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TMI Blog2015 (8) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... gistration. Therefore, the order under appeal is hereby set aside. - Decided in favour of assessee. - I.T.A. No.2076/Ahd/2014 - - - Dated:- 14-8-2015 - SHRI ANIL CHATURVEDI AND SHRI KUL BHARAT, JJ. For The Appellant : Shri J.P.Shah with Shri Sanjay R.Shah, ARs For The Respondent : Shri O.P. Vaishnav, CIT-DR ORDER PER SHRI KUL BHARAT, JUDICIAL MEMBER : This appeal by the Assessee is directed against the order of the Director of Income-tax (Exemptions), Ahmedabad [ DIT(E) in short] dated 20/05/2014 passed u/s.12AA(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). The Assessee has raised the following grounds of appeal:- The Appellant being dissatisfied with the order passed by the Director of Income Tax (Exemption), Ahmedabad (learned DIT(E)) u/s 12AA(3) cancelling the registration of the appellant, prefers an appeal against the same on the following amongst other grounds, which are without prejudice to each other. 1. The order passed by the learned DIT(E) cancelling the registration u/s 12AA(3) of the Act is bad in law and is liable to be quashed. It is submitted that it be so done now. 2. The learned DIT(E) erred in holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee was in fact engaged in the activity of general public utility as it was not directly doing relief of poor women. iv. The argument of the assessee that Ananya's majority shares are with IFIG is not relevant. The company Ananya is not a property held under trust of the assessee trust. The assessee trust has lost assets to Ananya. IFIG is a trust where deed consists of clauses whereby it can buy shares of companies and so it can do speculation and hence it cannot qualify for charitable trust. IFIG is created in this entire scheme to siphon off money. v. In this case the entire money which is supposed to have been given to a group charitable trust has been misused. Your appellant submits that the above findings are contrary to the facts legal position and hence learned DIT(E) has erred in law and in facts in taking recourse to these findings for the purpose of withdrawing registration u/s 12AA(3) of the Act. 6. The learned DIT(E) failed to appreciate that there were legally enforceable rights created by the transfer of undertaking to Ananya, the same was at Arm's length and there was constructive receipt from Ananya and the same was donated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce company through book entries. It was therefore seen that the assessee had siphoned off assets worth ₹ 45 crore to a group finance company which actually belonged to the public as the same were created through donations and income-tax exemptions in the hands of the assessee-trust. 4. The ld.counsel for the assessee submitted that DIT(E) was not justified in cancelling the registration. The ld.counsel for the assessee has also filed gist of arguments in the form of written submissions. The written submission so filed were taken on record. The ld.counsel for the assessee reiterated the submissions and placed reliance on various caselaws. The written submissions filed by the ld.counsel for the assessee are as under:- 1. The Assessee Trust came into existence on 03.02.1981 and has been given a Certificate of Registration U/S.12A dated 02.07.1982. The assessment order of the Asst. Year 2008-09 (which was given during the course of hearing) in col.9 records the nature of business of the Trust as advancement and promotion of poor women and records in para 3 thereof The Assessee Trust is an organization established to advance and promote direct participation of poor wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order u/s.!2AA(3) itself, the objects of the Society are as under: (a) To advance and promote the direct participation of women and their families in the full use of the economy, particularly those women who have not generally had access to services of established financial institution. (b) To provide loan, guarantees or other securities to banks and other financial institutions to advance loan to women for their business or occupations or other related activities. (c) To provide technical or other advice and assistance to direct or indirect participant of programmes of the Society. (d) To serve as a link for women with banking institutions, agencies providing managerial and technical support and agencies related to business activities in general. (e) To expand and strengthen the network of women who participate in financing and decision making in their economies. (f) To establish contacts with national and international institution working for the development of women and to build programmes in collaboration with them for the development of women in India. (g) To act as the Indian Affiliate of Stitching to promote Women's World Banking, New York and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reserve Bank wanted some supervision on this activity of microfinancing, and therefore, was wanting the corporatization thereof because the Trusts like that of the