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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 ..... . The learned DIT(E) erred in holding that the appellant has violated the twin conditions essential for withdrawing the registration u/s 12AA(3) of the Act i.e. the activities of the trust are not genuine and not carried out as per the objects of the trust. It is submitted that it be so held now. Your appellant submits that it has not violated any of these conditions and hence registration is not, liable to be cancelled. 3. Learned DIT(E)erred in disregarding the fact that India Foundation for Inclusive Growth (IFIG) has complete control over AnanyaFinance for Inclusive Growth Pvt. Ltd. (Ananya) which had carried out the same microfinance activity in the same way which the Appellant trust would have carried out if such activity would not have been transferred by the Appellant trust. Accordingly, the end use of the corpus donation made to IFIG of Rs. 45 crores was made only towards the objects of the trust i.e. for the purpose of microfinance activity. 4. The learned DIT(E) erred in not appreciating the fact that apart from microfinance activities, the appellant is also engaged in doing charitable activities in the field of solar energy, water and sanitation and education for fem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructively to IFIG another charitable trust with the similar object of the appellant trust and hence it could not be said that there was siphoning off of funds. 7. The learned DIT(E) erred in giving finding in Para 5.2 and 5.3 of his order that appellant is only an organization which is engaged in the general public utility and not in relief of poor women though in the same para he himself holds that this is not an issue here. Your appellant submits that these findings being not germane to the issue be expunged from the order. 8. Without prejudice to above grounds, Learned DIT(E) has erred in law in withdrawing the registration from AY 2009-10 onwards. It is submitted that if at all order of withdrawal of registration is held to be valid the same should apply from the date of order of such withdrawal of registration. Prayer: In the facts and circumstances of the case, the appellant prays for the following reliefs: i. The order passed by learned DIT(E) cancelling the registration u/s 12AA(3) be quashed or alternatively if it is held to be a valid order the same be made effective from the date of such order only and not for the period prior to such date. ii. The observation/fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional and international institutions -working for the development of - women in India. The Trust is registered u/s.12A(a) of the I.T. Act vide order No.HQIII/ 32(F-7)/81-82/IV/ dated 2-7-1982. The Trust is approved u/s.80G(5) vide letter No.DIT(E)/80G(5)/l 156/03-04 dated 12-11-2003". The Trust came to be assessed u/s. 11. This was a pattern of assessment of the Assessee Trust. The Director of Income Tax (Exemptions) gave a notice to the Assessee Trust dated 31.03.2014 U/S.12AA asking it to show cause why the above registration of the assessee as a Charitable Trust should not be cancelled. The assessee gave a reply dated 21.04.2014. The reply also annexed a message of appreciation of activities of the Trust from Deputy Governor of Reserve Bank of India. Entire message is at page 36 of the paper book of the assessee. Some portion of this message of the Governor is as follows: "In this backdrop, I am delighted to note that Friends of Women's World Banking (FWWB) has done commendable work in addressing the hitherto unmet credit needs of economically active but poor women by providing bulk loans to its partner non-government organizations (NGOs) and Microfinance Institutions (MFIs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... platform to take up issues relating to financing and money. (i) To link to women's groups with existing programmes and schemes of the Government, especially anti-poverty programmes for the benefits of poorest of the poor. (j) In the broad sense, everything connected with and conducive to the above mentioned purposes shall be part of the objects of the Society. 3. The order also records that the Assessee Trust has been carrying on the following activities: (i) The assessee trust has, in 2007, started the livelihood and enterprise development programme and has supported more than 16 organization working in the under-served areas of the countries. The services provided included financial support in the forms of loans and grants for working capital, market linkage and social security awareness. (ii) Solar energy programee was stated as a pilot project in the State of Manipur at December, 2009 which was implemented with funding support from SIDBI and partnership with give mutual funds institutions of Manipur. (iii) Water and Sanitation programme was started in the year 2000 to support women beneficiaries for renovation of construction of new sanitation facilities and the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Rs. 45 crores to another Charitable Trust. If the Trust has done what it is entitled to do, there is no robbing. Further, even if the Director of Income Tax (Exemptions) is right in alleging and concluding that "The trustees have robbed your trust/institution