TaxTMI 
TaxTMI 
2026 (9) TMI 2006
X X X X Extracts X X X X
X X X X Extracts X X X X
....Order. 2. Ld. Counsel for the Appellant submitted that the Appellant is a public Charitable Trust formed vide registered Trust Deed dated 01.08.2003. The first trustees of the Appellant were Shri Mohammed Farouk, Mrs. Roshan Jumana and Mrs. Ismath Begum. One of the objects of the Trust was to establish and run education institutions and industrial training units in the name of the Trust or any other name under the management and control of the Trust at any suitable place in Puducherry, Tamil Nadu or any other State in India as it thinks fit. The Trust when it was formed proposed to hold and promote education and learning including primary, secondary, higher secondary and college education besides technical, non-technical education and to run and maintain schools, colleges and/or other institutions for the aforesaid purpose. For the purpose of achieving the objects of the Trust, the Appellant Trust could carry out activities including purchase of land or building, establishment and running of educational institutions etc. It was also stated that the benefit under the Trust shall accrue to all persons without any discrimination on the grounds of culture, caste, religion or sex etc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Trustees and cannot be stated to be borrowed money. It was pointed out that it is a case of non-resident Indians bringing money into India in their names. It was further pointed out that Section 6(3) was omitted by Act 20 of 2015 and therefore invocation of the said provisions as also the Regulations made thereunder stood repealed on the date of the SCN without a saving clause and therefore further proceedings cannot be maintained. It was further pointed out that the SCN itself has been issued without application of mind inasmuch as it has been issued by the office of the Adjudicating Authority on the very same day on which the Complaint has been filed and the Adjudicating Authority had no occasion to go through the voluminous documents submitted and come to an independent conclusion that the proceedings in terms of Section 16 of the FEMA are warranted and to be continued. It was submitted at the time of personal hearing that the inflow of money into the Bank accounts of the Appellant were documented and made known to the statutory authorities including Income Tax Authorities and Bankers, hence to the Reserve Bank of India (RBI). Since the intention was to make donations by the T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mitted that the Loans and Advances Statement for each of the financial years (Institution-wise) revealed that the Trustees of M/s FET viz., S/Shri Mohamed Farouk, Mohamed Said, Mohamed Younus, Mohamed Ismail and Smt. Roshan Jumana, have all provided loans to the educational institutions under M/s FET and the consolidated amount (each institution wise), had been accounted in the Balance Sheet of each year of M/s FET. In as much as the preliminary investigation revealed that all the Trustees appeared to be "persons resident outside India" and their borrowings were regulated under FEMA. In response to the Summons, Shri Mohamed Farouk, Managing Trustee of M/s FET vide letter dated 05.05.2018, authorized Shri R. Raghupathy, Accounts Manager and Shri S. Syed Mohideen, Accountant to appear on behalf of M/s FET and also authorized him to produce books of accounts or other documents and to file written statement in connection with the case and that the documents and the written statement filed by him during the hearing were binding on him and the Trust. The Trust was being funded for all the Capital Expenditure (including purchase of Land and building for the Institution and purchase of oth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Mohammad Ismail would be converted into non-resident accounts shortly. Shri Raghupathy submitted copy of the order under Section 12 AA(b) of the Income Tax Act, 1961 issued by the Commissioner of Income Tax for registration of the trust and also furnished copy of the exemption certificate given by the IT department under section 80(G). Ld. counsel for the Respondent Directorate asserted that M/s FET, had borrowed a total amount of Rs. 37,53,05,596/- from its Trustees who were persons resident outside India during the FY 2006-07 to till date and none of the amount borrowed had been returned to the lenders. During the enquiry, Shri Mohamed Said was shown the Statement dated 09.05.2018 and 21.05.2018 given by Shri R. Raghupahy, Accounts Manager of M/s Farouk Educational Trust. Shri Mohamed Said accepted and admitted the facts stated by Raghupathy and as a token of accepting the facts stated by him he affixed his dated signature on the last page of both the statements. Shri