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2020 (9) TMI 140
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....y, which is charitable in nature, and hence entitled for registration u/s 12AA of the Income Tax Act. 3. That the order passed by the Ld. CIT(E) is unjust, unfair and bad in law." 2. Facts in brief are that the assessee filed an application u/s 12AA of the Income Tax Act, 1961( hereinafter referred to as the 'Act') in form No.10A on 05.06.2018, seeking registration. Therefore, to verify the genuineness of the activities of the assessee. Ld. CIT(E) issued a notice dated 02.11.2018, in response thereto, the assessee made submission before the Ld. CIT(E) who observed that the assessee society had made payments to the specified persons covered u/s 13(3) of the Act, thereby proviso to section 13(1)(c) of the Act is violated. Ld. CIT(E) rejected the application by observing as under: "3.1 On going through the written submission of following facts are noticed accordingly the assessee was informed the same through e-mail and asked to submit/clarity by 13.12.2018:- (i) Amit Jain, Secretary:- F.Y. 2017-18: 240000 (Salary) F.Y.2017-18 :150000(Vehicle Rent) (ii) Sweta Jain, Treasurer:F.Y.2016-17 :300000 (Salary) (iii) P. C.Jain, Vice President:- ....
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....he Society, without any proper justification. 3.4 On foregoing facts, it is established that the income/funds of the society have been diverted and its activities are carried out for the benefit of interested parties. Therefore, clearly attracts proviso to section 13(1)(c) of the Act. In other words the society is existing for the benefit of members and not for the charitable activities for public at large. 4. In the light of aforesaid fact sand circumstances and the legal position, it is held that the applicant society is not entitled for registration u/s 12AA of the I.T. Act,1961. Accordingly the application in form No.10A, received in this officer on 05.06.2018 seeking registration 12AA is hereby rejected and registration sough u/s 12AA is refused. 3. Aggrieved against this order assessee preferred the present appeal. Ld. counsel for the assessee vehemently argued that the ld. CIT(E) was not justified in rejecting the application of the assessee. Ld. counsel further reiterated the submissions as made in the written synopsis. For the sake of clarity submissions of the assessee are reproduced as under: Society made payment to specific person covered u....
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....satisfy himself about the genuineness of activities of the trust or institution and may also made 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 pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant." Reliance is placed on Hon'ble Supreme Court in case of Dawoodi Bohara Jamat [2014J 43 taxmann.com 243 (SC(Pg no.5-17) held that "unless an institution is registered under the aforesaid provisions, it cannot claim the benefit of sections 11 and 12. Section 13 enlists the circumstances wherein the exemption would not be available to a religious or charitable trust otherwise falling under section 11 or12 and, therefore, requires to be read in conjunction with the provisions of sections 11 and 12 towards determination of eligibility of a trust to claim exemption under the aforesaid provisions." Thus, the section 13 is applicable only when exemption....
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....ate the car of Shri Amit Jain is used at Rs. 12,500/ p.m which is normally used for guest faculty and administrative staff work. d.Reliance is placed on the Bombay High court in case of: Manekji Mota Charitable Trust[2019j 109 taxmann.com 258 (Bombay)(PB 136-137) held that "We note that undisputedly 71% of the receipts of the Trust are being spent in accordance with its objects. Therefore, this itself would establish that the Trust is in existence. A partial expenditure which is not authorized by the Trust would not be itself lead to the Trust becoming non-genuine. The consequence would be that the benefit of Section 11 of the Act will not be available to that extent. At the stage of registration, this issue is premature e.In present case also, the payments made to specified persons in F.Y.2017-18 was Rs. 6,42,000/- and in F.Y. 2016-17 is Rs. 5,40,000/- (Refer Chart 1 above) and Total receipts were Rs. 1,47,63,500/- (PAPER BOOK 38) and Rs. 96,43,380/-. Thus only 4-5.5% of payment was alleged to be diversion of income in benefit of interested persons. As held in above case, the alleged expenditure being very nominal does not make the activities of the trust non-genuine and ....
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....making payments to the specified persons there is no bar under the law. However, such payments should be tested on the reasonability whether such payments were made for the services related to the society and were commensurate with the prevailing market rates. In the present case, the assessee society has carried out certain activities. During the course of such activity it made certain payments to the specified persons as prescribed u/s 13(3) of the Act. The ld. CIT(E) was not satisfied with regard to reasonability of the payments so made. There is no material on records suggesting that the Ld. CIT(E) made inquiry regarding payments of salary etc. and how such payments are not in commensurate with the services rendered by the specified persons. In our considered view there is no prohibition under the law to hire services of related persons. But under the guise of hiring services the funds of society should not be diverted. It would be incumbent upon the Ld. CIT(E), while considering the application for registration under section 12AA of the Act to make such enquiries to satisfy himself regarding genuineness of activity of the trust, whether the activity so carried out are as pe....
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.... 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.] 6b[(4) Without prejudice to the provisions of sub-section (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 1996)] and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution: Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reas....
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....ome or any property of the trust or institution for the benefit of any person referred to in sub- section (3) in so far as such use or application relates to any period before the 1st day of June, 1970 ; (d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) any shares in a company, other than- (A) shares in a public sector company; (B) shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983: ....
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....f the income or property of the trust or institution is, or continues to be, lent to any person referred to in subsection (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section....
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....n only that the funds of the trust or the institution have been invested in a concern in which such person has a substantial interest. (5) Notwithstanding anything contained in clause (d) of subsection (1), where any assets (being debentures issued by, or on behalf of, any company or corporation) are acquired by the trust or institution after the 28th day of February, 1983 but before the 25th day of July, 1991, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such assets, by reason only that the funds of the trust or the institution have been invested in such assets if such funds do not continue to remain so invested in such assets after the 31st day of March, 1992. (6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but without prejudice to the provisions contained in sub-section (2) of section 12, in the case of a charitable or religious trust running an educational institution or a medical institution or a hospital, the exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income ....
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....ses, Scheduled Tribes or women and children shall not be deemed to be a trust or institution created or established for the benefit of a religious community or caste within the meaning of clause (b) of subsection (1). Explanation 3.-For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,- (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in sub-section (3); (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern. 9. From the above provision, it is clear that benefit of section 11 & 12 would not be available if any part of such income or ....