off assets worth Rs. 45 Crores. ", there is direct authority of the Karnataka High Court that in such a fact situation, registration cannot be cancelled but the matter can be looked at during the course of assessment of the Trust u/s.11. This decision is at Page 204 to 207 of the paper book and is reported as Islamic Academy of Education - (2015) 229 Taxman 274 (annexed herewith for ready reference), wherein the Hon'ble Court stated: "If the misappropriating the funds, ..... ..... ..... it is open to the authorities to deny the benefit under section 11." It is worth noting that even after the transfer of micro finance activity, the assessee has been continuing to carry on other charitable activities from the activities reproduced above from the order u/s.!2AA(3) of the Director of Income Tax (Exemptions). 5(i). The relevant part of Section 12AA(3) is as follows: "[(3) Where a trust or an institution has been granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable trusts. The issue has been considered by the Board and it has been decided that as the law stands at present, the payment of a sum by one charitable trust to another for utilization by the donee trust towards its charitable objects is proper application of income for charitable purpose in the hands of the donee trust; and the donor trust will not lose exemption under section 11 of the Income-tax Act, 1961, merely because the donee trust did not spend the donation during the year of receipt itself. The above position may kindly be brought to the notice of all officers working in your charge." 7. The consideration of Rs. 45 crores received from Ananya was donated as corpus donation to a trust registered under Documents & registration Act, 1908 namely Indian Foundation for Inclusive Growth [IFIG], which had the objects more or less in consonance with the objects of the appellant trust. A copy of the trust deed of IFIG is attached at page Nos.178 to 191 to corroborate the same. This trust had applied for the registration u/s 12AA of the Act. However, due to some reasons, the concerned professional, who was looking after this work could not remain present on the dates of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. Cancellation of registration has very serious consequences on the Trust and the objects and the weaker members of the society are itself and has been serving all these years. Assuming while denying that the Director of Income tax (Exemptions) is right in his view that "The trustees have robbed - trust - all assets worth 45 crores. " even then it does not support in any manner or by any stretch of imagination that "the activities of- trust - are not genuine or are not being carried out in accordance with the objects of the Trust" as required by specific language of section 12AA(3). In fact, the trustees have done what they are entitled to do in accordance with the above Gujarat High Court decision and the above circular of the Central Board of Direct Taxes, and therefore, even the finding of robbing is also not in order. 13. In view of the above, the assessee submits that the order of the Director of Income Tax (Exemptions) is bad in law as also on facts and prays of the Hon'ble Tribunal to quash the same and allow the appeal of the assessee. 14. Alternative Ground In case the Hon'ble bench is inclined to uphold the order of DIT (Exemption) cancelling the registrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, clear from the show-cause notice which is reproduced in para 3 above, the assessee has transferred assets worth Rs. 45 crore to a group finance company Ananya and the entire money receivable has also been bypassed to the same group finance company Ananya through book entries. This is nothing but siphoning off of assets worth Rs. 45 crores. If the assessee had transferred these assets and utilized the sum of Rs. 45 crores for its own objects, there would not have been any issue. However, in this ease, the assessee has entered into an activity whereby the sum of Rs. 45 crores has been siphoned off from the trust and this amount of' public money is no more available for the activities of the assessee trust. 5.2 Points no.(ii), (iii), (iv) and (v) of para 4.1 show that the assesses had never been doing activities of relief to poor women directly but through other organization and therefore even though this is not an issue here, the assessee would be termed only as an organization which is engaged in the general public utility and not in relief of poor women. 5.3 With respect to point no.(vi), it is stated that the above point is even reinforced whereby it is clear that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;" and not in the activity of' "relief of poor". Further it is reiterated that this issue has not been invoked for the purpose of cancellation of registration because as stated by the assessee himself the Board circular is clear that whenever an assessee is hit by the provisions of proviso to section 2(15) and falls within the ambit of section 13(8) a trust has to be denied exemption on year to year basis whenever these provisions are applicable and therefore reliance by the assessee on various decisions mentioned in clause (a) and (b) of point no.(ix) of para 4.1 are not at all applicable. 