TaxTMI 
TaxTMI 
2025 (12) TMI 910
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..../2019 is opposed to law and fact of the case. 2. That, in the facts and circumstance of the case, the Ld CIT(E) erred in cancellation of registration of the trust u/s 12AA(4) w.e.f 2015-16 without bringing on record why and how the provision of section 12AA(4) can be invoked in order to cancel registration of the trust u/s 12A of IT Act 1961. 3. That, in the facts and circumstances of the case, Ld. CIT(E) erred in appreciating the fact that in order to invoke provision of section 12AA(4) of IT Act 1961, even though conditions of provisions are not fulfilled i.e. the object of the trust are not charitable in nature and its activities are not carried out in accordance with the object of the trust. 4. That, in the facts and circumstances of the case, the Ld. CIT(E) failed to appreciate the fact that in order to invoke section 12AA(4) of IT Act 1961, it is pre-condition for CIT(E) to prove that the activity of the trust are being carried out in manner that the provision of section 11 & 12 of IT Act 1961 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 of IT Act 1961. ....
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.... ITO(E), Ward-2, Bengaluru, submitted a report dated 11.3.2019 wherein he sent a proposal to withdraw the registration u/s. 12A of the Act. 06. The proposal sent by the ld AO was as under: - 07. The ld. CIT(E) issued a show cause notice on 6.6.2019 which was replied to. After considering the reply, the ld. CIT(E) in para 6 cancelled the registration of the assessee trust granted u/s. 12A of the Act for the following reasons:- i. With respect to the amendments made in the trust deed, the assessee submitted that the amendments were made in order to carry out objectives more effectively such amendments are not repugnant to the provisions of section 11 to section 13 of the act and no prior approval of Commissioner is required. With regard to the amendments made in the trust deed on 20/11/2014, assessee submitted that changes to the minority clause was for the purpose of extending benefit of trust to the general public irrespective of its cast, creed and community. It was also submitted that there is neither a stipulation in the certificate granting registration and nor there is a requirement in the law that prior approval is necessary to amend the trust deed where there ....
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....s it is not shown that the fund is used for the benefit of the trust, thus it is apparent that the trustees have misused the fund. iii. On the issue of loan to Mr. K Girish, assessee submitted that trust has obtained loan from Mr. K Girish which is recorded in the books of accounts and same has been repaid through banking channel. The trust is not aware of any transaction between managing trustee Mr. John and Mr. K Girish for property at Bangalore. The trust has taken loan from Shri K Girish and same was repaid by banking channels. However, the ld. CIT(E) also noted that one of the trustees has entered into transaction with one, Mr. K. Girish, who has advanced a loan of Rs 20 lakhs for purchase of property, however, the said loan was never transferred to the trust and therefore this transaction was for the personal benefit of the trustee, hence it violates the provisions of section 13(1)(d) of the Act. The ld. The ld. CIT(E) relied on the decision of the Hon'ble Supreme Court in the case of Director of Income Tax v. Bharat Diamond Bourse, 259 ITR 280. iv. Regarding late filing of ROI and audit report in form no 10B assessee submitted that it cannot be the reason f....
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....cademy of Education 234 Taxman 774, cancelled the registration of the trust . 08. Accordingly, the ld. CIT(E) was of the view that the trust has violated the provisions of section 11 & 13 and hence cancelled the registration u/s. 12A of the Act w.e.f. 2015-16 and directed the ld. AO to invoke the provisions of section 115T of the Act in accordance with law by order passed on 13.8.2019 u/s 12AA(4) of The Act, against which the assessee is aggrieved. 09. The ld. AR filed two paper books containing 318 pages and 145 pages along with written submissions and synopsis along with financial statements and Board resolution in the 3rd paper book containing 58 pages. The ld AR submitted the back grounds of the case and stated that because of the complaint by one of the disgruntled trustees, the issues have arisen, and false allegation have been made against the trust. He also submitted that Same Trustee was also an intervener in this appeal and now the ITAT has passed order rejecting his claim. He submits that even otherwise the issues are to be decided on its own merit whether the provision of section 12AA(4) of the Act are correctly invoked or not. According to the assessee, same were....
