TaxTMI 
TaxTMI 
2022 (3) TMI 920
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act on dated 26.12.2017 before the ld. CIT(E). The assessee is running the school, secondary and higher secondary. Shri. A.M. Shekar and Smt. S. Rani both are the trustees of the said trust. The survey was conducted on dated 21.11.2017 in Shri A.M.Shekar's place. It was found that all the receipts of the school and related documents were channeled through the trustee Shri. A.M. Shekar, who is also working as a secretary of the trust. The reason behind is that due to some internal litigations, the bank account of the trust was closed as per the directions of the court. Even the trust did not filed its return of income as per provisions of section 139(1) and 139(4) of the Act till assessment year 2016-17. The assessee first filed its return for assessment year 2017-18 on 29.03.2018 and declared the financial transactions. 3.1 The assessee's application dated 26.12.2017 for registration u/s. 12AA of the Act was rejected by the Ld. CIT(E) in following grounds:- a. The application was made after the date of survey. b. The assessee has no activities related to its object and the school fee was collected by the trustee, Shri A.M. Shekar himself. c. He ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....put to Shri Sekar was about the income tax return filed by him; but Shri Sekar has explained the same in his capacity as Secretary. Since he was the Secretary/Managing Trustee, he meant it in his official capacity and not in his personal capacity and the ITO who recorded the statement, phrased the words as if Shri Sekar took away the balance amount of money for his personal usage. 6. A clarity in this regard would emerge if one goes through the following answer to Q No.8; "Out of the excess of income over expenditure of the school every year, I have invested only in school buildings and vehicles. I was under the mistaken notion that if the receipt over expenditure is invested in assets Of the School one need not pay income tax ..... " 7. It is also a fact that Shri Sekar has invested the entire income over expenditure of the school only in the infrastructure of the school and has not misappropriated/misused the funds of the School for his personal benefit and the same was verified by the AO by going through the bills, vouchers, transaction receipts and other documents impounded on the date of survey. After verifying the same, the AO has passed the assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not mere camouflage and they are in fact real, pure and sincere and just because the income over expenditure arising out of such noble activities are declared as income before the income tax department by two of the trustees, one cannot that the activities of the Trust are not genuine. 11. The other point raised by the Ld.CIT(DR) is that the Trust did not have its own bank accounts and the school fees of about Rs. 2 crores were credited in the personal bank accounts of Shri Sekar. 12. It is submitted that right from the very inception of the Trust, it has opened its own bank accounts and it is in fact operating the same. In 2015, at the instance of Shri R.M.Kasi who was one of the then trustees and father-in-law of Shri.Sekar, all the bank accounts of the Trust were frozen and Shri.Sekar was forced to use his individual bank accounts (until the Madras High Court directed the bank to defreeze the Trust accounts) to facilitate the day to day activities of the Trust like Teacher's salary, Payment of bank dues, bank loan, vehicle EMI etc. It is pertinent to mention here that Shri Sekar has not even taken a single rupee of the Trust for his personal benefit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epancy in the turnover' also cannot be one of the reasons to treat the activities of the Trust as not genuine. 18. The Ld CIT(DR) has also argued that the Trust has not maintained the books of accounts and it has not filed the three years' account while seeking registration from the Department. 19. It is submitted that this submission of the Ld CIT(DR) is factually incorrect as the annual accounts for FYs 2015-16, 2016-17 and 2017-18 (Page 69-92 PB-2) of the Truss were filed along with the application for registration (Page 12-13 PB-2)," 6. The Ld. DR of the Revenue vehemently argued and pointed out that the trust not filed its return till the assessment year 2016-17. The action was taken after the survey even the trust is not maintaining the bank account for its transactions and it is nothing but a proprietary business which is running by the trustee. So, there is no genuinity of the trust. 7. During the hearing, the counsel of the assessee pointed out in his paper book no.5 page 21 which is related to assessment order u/s. 143(3)/147 of the Act for assessment year 2013-14 date of order 30.08.2019 duly passed by the ld. Income Tax Officer, Ward- 3, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re is any misapplication of the property, misappropriation of funds that would not render the trust itself as non est. If the funds of the trust are misused, income of the trust is misutilised notwithstanding the fact that the certification of registration is granted under Section I2AA, the assessee will not be entitled to the benefit of exemption on that income from the provisions of the Act. The certificate of registration is only an enabling provision to claim exemption. By merely granting a certificate income is not exempted. That is only a first stage to claim exemption. The Commissioner of Appeals should not have confused these two aspects and seems to think as the trustees and his family members are treating the property as their own and misutilising the property it is not a genuine trust. When once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein, schools and colleges (ere being not and educational institutions are being run as righty held by the Tribunal, nothing wore required ) be established to show that the trust in question is a genuine trust and therefore, the assessee is entitled to the registration under Section 12AA of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l are in any way illegal or perverse warranting interference by this Court. Consequently, no substantial question of law arises and the appeal stands dismissed. 8.4. CIT vs Chaudhary Son Pal Singh in ITA No. 47 of 2014 dated 27.11.2017, [2018] 401 ITR 509 (All): " 21. Section 12AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner of Income-tax, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with 'the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities,, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the activities of the society or institution on the basis of inquiries. 10. We heard both the parties. The assessee, trust is running the schools and the main object of the assessee is running the educational institution. The identification of the trust is not in question. The activity of the trust is running the school. But the Ld. CIT(E) rejected the application on a ground that the genuineness of the charitable trust is under question. But the Ld. CIT(E) has not pointed out on what material it came to a conclusion that genuineness of the charitable trust is in question. 10.1 Section 12AA of the Act mostly focused on the two issues (i) the genuinity of the trust (ii) the activity of the trust is similar with the main object of the trust as discussed above. The assessee in its paper book has annexed the approval of Tamil Nadu School Education under Govt of Tamil Nadu which was granted by the Additional Directorate (Higher Secondary Tamil Nadu School Education). The Nursery, Primary and Higher Secondary schools are running under the Trust. Mere, application was made after survey or earlier the fees were collected by the secretary of the trust should not be the reason for....