5.7 With--respect-to argument of the assessee in point no. (x) and xi) of para 4.1, it is clear that the assessee himself has admitted that it had transferred the "micro finance business." of the assessee to another trust namely IFIG which was stated to be charitable trust but whose registration has been refused by the Income-tax department in view of the its objects. In any case, the so-called charitable trust IFIG has admittedly purchased the shares of a group finance company "Ananya" which is again, by no stretch of imagination stated to be charitable activity or tar the purpose of chari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity was deliberately done to siphon off Rs. 45 crores. The assessee for the first time gave an amount of Rs. 5crore for such activity on 25/03/2009 (i.e. during A.Y.2009-10) to IFIG as advance which later on was called corpus donation. Therefore, the entire process was done from March 2009 onwards especially when Rs. 5 crores was advanced on 25/03/2009 and later converted to donation. These transactions pertain to A.Y.2009- 10 onwards. This is not a simple case of violation of section 13(l)(c) but taking away huge income earning assets of Rs. 45 crores." 5.1. Under these facts, we need to examine whether the Act of ld.DIT(E) (cancellation of registration granted under section 12AA of the Act) is in conformity with the relevant provisions of the Act. Section 12AA of the Act reads as under:- "Procedure for registration. (1) The [Principal Commissioner or Commissioner], on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) of subsection (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the assessee-trust in view of the fact that it has given money to another entity under the garb of donation, such activity cannot be termed as charitable activity. He opined that corpus donation by the trust cannot be treated as eligible donation u/s.11 of the Act. We appreciate the concern of ld.DIT(E) in respect of the capital of the assessee-trust, same should be considered while examining the issue of application of fund by the charitable trust. 6. In our considered view, action of ld.DIT(E) would be well within the ambit of section 12AA(3), if he is able to demonstrate that the activities of the trust are not genuine and as such activities are not being carried out in accordance with the objects of the trust. The ld.DIT(E) has elaborately examined the issue in the impugned order. The contention of the assessee is that the ld.DIT(E) misdirected itself and exceeded jurisdiction by cancelling registration. It is contended that assuming that the trustees have siphoned off money, in that eventuality cancellation of registration would not be permissible. In support of the contention, reliance was placed on the judgement of Hon'ble High Court of Karnataka rendered in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee is that assuming the activity of donation to another charitable entity is not as per the objects of the trust, the single activity would not make the trust liable for cancellation of registration. So far as the issue whether the word "activities" to be construed only in plural form or in a singular form is concerned, in our considered view, in case, a particular activity is substantially carried out by a trust would partake character of activities, hence subjected to the jurisdiction u/s.12AA(3) of the Act. 7. So far as the argument of ld.counsel for the assessee that there is no prohibition under law qua the donation being made by one charitable trust to another is concerned, the ld.DIT(E) has not disputed this proposition of law. The objection of ld.DIT(E) is that the entire sale of micro-finance unit has been arranged in such a fashion that the microfinance business of the trust is transferred to a private finance company without any consideration. Such activity is not in accordance with the objects of trust, i.e. the trust cannot transfer its business to a private finance company albeit may be routed through another trust. The contention of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd against the revenue. There is no merit in this appeal." 7.3. In the case in hand, the assessee-trust has demonstrated that the activities are being carried out as per objects o the trust and being assessed under the relevant provisions of Act. It is not in dispute that the registration u/s.12AA of the Act was granted vide letter dated 2nd July- 1982. No doubt is casted upon the genuineness of the activities, throughout this period. Moreover, the reliance was placed on the decision of Coordinate Bench rendered in the case of Asst.DIT(Exemption) vs. Bhartha Swamukti Samsthe reported at (2009) 319 ITR 422 (AT), wherein it is held that giving of loan to poor women is charitable activity. 7.4. In the light of above discussion and respectfully following the judgment of Hon'ble High Court of Karnataka in the case of CITKarnataka (Central) vs. Islamic Academy of Education(supra), we do not agree with the reasoning of ld.DIT(E) for cancellation of registration. Therefore, the order under appeal is hereby set aside. Before parting with the matter, we make it clear that Revenue would be at liberty to decide the issue of donation to another trust at the time of making assessment in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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