TaxTMI 
TaxTMI 
2026 (3) TMI 459
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....ipts from sale of land was held taxable as AOP. 3. Against the said order, assessee filed appeal before the Ld. CIT(A) who vide impugned order dated 25.07.2024 had allowed the appeal of the assessee and held that the assessee is eligible for exemption u/s 11 & 12 of the Act. 4. Against the said order, Revenue is in appeal before the Tribunal by taking following grounds of appeal: "1. The Ld. CIT(A) has failed to appreciate that the issue is not of break in charitable activities but is that the assessee has donated the entire sales proceed to other trust who are not entitled for receiving donation. 2. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing." 5. Before us, ld. CIT-DR drew our attention to page 2, para-3 of the assessment order wherein it is observed by AO that assessee has not expended even single rupee on charitable activities for last several years and sold the land owned by it for Rs. 2,60,00,000/- which is the minimum price permissible under prevailing stamp duty law. The AO further observed that the entire sale consideration was given to other entity as donation. Accordingly, ld. CI....
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....d to other trust without proper investigation about the charitable activities being conducted by the receiving charitable trust. One of them does not appear to be a legitimate entity for receiving such donations, as required under the provisions of Section 11. The donation must be given to a trust that is recognized and engaged in charitable activities as per the Income Tax Act, 1961. Failure to ensure the proper utilization of these donations raised serious concerns regarding the validity of the exemption claim. Inter-charity donation is permissible as application of income but it is to be ensured that inter-charity donation is given for the objects for which the donor trust is created. In other words, the donor and donee should share similar objects. Whereas as per the information available with the AO, one of the recipient trust of donation of Rs. 50,00,000/- i.e., Sangneria Foundation for Health and Education has received also received similar corpus donation from Pradeep Jindal Group of entry operation with the allegation that the unaccounted money of the beneficiary is routed through the entries of donation. It is well-settled law that even if the trust is registered....
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....e donations was given also raises a doubt on genuineness thereof. In conclusion, while the registration u/s 12A of the Act has not been cancelled, this fact should not dilute or nullify the assessment findings. The additions made are not dependent on such cancellation but are rooted in the actual misuse of income and violation of charitable principles. Hence, the assessment order is sustainable in law and facts." 6. On the other hand, Ld. AR for the assessee supported the order of Ld. CIT(A) and submits that sole reason for denying exemption since the entire proceeds received from sale of land as donation to another trust. The Ld. AR submits that assessee is holding valid registration certificate u/s 12A since 1980 and claiming benefit od section 11 & 12 of the Act since then. The charitable status of the trust was accepted by the Department in preceding years also and, therefore, under identical circumstances, the benefit of exemption u/s 11& 12 of the Act should not be denied. Ld. AR also filed detailed written submissions in this regard which reads as under: "1. Respondent assessee is trust created vide declaration of trust dated 13.11.1979 and is registered....
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.... property ? Held break in carrying out the activities can not be a reason for denial of exemption u/s 11. 7.5/page 9 Whether the appellant trust who itself is a charitable trust can give donations to another charitable trust and whether such donations can be treated as application of income ? Held Yes reference made to Hon'ble Kar HC decision in case of PCT vs St. Jospech Monastery 7.6/Page 9 Donations given to organization whose activities are controlled by accommodation entry provided ? Held mere making remark without any contrary evidence can not be reason for treating the donations as bogus and illegal 4. That is, once assessee is holding valid registration u/s 124(a) from 06.02.1980 Grom more than 35 years) which has remained throughout undoubted and is fully accepted /operative and once the subject immovable property purchase in hands of trust is fully accepted in past/previous year(s) from 1995 (for more than 20 years), and assessee "charitable" status is also fully accepted in past, to hold in present /instant sale year that entire exemption u/s 124 is wrongly claimed for want of charitable activity is totally illegal and impermissible, it is n....
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....ncome of the assessee was exempt in entirety. The AO could not have travelled beyond the certificate of registration granted under section 12AA. The effect of such a certificate of registration under section 12AA, therefore, cannot be ignored or wished away by the AO by adopting a stand that the trust or institution is not fulfilling conditions for applicability of sections 11 and 12. That is, Ld. AO cannot sit in "appeal" over valid "accepted"/ "operative" charitable status of assessee u/s 12A as done in extant case. Same is Mumbai bench ITAT decision in case of Goregaon Sports Club 6621/Mum./2012 Date of Order-21.10.2014. It is further submitted that even competent authority (concerned PCIT/CIT) who can withdraw registration u/s 12AA/ 12A(b) (note sec 12A(b) part added u/s 12AA(3), by finance act 2010 w.e.f. 01.06.2010) w.e.f. 01.10.2004 u/s 12AA(3) as held in series of "HC" decisions could not have cancelled registration from retrospective effect (Hon'ble Allahabad high court decision in case of ACIT vs Agra Development authority: (2018) 407 ITR 562: (2018) 302 CTR 308; Hon'ble Madras high court decision in case of AURO LAB VS ITO (2019) 411 ITR 308: (2019) 307 CTR 6; Ho....
