TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 424
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....ng reasons: (a) The trust has carried on transaction of buying and selling of shares which is not in accordance with objects of the trust. (b) Assessee has obtained unsecured loans of Rs. 1.21 crores from two different entities i.e., M/s. Vanpic Projects (P) Ltd. and M/s. Vanpic Ports (P) Ltd. (c) As both the companies were promoted by Sri Nimmagadda Prasad and his family members holding substantial capital, receiving of loans from such private companies not being in accordance with the objects of the trust, registration granted had to be cancelled. 3. In reply to the said show-cause notice it was submitted by the assessee trust that as per clause 5(iv), the trust has been authorised to invest trust funds in accordance with the provisions of section 11(5) r.w.s. 13(1)(d) and clause (iia) of proviso thereto would show that the trust can invest the funds in shares. Further, it was submitted by the assessee that at the time of granting registration u/s. 12AA of the Act vide order dated 11.09.2007 the DIT(E) has already gone into the issue of investment made by the assessee in shares and after examining all facts and materials relating to the said investment in shares had granted r....
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.... the DIT(E) passed the impugned order cancelling the registration granted u/s. 12AA of the Act. 6. The learned AR reiterating the stand taken before the DIT(E), submitted that so far as the issue of investment in shares, the entire facts and materials relating to the investment in shares was examined by the DIT(E) while considering assessee's application for registration dated 5.1.2007. The learned AR referring to the order dated 2.7.2007 passed by the DIT(E), a copy of which is at page 53 of Paper Book, submitted that during the original proceedings for grant of registration u/s. 12AA. The issue of investment in purchase of 20 lakhs equity shares of M/s. Matrix Laboratories Ltd. was specifically examined by the DIT(E) in the context of violation of section 11(5) r.w.s. 13(1)(d) of the Act. The DIT(E) ultimately rejected assessee's application for grant of registration u/s. 12AA of the Act. However, on application filed by the assessee u/s. 154 of the Act, the DIT(E) re-examined the entire issue again and held that assessee has not violated the provisions of section 11(5) r.w.s. 13(1)(d) of the Act while making investment in shares of M/s. Matrix Laboratories Ltd. and ulti....
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....ls brought on record which could show that the assessee has not acted in accordance with the objects of the trust. In this context, the learned AR submitted a list of charitable activities carried on by the trust. It was, therefore, submitted, the basic conditions of section 12AA(3) having not been satisfied, the DIT(E) is not justified in cancelling the registration u/s. 12AA of the Act. 9. The learned DR, on the other hand, supporting the order of the DIT(E) submitted that section 12AA(3) of the Act empowers the DIT(E) to examine validity of registration granted u/s. 12AA of the Act. Therefore, if the DIT(E) subsequently finds that activities of the trust are not genuine or are not in accordance with the objects of the trust, he can cancel the registration granted earlier. The learned DR submitted that when the transactions in purchase and sale of shares as well as obtaining of loans from private companies are in violation of the trust deed, the DIT(E) was justified in cancelling the registration granted. 10. We have considered submissions of the parties and perused materials on record. As is very much clear from the order of the DIT(E), he has cancelled the registration for th....
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....gistration u/s, 12A and for grant of exemption u/s. 80G are hereby rejected chiefly on the ground of non-commencement of charitable activities in view of the decision of the Kerala High Court reported in 241 ITR 18; and provisions of Sec. 11(5); Sec. 13(3) & Sec. 13(1)(d) of the Incometax Act, 1961." 12. Subsequently, on an application filed u/s. 154 of the Act by the assessee, the DIT(E) reconsidered the entire issue and held that assessee has not violated the provisions of section 11(5) r.w.s. 13(1)(d) of the Act while investing in shares of M/s. Matrix Laboratories Ltd. The relevant portion from the order dated 11.9.2007 passed by the DIT(E), Hyderabad is extracted hereunder: "As regards the points (iv), [v}, (vi) and (vii) referred to in the order sought to be rectified, the applicant trust has vehemently contended that neither there is any violation of Section 11(5) of Act nor the provisions of Section 13(3) and 13(1)(d) of Act are applicable to the facts of its case. I agree that proviso (iia) to Sec. 13 (1)(d) does provide clear cut exception to the investments not complying with provisions of Sec, 11(5)) of Act, if such investment in shares is disposed off before the expi....
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....rred to in sub-section (3) are the Author of the Trust or founder of the Institution, any person who has made a substantial contribution to the trust or institution where his contribution up to the end of the relevant previous year exceeds Rs. 50,000/-, any trustee of the trust or manager of the institution any relief of such other founder person, Member, Trustee or Manager any concern in which any of the persons referred to hereinabove has a substantial interest. Though Shri N. Prasad is a person covered under sub-section (3) however, as per the share holding disclosed from the certificate submitted by Shri N. Prasad shareholding in Matrix Laboratories is only 17.09% which cannot be considered as substantial for the purpose of section 13(2)(h) of the Act in view of Explanation 3 to section 13 of the Act. Similarly, section 13(1)(d) would also not be applicable to the assessee in view of clause (iia) of proviso to section 13(1)(d) since the assessee has deposited in the specified modes under sub-sections (5) of Section 11 of the Act within the prescribed period. The aforesaid factual position also has not been controverted by the department. The decision of the ITAT, Delhi Bench in....