assessee which were carrying on this activity were not coming within the purview of the Reserve Bank. Keeping this in mind, the assessee sold this activity of micro-financing to an associate company by the name Ananya Finance for Inclusive Growth Pvt. Ltd. (hereinafter 'Ananya') for an amount of ₹ 45 crores, earned ₹ 26 crores by way of capital gain, donated the actionable claim of said ₹ 45 crores to another associate trust viz India Foundation for Inclusive Growth (hereinafter 'IFIG') and said Ananya paid said ₹ 45 crores by allotting its shares to said IFIG Trust. The Director of Income Tax (Exemptions) was of the view that (as recorded in para 2.3 of his notice): The trustees have robbed your trust/institution off assets worth ₹ 45 Crores. and finding is repeated in the order as well; in fact that is the only basis of the order. It must be immediately pointed out that there is no robbing because it is not the case of the Director of the Income Tax (Exemptions) that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the activities of the Trust are not genuine or are not being carried out in accordance with the objects of the Trust In fact and the case, such finding is impossible and totally wrongly arrived at because the transfer is genuine, donation is genuine and the Trust was continuing with all activities other than micro finance after the transfer and inclusive of micro finance before transfer thereof and there is no allegation that anything is ingenuine or not in accordance with the objects of the Trust. The assessee in all humility is posing the question how can the registration be refused if the Trust is carrying on all other charitable activities after transfer of micro finance activity and all activities including micro finance activity before its transfer towards emancipation of poor women. The Gujarat High Court in CIT vs. Sarladevi Sarabhai Trust reported at (1988) 172 ITR 698 (at page 163 of the paper book and annexed herewith for ready reference) held that one Charitable Trust can give donation to another Charitable Trust and that is application of income u/s.ll of the Income Tax Act. The Court also quoted Instruction No. 1132 of CBDT dated 05.01.1978 as follows: A ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in the fold of the appellant. 10. The twin conditions on the basis of which the registration once granted u/s 12AA could be revoked are only when the activities of the trust are not genuine or where the same are not carried on as per the objects of the trust. In the background of facts narrated earlier, coupled with the fact that all along in the past both microfinance and development activities carried on by appellant are considered to be genuine and charitable and as per the objects of the trust and development activities are still continued even after the hiving off of the micro-finance activities it cannot be said that activities carried on by appellant that are none genuine or not as per the objects of the trust. Hence the power exercised by the learned DIT (Exemption) are without the authority of law, bad in law and hence the order passed by him cancelling registration is required to be quashed. 11. It was also submitted that the micro finance activities were transferred to Ananya and loanees continued with Ananya and thus there is no siphoning of funds as alleged. 12. The assessee submits that the provision of section 12AA(3) is a very serious provision giving ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the women after charging a higher rate of interest, so it cannot be said that the activities as carried out by the assessee is essentially a charitable activity. He submitted that under the facts of the present case, the DIT(E) was justified in cancelling the registration of the assessee-trust. 5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. It is not disputed that the assessee-trust has been registered u/s.12AA of the Act, the Revenue has not doubted about the genuineness of the activities carried out by the trust. In the year under appeal, the sole basis for cancellation of registration is that the assessee-trust donated a sum of ₹ 45 crores to another trust that is also engaged in the similar activity. In the opinion of ld.DIT(E), this Act of trust tantamount to siphoning of the public money. The finding of ld.DIT(E) is reproduced hereinbelow for the sake of clarity:- 5.1. I have considered the submissions made by the assessee. With respect to point no.(i) of para 4.1 made by the assessee, it is stated that there is no dispute that the provisions of section 12AA(3) can only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(g) of IFIG, it can buy share capital of any company etc. This is expressly prohibited by section 11(5) of the Income-tax Act which means right from the beginning the trust had different motive of making the arrangement under discussion. The IFIG trust and Ananya's date of creation shows that motive was to make this arrangement. The said group charitable trust was refused registration u/s 12AA(l) by the Commissioner of Income-tax at Faridabad and hence the said donation cannot be stated to be for the objects of the assessee trust. Further, even this amount did not remain with this said charitable group trust but the trust invested in the group finance company the entire amount and purchases its shares. No charitable trust under any Indian laws is allowed to purchases shares of a group finance company instead of doing charitable activity. It is not understood as to which objects of the trust would be fulfilled when the other group charitable trust has bought shares of a group finance company. 