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....ust. With respect to the loan from Mr. K Girish, he submits that the allegation is that the advances are received from Mr. Girish for personal land deal, and it was repaid by the trust. He submits that in fact money received from Mr. Girish was introduced into the trust and deposited into the bank account of the trust on 24.4.2011 and same was considered as unsecured loan in the balance sheet. He referred to pg. 146 of PB. He further referred to the annual accounts for FY 2011-12 at page 129 submitting that the same are duly accounted for in the books of account. He submitted that ld. CIT(E) has merely acted on the statement recorded of ex Trustee by the ld AO without bringing any corroborative evidence and further no violation u/s. 13(1)(d) of the Act can be found from the payment of the same since there is no benefit accruing to the trustees at all. 12. With respect to the allegation of gold loan from Muthoot Finance of Rs. 9,13,990 and repayment of such loan of Rs. 9,30,990, he submitted that the allegation is that loan borrowed by Mrs. Johnson. He submits that in fact that money received from gold loan was introduced into the trust and same was deposited into bank account of....
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....alternative argument in AY 2016-17 where the ld. AO disallowed the total capital expenditure to grant depreciation. This cannot be used as any wrongful claim of depreciation. 16. With respect to the loans in the names of the trustees, the ld. AR submitted that the ld. CIT(E) is acting on assumptions, surmises and conjectures without bringing any substance to his argument. He submits that all loans are taken for the purposes of the object of the trust and are genuine. He also referred to pg. 140 to 144 of the PB to show the details of loans and also stated that these are not relevant for determining the cancellation of registration as it did not determine the activities of the trust as not genuine. 17. With respect to the statement of Mrs. Rashmi Ravikiran for making a voluntary disclosure for 3 assessment years, it was submitted that such statement was taken by the Department at 4 AM in the morning and therefore is not valid. The same were not accepted in the return filed u/s. 148 and even otherwise the nature of admission was with respect to the capital expenses and unpaid provisions. Even otherwise those can be issues of computation of deduction, but does not show any ungen....
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....sions of section 12AA(4) are discretionary in nature as it used the word "may" which is similar to section 186 where the status of the firm can be withdrawn. It is the discretion of the ld. CIT(E) not to cancel the registration even in spite of the default of the assessee. He relied upon the decision of the Hon'ble Madras High Court in 56 ITR 293 which is though in the context of provisions of section 186 of the Act, but equally applies to this case. 22. He further says that the provisions of section 12AA(4) and 12AA(3) of the Ac have different wordings wherein the provisions of sub-section(3) used "shall", whereas the provisions of sub-section (4) uses the word "may". He further submitted that cancellation of the registration results into serious consequences which is penal in nature and therefore discretion is confirmed which should be used on the basis of strong evidence and not merely on conjectures and surmises. He further referred to decision of the Hon'ble Andhra Pradesh High Court in 223 ITR 400. 23. He further submitted that assuming while denying that there is a violation of the provisions of section 13(1) of the Act, it should not result into cancellation of the re....
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....tion granted to the Assessee trust vide order number 718/10 A/B - 286/98 - 99/T/woman to dated 12/1/1999 under section 12A of the act was cancelled. As it is stated that the trust was granted registration on 12 January 1999. The assessment for assessment year 2016 - 17 was passed under section 143(3) of the act on 13 December 2018 wherein assessee was denied the deduction under section 11 of the act on merits. Subsequently there was a tax evasion petition which was received by the assessing officer from investigation directorate and based on the same, the assessing officer conducted a survey under section 133A of The Income Tax Act on 11/2/2019. Subsequently because of survey, the assessee has made a voluntary disclosure of taxable income for assessment year 2015-16 to assessment year 2017-18 of a total sum of Rs. 58,770,870/- and has also deposited tax of Rs 1 crore on such disclosure, the assessee was also issued summons under section 131 of the act to the trustees and witnesses and from that he has gathered an information that the activities of the trust are not carried out in accordance with the law. Therefore, the learned assessing officer sent a proposal for withdrawal of reg....