Mohamed Said further stated that he was aware that Shri R. Raghupathy had provided all the information relating to the remittances made by him and his brother from their overseas accounts to their Indian accounts an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on 19.12.2018 based on the Complaint dated 19.06.2018. Ld. AA observed that the contention of the Appellant that the loans and the advances were intended for welfare measures and merely to account for the same these were described as such in the books of accounts of the Trust was not acceptable, since, various judicial forums have reiterated that in financial matters, if Act mandates something to be done in a particular manner, it has to be done in that manner only. The issue of purpose of the loan or non-awareness of legal requirement etc. cannot be cited as an excuse to escape from the clutches of law. For imposition of penalty, all that is to be seen is whether there has been any contravention of the provisions of the Act i.e. FEMA, Rules, Regulations, notifications, directions or order issued in exercise of the powers under FEMA. Ld. Counsel for the Respondent Directorate cited the following from Paragraph 5.8 of the Impugned Order: "I find from the voluntary statements of Shri R Raghupathy, Account Manager, M/s Farouk Educational Trust dated 09.05.2018 and 21.05.2018 and voluntary statement of Shri Mohamad Said Bachir Ahamad dated 23.05.2018 wherein, inter-alia it w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in Rupees:- Save as otherwise provided in the Act, rules or regulations made thereunder, no person resident in India shall borrow in rupees from, or lend in rupees to, a person resident outside India. Provided that the Reserve Bank may, for sufficient reasons, permit a person resident in India to borrow in rupees from, or lend in rupees to, a person resident outside India. Explanation: For the removal of doubt, it is clarified that use of Credit Card in India by a person resident outside India shall not be deemed as borrowing or lending in rupees. 4. Borrowing in Rupees by persons other than companies in India:- A person resident in India, not being a company incorporated in India, may borrow in rupees on non-repatriation basis from a non-resident Indian or a person of Indian origin resident outside India, subject to the following conditions: (i) the amount of loan shall be received by way of inward remittance from outside India or out of Non-resident External (NRE)/Non-resident Ordinary (NRO)/Foreign Currency Non-resident (FCNR)/Non-resident Non-repatriable (NRNR)/Non-resident Special Rupee (NRSR) account of the lender maintained with a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and (vii) any agency, office or branch owned or controlled by such person;" The Appellant has argued that Trust cannot be included in the definition of person on the basis of the Judgment dated 11.09.2002 of the Hon'ble Supreme Court in the matter of Pratibha Pratisthan & Ors. vs. Manager, Canara Bank & Ors. However, we find that the Judgment has been passed in the context of a matter relating to Consumer Protection Act, 1986. This Act under the provisions of Section 2(1)m defines persons to include the following: (i) a firm whether registered or not (ii) a Hindu undivided family (iii) a co-operative society (iv) every other association of persons whether registered under the Societies Registration Act, 1860 or not We therefore find that the definitions of person under FEMA and the Consumer Protection Act, 1986 are different. In fact, Clause (vi) of Section 2(1)(u) of FEMA does not find place in the Act of 1986. He....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the Trust for the advancement of its causes. The Certificate stated to have been issued on the basis of books of accounts maintained and audited by the statutory Chartered Accountant. We find that the said Certificate does not rule out the contravention of Section 6(3)(e) of FEMA read with the provisions of Regulations 3 and 4 of Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000. 12. Ld. Counsel for the Appellant has also pleaded that the limited contravention of one of the Clauses of Regulation 4 of the aforementioned Regulation coupled with the fact that the funds were generated from the regular lawful business abroad for welfare measures towards education and other public causes in India should result in the contravention being regarded as venial. He further pleaded that the penalty of Rs. 5,00,00,000/- as disproportionate and may be reduced. The Appellants have cited the Judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1969 (2) SCC 627]. 13. We cannot agree with the contentions of the Appellants. In this regard, the Judgment dated 23.05.2006 of Hon'ble Supreme Court in the matter of The Chair....