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.... immovable property for "charitable" purposes of trust. Having missed though out, to take "impromptu" adverse decision in instant sale year is totally unsustainable 7. PROPOSITION 3: Ld. AO did not have any option but to make necessary computation of income in hands of assessee trust as per specific and special mandate section 11(1)/(1A) of 1961 Act dealing with "income" arising from sale of capital asset in hands of registered trust. Thirdly in above stated factual matrix, Ld. AO did not have any option but to make necessary computation of income in hands of assessee trust as per specific and special mandate section 11(1)/(1A) of 1961 Act dealing with "income" arising from sale of capital asset in hands of registered trust. In identical circumstances, recently hon'ble Karnataka high court in case of PCIT vs St Joseph Monastery ITA 840/2018 dated 23rd November 2021 where high court has upheld impugned ITAT order that sale proceeds arising from transfer of capital asset can be validly transferred to another charitable trust as inter trust donation is valid "application of income" in hands of transferor /donor trust. In this decision important reference is made ....
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....ds of the respondent/assessee, once the remittance had been accepted in the hands of MGF. In a manner of speech, in our view, what is sauce for the goose is also sauce for the gander" 8. CONCLUSION: Once following are undisputed facts: a) There is not a single case where any "meaningful" inquiry u/s 133(6)/131 of 1961 act is done by Ld AO from recipient organizations. B) There is not a single case where any of the recipient organization is found to have been not engaged in charitable activities. C) There is no case of any wrong utilization made out at end of recipient organization. D) Further the factum of receipt and genuineness of subject "corpus" donation is accepted in hands of recipient organization. E) Further recipient organization are engaged in pursuing similar charitable activities is also not in doubt. There can be no case to deny benefit of application of income u/s 11(1), in hands of present registered -assessee trust vis a vis subject donations made to recipient "registered" charitable organizations. 9. ON DEMURRER TOTAL LACK OF SCN INVALIDAT THE IMPUGNED ASST: As evident from cursory look to impugned asst order dated 30.12.2018 passed u/s 143(3) mer....
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....how cause notice. In our view, even the show cause notice dated 23rd August 2022 is defective in as much as even though it had reference to Section 56(2)(x) of the Act, it did not mention whether the Assessing Officer proposed to treat the stamp duty value as deemed Income of assessee under clause (a) or clause (b) of Section 56(2)(x) of the Act. This is because both are separate provisions and under either of these two clauses the stamp duty value could be treated as deemed income. By not specifying whether Section 56(2)(x)(a) or Section 56(2)(x)(b) of the Act was applicable, the A.O. first of all has not given reasonable opportunity of showing cause to the assessee. Assessee would be totally unaware of the grownds which had prompted the A.O. to arrive at a prima facte conclusion and issue show cause notice. The power that the A.O. had was required to be executed properly. Moreover in the assessment order dated 29th September 2022 that is impugned in the petition, the A.O. has chosen to give Section 56(2)(x), a go by and treat the stamp duty value of the flat at Rs. 11,68,99,000/- as from unexplained source under Section 69 of the Act. There is no reference to Section 36(2)(x) of ....
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....on to other charitable institution whereas the Ld. CIT(A) has deleted the same by holding that there is no violation of provisions of section 11 to 13 of the Act. The relevant observations of Ld. CIT(A) as contained in para 7.1 to 7.7 of the order are as under: "7.1 I have duly considered the submissions of the appellant and the material on record. The basic issue involved in the case is denial of exemption u/s 11 by the AO. The appellant trust sold its trust property and the sale proceeds were donated to another charitable trust. The AO denied exemption u/s 11 of the Act for the reasons that (i) no charitable activity was carried out by the appellant trust in past several years; (ii) the appellant trust sold its trust property during the year under consideration and donated the sale proceeds to another charitable trust which was controlled by the accommodation entry providers; (iii) the property sold was an agricultural land, however, no agricultural income was offered by the appellant trust for the use of such agricultural land in past years, (iv) the land sold was situated in industrial area and hence cannot be considered as agricultural land; (v) the fact that the land....
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....apparent that once a trust is registered u/s 12A of the Act, the exemption u/s 11 has to be granted on fulfilment of the conditions given therein. 7.3 Whether exemption u/s 11 of the Act can be denied when no charitable activity carried out by the appellant trust in past - In the case of Jupiter Medical Research Centre Trust Vs DIT(E) [2010] 128 TTJ 118 (Ahmedabad) (UO), Hon'ble ITAT, Ahmedabad has held that "merely because the assessee has not carried out any activities, that does not mean that the trust has totally stopped the activity forever." Relevant extract of the order is reproduced below for the sake of clarity - 4. The learned counsel of the assessee has filed the copy of acknowledgement of return of income for the assessment years 2005-06 and 2006-07 along with audit report for the year ending 31st March, 2005 and 31st March, 2006. It is pointed out that from the perusal of the same, no activities are carried out by the trust. There is no violation of any of the provisions contained in the Act. Merely, all the trustees are family members, it does not mean that trust is not a public trust. This proposition finds support from the decision of ....
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.... of income- The answer to this question is "YES" This proposition is supported by the decision of Hon'ble Kamataka High Court in the case of PCIT v. St. Joseph's Monastery (2022) 137 taxmann.com 133 (Kar), wherein it has been held that donation of sale proceeds of capital asset made by charitable trust to another trust was to be allowed as 'application of income for charitable purpose". Thus the donation given by the appellant to another trust is held to be valid application of income. 7.6 Donations given to organization whose activities are controlled by accommodation entry provider - The AO has just passed a remark that the appellant trust has given donations to another charitable trust which was controlled by the persons who were involved in providing accommodation entries. However, the AO has not brought anything on record demonstrating the illegality of the donee trust and the misuse of funds by the donee trust. Simply passing a remark without any contrary evidence cannot be a reason for treating the donations as bogus and illegal. 7.7 In view of the above discussion and considering the facts and circumstances of the case in tota....