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....tion 11 and 12 do not apply to exclude either wholly or partly any of the income of such trust or institution due to the operations of section 13(1) of the act and then the principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution. The registration shall not be cancelled if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the same manner. With effect from 1/9/2019 by the Finance (number 2) act, 2019 there was an amendment to the above section wherein one more condition is included which provides that if the trust or institution has not complied with the requirement of any other law, order, directions decree then also such a registration can be cancelled. 31. The First Reason for cancellation is that the assessee trust has made amendment to the trust deed without prior permission of the ld. CIT(E). We find that after obtaining the registration, the trust has made an amendment as per trustees meeting dated 5 July 1996 by passing a resolution to open medical colleges, dental colleges, nursing colleges, engineering colleges and other professional colleges. Furthe....
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....entical situation and has held that where existing objects as well as those which were added by an amendment in the trust deed. The objects in the original trust deed were sufficiently wide and cover range of charitable activities relatable to education, medical aid and help to poor in times of calamities. The existing objects would have enabled the Trust to support its activities as long as it was done for charitable purpose. The amended objects clarify that such amended objects do not change the basic objects of charitable nature. Therefore we find that ld CIT ( E ) was not correct in cancelling the registration u/s 12AA(4) of the Act because of this reason. 32. Second reason for cancellation of registration is the applicability of provision of section 13(1)(d) of the Act when loan amount borrowed by trustees were repaid by the trust . It is the allegation of the CIT(E) that the Trustees of the Appellant Trust availed a loan from Standard Chartered Bank during FY 2009-10 and that the repayment thereof was made using Trust funds, thereby conferring a benefit on the Trustees in violation of Section 13(1)(d) of the Income Tax Act, 1961. Factual matrix and the documentary evidence....
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....the introduction of money was placed at page no 117 of the paper book. Thus, said borrowings were made solely for the benefit of the Trust. The funds were introduced into the Trust, were reflected in its books where the said loan reflected as a liability and were applied solely for charitable and Trust-related activities. In fact, the existence of a financial crisis is also acknowledged by the CIT(E) in para 12.2 of the impugned order while dealing with another issue. Thus, the very basis of the CIT(E)'s conclusion is not only unsupported by evidence but also contrary to the record. Thus, the allegation of violation under Section 13(1)(d) is misconceived. Thus, this transaction could not have been considered as a violation warranting cancellation or adverse inference under Section 12AA(4) of the Act. 33. The Third allegation is regarding financial transaction with Mr Girish. it is submitted that the said loan money has been brought into the bank account of the Trust and used for the purposes of the Trust. The bank statement containing the introduction of money was presented before the ld. CIT(E) and produced in paper book page no 146. The funds were introduced into the Trust, we....
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....ee. Further the registration under Section 12AA is not linked to the assessment of income or to procedural lapses like delay in filing returns. Any violation of Section 11/12 should be examined during assessment and not through cancellation of registration. 35. Fifth reason is that the trust has falsified its books of accounts as it has received loan from trustees, claimed depreciation etc. The Allegation of the PCIT is based on the statements of One Mr Nahar where in it is stated that assessee has taken loan from one Trust Kuriakose Trust of Rs 1,45,30,000/- for the AY 2017-18. It is the claim of the assessee that transaction in question involving the loan was tainted by fraudulent conduct on the part of Mr. Nahar. The Appellant Trust has subsequently discovered that Mr. Nahar discharged the said loan using his personal funds while misrepresenting himself as a Trustee of the Appellant Trust and for what reason. This misrepresentation was made with the intent to secure the release of the mortgage over the Trust's property, evidently for personal benefit. It is submitted that this act was carried out without the knowledge, consent, or authority of the Trust or its legitimate ....
