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TMI Blog2007 (4) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. 2. The facts are that the assessee filed an application in Form No. 10A with the learned CIT, on 18th March, 2005, for registration under Section 12A(a) of the IT Act, 1961. The CIT called for an initial report from the ITO. After going through the said report and examining the various clauses of the trust deed, the CIT observed the following discrepancies: 1. That the trust 'M/s Dream Land Educational Trust' Disco Road, Janipur, Jammu which has been created through trust deed dt. 1st April, 2004 is constituted of closely related trustees which includes husband, wife, daughter and brother-in-law; in fact, it is family trust: 2. That prior to the creation of the trust the following trustees viz., Smt. Usha Gupta W/o Shri Pawan Kumar Gupta and Smt. Gunjan Mahajan D/o Shri Pawan Kumar Gupta were running an educational institution under the name and style of Dream Land Public School in the status of firm constituted w.e.f. 28th day of May, 2002. The said firm has filed its return of income for the asst. yrs. 2003-04 and 2004-05. It has further been observed that the assessee firm has made huge investment in the construction of school building during these two years t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revocability clause of the trust deed states that if the trust fails for any reasons, in the opinion of the trustees, the fate of the net assets of the trust, both movable and immovable, shall be decided by the trustees with majority vote. In this connection, you are informed that one of the main conditions for granting registration to a trust is that in case of its dissolution, its net assets after meeting all liabilities, should not revert to its founders, members, directors, donors, or their relatives as provided in Section 13(3) of the Act, but should invariably be used for its objects. In view of the same, the above clause of the trust deed is objectionable due to the fact that by leaving the fate of net assets in the hands of the trustees without any rider or binding regarding the applicability of those assets on the objects similar to that of the trust means that the trustee can use/apply/transfer the net assets to any person/institution covered under Section 13(3) of the IT Act, 1961. 3. In response, the assessee filed the following reply: 1. The IT Act, 1961 does not debar family trusts from undertaking charitable objects. The said provisions are eligible for registrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng part of the trust deed under which the settlers of the trust have transferred 4 kanals of land to the trust on which the building has been erected. The said land forms part of corpus of the trust. Building structure commands no value without land which is property of the trust. The property can be held in the name of the trustees. Your kind attention is invited to main objects forming part of the trust deed under which it becomes amply clear that all the objects of the trust are of charitable nature. Moreover, the trust is a non-profit making organisation existing solely for educational purposes. The fact has been duly mentioned in the trust deed on p. 2 of trust deed. The notice under reference also confirms the charitable objectives of the trust as laid down in the trust deed. In his observation, the learned AO states that the trust has not spent the excess of income over expenditure on charitable activities. The learned AO is not correct in stating that the trust has surplus income. During the year the receipts of the trust amounted to Rs. 100 lacs and has applied Rs. 118.62 lacs. The balance has been utilized out of loans. In any case, this is something which has to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Transfer of Property Act governing property transfers. As has been discussed above, the trust took over the property consisting of building of the above named firm. This property by virtue of this takeover is shown to be a part of the trust. However, since no transfer deed in any Court of law, which was the correct procedure has been executed. Therefore, in the eyes of the law this takeover can any time be termed as illegal. Further, it is also stated that the partners of the above firm viz., Smt. Usha Mahajan and Miss Gunjan Mahajan are party to the trust deed and as such the action of takeover is not unilateral. On examination of this fact, it is observed that, although they are party to the trust deed, but in any case the transfer of the property to the trust was and should have been made through a duly executed transfer deed in the appropriate Court of law. Therefore, the above two partners though not objecting to the takeover of their firm at the present may at any time in the future claim their property from the trust and that action can jeopardize the functioning of the trust and its objects. Again, as regards the fact that there being no "NOC" from the banker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee trust for registration is hereby rejected. 5. Aggrieved, the assessee has filed the present appeal. 6. Before us, challenging the impugned order, the learned Counsel for the assessee has argued that the learned CIT has made no adverse observation regarding the genuineness of the assessee's activities; that the objects of the assessee trust are covered under Section 2(15) of the Act; that the assessee trust is not existing for making profit; that the CIT while passing the impugned order has transgressed his powers under Section 12A r/w Section 12AA of the Act; that the factum of the trust deed being registered has not been disputed; that all the income earned by the trust is being invested in the trust only; and that the observations made by the learned CIT are not germane to the dispute before him. 7. The learned Departmental Representative, on the other hand, has strongly relied on the impugned order. 8. We have heard the parties and have perused the material on record. The question which has arisen in the present case is as to whether registration has rightly been refused to the assessee by the learned CIT. Section 12AA of the Act, prescribes the procedure for registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust by its settlors who were the partners of the erstwhile firm. As per this schedule, the settlors have only given the properties to the trust and nothing has been taken. Anyhow, the observations of the learned CIT in this regard are, again, not observations adverse to the satisfaction of the CIT either regarding the objects of the trust or the genuineness of its activities. 10. The next observation of the learned CIT is with regard to the takeover action being unilateral. In the view of the learned CIT, since the transfer of the property of the trust was not through a duly executed transfer deed, even if the two partners of the erstwhile firm did not object to the takeover of the firm, they could, at any future point of time, claim their property from the trust, thereby jeopardizing the functioning of the trust and its objects. This observation, it is seen, besides having no connection with the satisfaction of the CIT with regard to the objects of the trust and its activities, is an observation based on pure conjecture. This observation, as such, has no effect adverse to the registration of the trust. 11. The learned CIT has further observed that since no objection certific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made by Ms. Gunjan Mahajan. 3. To engage teachers, professors, instructors and experts of good moral character and conduct, able to impart efficiently and economically upto date instructions to pupils and students in model education, modern sciences, research work, intellectual and other useful pursuits. 4. To promote, advance and encourage and/or aid in helping, promoting, advancing and encouraging primary, secondary and higher education including technical and medical education, also physical training, training of handicrafts, fine art and other useful arts, crafts among the public. 5. To set up, establish, maintain, boost and carry on educational and technical educational institutions and medical institution (of all branches), for the purpose of teaching in the subjects of arts, nursing, sciences, accountancy, medical (including Ayurvedic), engineering (all branches) law besides M.B.A., B.Ed, and management and computer courses. 6. To grant stipend, scholarship, loans and other financial assistance to the deserving candidates for education, vocational training and to other pursuit with a view to upright the poor and needy persons. 7. To accept donations, grants, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stated that any object of the trust is not that of charity or that the income of the trust has been used for the purpose of the trustees or their families and has not been utilised for charity. 15. In these circumstances, in the absence of any dissatisfaction of the learned CIT with regard to either the objects or the genuineness of the activities of the trust, registration has been refused to the trust in violation of the provisions of Section 12AA of the Act. The reasons recorded for such rejection of registration are entirely extraneous to the requirement of the said section. 16. In Sanjeevamma Hanumanthe Gowda Charitable Trust v. Director of IT (Exemption) [2006] 285 ITR 327 (Kar.), it has been held that for the purposes of registration under Section 12A, what the authorities have to satisfy is the genuineness of the activities of the trust and how the income derived from the trust property is applied to charitable or religious purposes; and that there are sufficient safeguards under the Act for cancellation of registration if the provisions are misused. 17. In St. Don Bosco Educational Society v. CIT (2004) 84 TTJ (Luck) 805: (2004) 90 LTD 477 (Luck), it has been held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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