5.5. With respect to point no.(viii), it is stated that in the assessment years mentioned at that time there was no such siphoning off of funds from the trust noticed and hence this arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed to charitable trusts carrying on similar activities but in the present case, as stated above, the issue is very clear that the assessee has instead of utilizing the sale proceeds of ₹ 45 crores from the transfer of micro finance business to the group company Ananya, has given the same amount to another group trust who in turn has purchased the shares of Ananya, a group finance company, of the exact amount. The assessee charitable trust has therefore entered into an activity whereby funds to the extent of ₹ 45 crores have been siphoned off. This activity, by no stretch of imagination can be stated to be genuine activity or cannot be stated to be an activity for the objects of the trust. The dates mentioned in point no.(xi) of para 4.1 Show that the trust IFIG and the group finance company Ananya were floated on dates which make it clear that the intention of the assessee trust was to siphon off the money through a scheme which could be given a cover of donation to charitable trust. Interestingly IFIG was formed on 13/03/2009. ₹ 5 crore was given as advance by the assessee to IFIG on 25/03/2009. Ananya Group Finance Company (AFIG) was formed on 22/04/2009 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case in hand, that exercise presumably had already been carried out since the assessee trust was granted registration. However, section 12A(3) empowers the DIT(E) in following terms:- (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A {as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 2009)}] and subsequently the [Principal Commissioner or Commissioner] is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. 5.3. From the aforesaid, it is evident that ld.DIT(E) has doubted about the genuineness of the activities carried out by the assessee-trust on the basis that the way assessee-trust has donated ₹ 45 crores to another entity, as per assessee a charitable trust, admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects of the trust or the institution. The criteria to grant exemption under Section 10 (23C)(vi) and grant of registration under Section 12A is different and merely because the exemption under Section 10 (23C)(vi) is declined, it does not amount the refusal of registration under Section 12AA or in case if the registration has been granted, it may be cancelled on that ground. For the cancellation of registration, the requirements, as provided under sub-section (3) of Section 12AA, are to be fulfilled. It is true that the refusal of the exemption under Section 10 (23C)(vi) may be relevant for the purposes of cancellation of registration, but to arrive to the conclusion that the activities of the trust or the institution are not genuine or are not being carried out in accordance with the objects of the trust or the institution, finding in this regard is necessary, based on the relevant material. 6.1. In the case in hand, it is not in dispute in the form of donation to another charitable entity, the assessee trust has transferred its entire micro-finance business to a private finance company. Moot question is whether such activity is authorized by the objects of trust. The ld.DIT(E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble High Court after taking note of law in para-7 of the judgement held as under: 8. In the instant case, the material on record shows that the Trust has established educational institution and imparting medical education. Every year, students are admitted. Huge investment is made for construction of buildings for housing the college, hostel and to provide other facilities to lift students who are studying in the College. The College is recognized by the Medical Council of India, State of Karnataka and all other statutory authorities. Therefore, it cannot be said that the Trust is not genuine. Admittedly, the students are being admitted every year. Students are studying in all courses. Thus the object of the constitution of the Trust namely imparting of education is going on uninterruptedly. Therefore, it cannot be said that the activities of the Trust are not being carried out in accordance with the objects of the Trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are misappropriating the funds of the Trust the registration of the Trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining fal ..... 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