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....t. 37. With respect to loan from the trustees it is submitted that entire basis of the allegation appears to rest on suspicion rather than on any concrete evidence. The CIT(E) has failed to bring on record any documentary or corroborative evidence to establish that the loans advanced by the Trustees were either fictitious or not applied for the purposes of the Trust. Such action, bereft of material, is unsustainable in law. Countering this it is submitted that All loans are genuine and for the purpose of the Trust: These loans were received through proper banking channels and duly utilized for capital expenditure or operational needs of the Trust, as evident from the financial records. There is no allegation has been made that the said loans were bogus or are for non-charitable purpose. Further the loans were taken before several years and trust is assessed to tax after that. As loans are very old, it does not give any indication that activities of the trust are not genuine. Assessee has shown that loan is outstanding in the name of the trustees and is also accounted for by the trustees. Thus, in these instances there is no application of provisions of section 13 of the Act and ....
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....le to be taxed. It is submitted that this erroneous understanding was a result of lack of technical guidance at the time of the statement, and the incorrect inference was drawn under pressure during the proceedings. Subsequently, upon taking professional advice, it was clarified that capital expenditure and legitimate provisions towards charitable activities do constitute application of income under trust law. Consequently, the said items were not offered to tax in the returns filed in response to the notices issued u/s 148 of the Act for the relevant assessment years. This clearly demonstrates that (i) The statement was made under incorrect legal understanding, and (ii) There was no actual income escaping assessment in terms of the provisions applicable to charitable trusts. 40. On careful consideration of the whole issue, it is apparent that the statements were recorded of the one of trustees of the assessee who admitted of the income of Rs 5.87 Crores and Trust also deposited RS 1 Crore as Tax on that disclosure. The issues are whether based on such disclosure in the facts of the case could show that activities of the trust are not genuine. Fact shows that trustee declared du....
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....le in nature, then mere technical lapses in bookkeeping do not justify cancellation. We find that when the assessee is filing ROI along with audit report the observation of the ld PCIT that assessee does not maintain regular books of accounts is devoid of any merit. The proposal of the ld AO simply states that minute's book was not found at the time of survey. Minutes book is not the books of accounts. It is not the finding of the ld AO that assessee has not maintained any books of accounts. His report also says "proper books of accounts'. The ld CIT(E) has without any independent inquiry has held that assessee does not maintain regular books of accounts which for which no evidence is available to support his finding. Against this it is apparent that assessee filed ROI and audit Report also. 42. Eighth Reason is that salary is paid to the relatives of the trustees which has resulted in to the benefit to them u/s 13(1)(d) of the Act. The CIT(E) has raised objections regarding the salaries paid to certain individuals allegedly related to the Trustees, without bringing on record any material evidence to establish either the existence of such relationship or that the payments were e....
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....ngs-reg .... Ref: F. No. Survey report/ITO(E)/Ward-2/2018-19 dated 13.02.2019 Please refer to the above. The assessee M/s Vijayanagar Educational Trust originally formed vide a deed dated 10.03.1980 by Mr. C.D.John S/o P. Daniel, along with his wife Mrs. Clementine Jhon and other three trustees with the primary object of education. Later the other trustees are left and Mr. C.D.Jhon sons name by Mr. John Wilkinson Einstein and Dr. Jhon Marshall Johnsons become trustees, by an amendment deed dated 11.08.1994. There by the trust is administered by one family members. By the amendment deed referred above, they have made the trust for Christian minority, by bringing an amendment clause before registration u/s 12A. Later the trust was registered u/s 12A of the I.T.Act vide order No. 718/10A/V-286/98- 99/CIT-II dated 12.01.1999 by the order of the Director of Income Tax (Exemption), Bangalore as a charitable trust. During the financial year 2018-19, the case is selected for complete scrutiny for the A.Y. 2016-17 and the following violations against the I.T.Act and condition of registration u/s 12A of the act are brought to notice in Test SE noHE-Coder u/s 143(3) of the I.T.Act....
