply in certain cases.' It is a disabling provision which excludes the items of income covered under sections 11 and/or 12 from the purview of exemption where the case falls under the circumstances given in section 13(1), such as, if the income does not enure for the benefit of the public or under clause (c) of sec. 13(1) where any part of such income is applied directly or indirectly for the benefit of persons referred to in sub-section (3) of section 13, that is, the author of the trust or any person who has made a substantial contribution to the trust or where author of trust is a HUF, then a member of the family or any relative of such author or any trustee of the trust or any relative of any such author, founder or any concern in which any of the above persons has a substantial interest. Thus on a careful reading of sections 11, 12 and 13, it becomes ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent appeal the issue is concerning the registration of the trust and not the granting of exemption. Thus it will be productive to consider section 12A which inter alia provides that the provisions of sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the person in receipt of income has made the application for registration of trust in the prescribed form and in the prescribed manner for registration u/s 12AA. The procedure for registration has been enshrined in section 12AA, the relevant part of which is reproduced as under:- 12AA. Procedure for registration.-(1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) of sub-section (1) of section 12A, shall- (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he - (i) shall p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlor without exercising any preference. The poor relations of the settlor were made direct recipients of the benefit of the trust. It was under such circumstances that the Hon'ble Calcutta High Court held that the assessee was not entitled to exemption from income tax. Firstly, this case is on granting or non-granting of exemption u/s 11 and not on registration. Secondly, the trustees therein were required to spend the income on the poor and indigent relations of the settlor. The benefit was confined to the relatives alone and not the general public or a particular section of public, as is the case in the present appeal. In deciding the issue against the assessee, the Hon'ble Calcutta High Court distinguished the judgment of the Hon'ble Supreme Court in the case of Trustees of the Charity fund (supra) by holding that in that case there was a proviso in the clause that in applying the income, the trustees should give preference to the poor and indigent members of the family of settlor. Adverting to the facts of the instant case, it is seen that clause (4) of the trust deed provides in unequivocal terms that the charitable activities shall be carried out for helpless o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. During the course of hearing, the learned Departmental Representative has relied on the judgment of the Hon'ble Bombay High Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. CIT (1952) 21 ITR 231 (Bom.) for contending that the registration was rightly denied by the CIT in the given circumstances. On the perusal of the facts of that case it can be clearly noticed that the trust deed therein provided that the primary object of the trust was to provide maintenance and meeting marriage expenses of the poor members of the family of the settlor. It was only after all the members of the family were exhausted that a section of public, Vaishya Hindus or other Hindus could come in for the benefit under the trust. It was under such circumstances that the Hon'ble Bombay High Court held that the income from trust was not exempt from taxation. From the facts of that case it is apparent that the primary purpose of the settlor was to benefit the members of his family and remotely and indirectly to benefit the general public. Further the very name of the trust being Govardhandas Govindram Family Charity Trust fairly indicated that it was a family charit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he object of helping the poor but the trust deed provided that the relation of settlor would have preference over others. The Hon'ble Gujarat High Court held that this clause would not make the trust any less charitable. 20. A survey of above judgments including that of the Hon'ble Supreme Court in Trustees of the Charity fund (supra) the Hon'ble jurisdictional High Court in Trustees of Seth Meghji Mathuradas Charity Trust (supra) manifestly divulges that the relative criteria is to consider the dominant objects of the trust. If the dominant objects of the trust are charitable in nature then the mere fact that some relatives of the settlor would also participate and have preference over general public in such charitable objects, would not make the trust as non-charitable. The view canvassed by the ld. CIT that the assessee is a private or family trust is not sustainable. Thus it is obvious that both the objections raised by the ld. CIT for refusing registration are not valid. 21. Reverting to section 12AA it can be seen that the Commissioner has to order registration of the trust where he is satisfied about the objects of the trust and the genuineness of its activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l is directed to list this matter before the Division Bench for passing of order in accordance with majority view. ORDER Vijay Pal Rao (Judicial Member) This appeal by the assessee is directed against the order dated 29.6.2009 passed by the DIT(Exp) u/s 12AA(l)(b)(ii) r.w.s. 12A of the IT Act whereby the application of the assessee for registration was rejected. 2. Aggrieved by the order of the DIT(Exp), the assessee filed an appeal before the Tribunal. There was a difference of opinion between the Members of the Division Bench of this Tribunal. The ld. AM was of the view that the Commissioner was not justified in rejecting the application for registration and accordingly directed to register the assessee's society u/s 12A. Whereas the JM was of the view that DIT(Exp) has taken a correct and proper view in rejecting the application of the assessee for registration u/s 12A. 3. As there was difference of opinion between the Members of the Division Bench, they requested the Hon'ble President u/s 254(4) of the IT Act to constitute a Third Member for resolving the points of difference. Accordingly, the Hon'ble President referred the points of difference to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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