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....served and under- privileged people in Bangalore Rural or Urban area or people in Karnataka or any part of India or abroad or elsewhere, by starting Medical Colleges with Hospitals, Dental Colleges and Nursing Schools/Colleges, Para-Medical Colleges/Courses and Management Colleges/Courses, Engineering Colleges/Courses in the State of Document 3 Karnataka or elswhere and (ii) to amend the objects clause i.e. clause 3(b) at page-4 of the Trust Deed dated 10.3.1980 so as to read the work 'to open college' as to open Medical Colleges, Dental Colleges, Nursing Colleges, Engineering Colleges and other Professional Colleges' And Whereas even though the resolution was passed unanimously by the Board of Trustees in its meeting held on 5.7.1996 yet inadvertently, this amendment was not incorporated in the said Trust Deed dated 10.3.1980 by way of any Supplementary Deed of Declaration of Trust." However, the assessee has never been granted approval of such amendment on objectives and the assessee also even never intend to ask for such approval as per the records. Further, the assessee has deleted minority caluse on "Chirtianity" vide clause 4 of page 2 of the supplementary dee....
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....mposed under the law. The act of various amendments on objectives without the approval of the CIT(Exemptions) and carrying activities at the will of the trustees who are all belong to only one family is defeating the Provisions on amendments and on administration of a public trust. when opportunities are provided to the assessee on objection and on amendments, the assessee failed to avail and substantiate the merit on their side. It is ascertained that tthe assessee has no merits in their favour. Hence, it is concluded the assessee is not entitled to claim the benefit of exemption u/s 11 of the Income Tax Act, 1961. This position was affirmed in the case of Director of Income Tax v Bharat Diamond Bourse (2003) 259 ITR 280. Accordingly, the assesse claim of deduction u/s 11 of the I.T.Act is denied on merits and the surplus income of Rs. 2,06,61,362/- is brought to tax during the A.Y. 2016-17 by order u/s 143(3) of the I.T.Act. II. NEVER FILED RETURN AND AUDIT REPORTS IN TIME; Further examination of the office records, it is found that the assessee from A.Y. 2013-14 to A.Y. 2018-19, has not filed any of the return with in the stipulated time u/s 139(4) r.w.s 139(1) of the I....
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....iminal nature are manipulated by them and the present trustee are declared the trust as "private one" before the Honourable High Court of Karnataka is a serious misrepresentation. 5. Manipulation of accounts: The property held by the trust at Nelamangala and Yelhanka are hiked up in value as work in progress and later converted to capital assets, to the tune of 22 crores are equalised to the loan in the name of the earlier trustee, only to settle the transfer of trust between them, since the documentary evidences of trustee's loan is not established. Document 6 6. Money trial: It appears there is a money trail between the exsisting and the earlier and disputed trustees which need a thorough examination and hence the earlier year assessments need to be re opened to assess the escapements. IV Assessee offered voluntary declaration during survey on acceptance of issues on merits :- On acceptance of the findings referred above the secretary trustee Smt. Reshmi Ravikiran made a voluntary declaration of taxable surplus on statements made u/s 131 of the I.T. Act during the survey in the hands of the trust as under on assessment year wise. 1. AY 2015-16: · Capital Exp....
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....paid for in receipts and payments A/c, which is not tally with the depreciation schedule and assets schedule for Example. A.Y. Details of exp Receipts and Payments a/c Schedule of addition to fixed assets Difference 2016-17 Building 3,83,23,707 3,84,71,682 1,47,975 Lab equipments - chem 3,00,000 7,95,216 4,95,216 2017-18 Building 3,21,70,659 3,27,05,729 5,35,070 Lab equipments 30,96,559 52,57,708 21,61,146 Document 8 b) During the A.Y. 2017-18, work in progress of Nelamangala of the trust to the extent of Rs. 3,08,63,937/- has been capitalised by addition to buildings and depreciation claimed at the rate of 10%. The same building has to be completely written off as the structure was built in 2005 and cannot be salvaged. Accordingly the assessee and audit report claim of depreciation is factually incorrect. c) As per the financial statement of the A.Y. 2017-18 an amount of Rs. 10,84,97,410/- has been diverted from M/s Subramanya Education Society to M/s Vijayanagar Education Trust, whereas lending or advancing of money is not the objective of M/s Subramanya Education Society. d) From A.Y. 2012-13 onwards, huge amounts advance the trust by the trustees in t....