SHRI NITYANAND ASHRAM, v. THE ACIT,

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NO.780/IND/2007 UNDER SECTION 12A/12AA OF THE I.T. ACT SHRI NITYANAND AASHRAM TRUST SAGOD DIST. RATLAM PAN AAATN 6280 B APPELLANT VS CIT- UJJAIN RESPONDENT ITA NOS.367 TO 371//IND/2006 A.YS. 1998-99 TO 2002-03 SHRI NITYANAND AASHRAM TRUST SAGOD DIST. RATLAM PAN AAATN 6280 B APPELLANT VS ACIT-RATLAM RESPONDENT APPELLANT BY : SH. M.D. SODANI CA RESPONDENT BY : SH. PRADEEP KUMAR MITRA SR. DR O R D E R PER JOGINDER SINGH JUDICIAL MEMBER THE APPEAL (ITA NO.780/IND/2007) IS BY THE ASSESSEE S AGAINST THE ORDER OF THE LEARNED CIT-UJJAIN DATED 2.11.2007 PA SSED U/S 12A/12AA 2 OF THE I.T. ACT ON THE GROUND THAT THE LD. CIT ERRE D IN NOT GRANTING REGISTRATION U/S 12A/12AA OF THE ACT TO THE ASSESSE E TRUST WITHOUT CONSIDERING THE FACTS AND THE REGISTRATION SHOULD H AVE BEEN ALLOWED FROM THE CREATION OF THE TRUST AS THE FIRST APPLICATION WAS FILED ON 5.3.1999 WITH A REQUEST TO CONDONE THE DELAY WHEREAS APPEALS IN I TA NOS.367 TO 371/IND/2006 ARE BY THE ASSESSEE AGAINST THE COMMO N ORDER OF LD. CIT(A)-UJJAIN DATED 28.2.2006 WHEREIN FOLLOWING CO MMON GROUNDS HAVE BEEN RAISED: 1. THE COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN HOLDING THAT THE REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE IT ACT WAS RIGHTLY MADE BY A.O. 2. THE COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN HOLDING THAT THE FAIR MARKET VALUE OF LAND AS ON 1.4.81 WAS CORRECTLY TAKEN BY THE A.O. FOR CALCULATING THE CAPITAL GAIN ON SALE OF LAND. 3. THE COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN HOLDING THAT THE ASSESSEE WAS NOT ENTITLED TO THE DEDUCTION UNDER SECTION 11 OF THE INCOME TAX ACT 1961. 2. DURING HEARING OF THESE APPEALS WE HAVE HEARD S HRI M.D. SODANI LD. COUNSEL FOR THE ASSESSEE AND SHRI PRADE EP KUMAR MITRA LEARNED SR. DR. FIRST WE SHALL TAKE UP APPEAL IN I TA NO.780/IND/2006 WHEREIN THE DENIAL OF REGISTRATION U/S 12A/12AA OF THE ACT FROM THE DATE OF THE CREATION HAS BEEN CHALLENGED. THE LD. COUNSE L FOR THE ASSESSEE SHRI SODANI CONTENDED THAT THE ASSESSEE TRUST FILED APPLICATION ON 3 5.3.1999 FOR REGISTRATION U/S 12AA OF THE ACT WITH THE LD. CIT BHOPAL AND THE SAID APPLICATION COULD NOT BE DISPOSED OF. THE ASSESSEE WAS AGAIN ASKED TO FILE FRESH APPLICATION ON 30.1.2003 (IN FORM NO.10A) WHICH WAS REJECTED ON 23.7.2003. THE ASSESSEE MOVED THE A PPEAL BEFORE THE TRIBUNAL WHEREIN THE MATTER WAS SET ASIDE TO THE FI LE OF THE LD. CIT TO CONSIDER THE GENUINENESS OF THE ACTIVITIES OF THE A SSESSEE TRUST. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT IF THE FIRST APPLICATION FILED ON 5.3.99 IS NOT DISPOSED OF WITHIN SIX MONTH S THEN IT IS A DEEMED REGISTRATION FOR WHICH THE LD. COUNSEL FOR THE ASSE SSEE RELIED UPON CERTAIN CASE-LAWS LIKE 216 CTR 167 (ALL) 91 ITD 1 (BAN) 14 ITJ 575 (MP). ALTERNATIVELY IT WAS PLEADED THAT THE ASSESS EE BE GRANTED REGISTRATION W.E.F. 5.3.99 AND FROM THE DATE OF THE CREATION. ON THE OTHER HAND THE LD. SR. DR STRONGLY DEFENDED THE IMPUGNED ORDER BY SUBMITTING THAT FIRSTLY THE SALE OF THE LAND/IMMOVABLE PROPERT Y WAS NOT AS PER THE OBJECTS OF THE ASSESSEE TRUST AND SECONDLY THE SAL E PROCEEDS WERE NOT USED FOR THE OBJECTS OF THE ASSESSEE TRUST THEREFO RE THE REGISTRATION WAS RIGHTLY DENIED BY THE LD. CIT. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. BRIEF FACTS ARE THAT THE ASSESSEE IS A TRUS T CLAIMED TO BE CREATED ON 27.7.1977. THE ASSESSEE MOVED FIRST APPLICATION ON 5.3.99 WITH A REQUEST TO CONDONE THE DELAY WITH THE THEN LD. CIT BHOPAL. HOWEVER THE 4 SAID APPLICATION COULD NOT BE DISPOSED OF AND IN TH E MEANTIME THE POST OF THE CIT WAS CREATED AT UJJAIN AND THEREAFTER THE RECORD WAS CLAIMED TO BE TRANSFERRED TO UJJAIN. IT SEEMS THAT THE APPLICA TION WAS NOT TRACEABLE THEREFORE THE ASSESSEE WAS ADVISED TO FILE ANOTHER APPLICATION CONSEQUENTLY ANOTHER APPLICATION WAS FILED ON 30.1 .2003 WHICH WAS REJECTED ON 23.7.2003 AND THE ASSESSEE WAS DENIED T HE REGISTRATION. THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL WHERE IN VIDE APPEAL NO.819/IND/2003 IT WAS RESTORED TO THE FILE OF THE LEARNED COMMISSIONER OF INCOME TAX. THE DEPARTMENT FILED MISCELLANEOUS A PPLICATION NO.74/IND/2004 (ARISING OUT OF APPEAL NO./ 819/IND/ 2003) WHICH WAS DISPOSED OF ON 16.2.2006. THE LD.CIT PURSUANT TO T HE DIRECTION CONTAINED IN ITA NO. 819/IND/2003 DECIDED THE APPEA L ON 17.1.2005 DENYING THE REGISTRATION U/S 12A/12AA OF THE ACT TO THE ASSESSEE. AGAINST THIS ORDER THE ASSESSEE AGAIN FILED APPEAL BEFORE THE TRIBUNAL WHICH WAS RESTORED BACK TO THE LEARNED CIT VIDE ORD ER DATED 13.4.2007 (ITA NO. 211/IND/2005) WITH THE FOLLOWING DIRECTION S :- KEEPING IN VIEW THE ABOVE FACTS WE AGAIN RESTORE THE MATTER TO THE CIT WHO WILL RECONSIDER THE ISSUE FOR REGISTRATION AS TO SATISFY ABOUT THE GENUINENESS OF THE ACTIVITIES OF THE TRUST AND FURTHER HE HAS TO BE SA TISFIED ABOUT THE OBJECTS OF TRUST. THE APPLICATION ON INCO ME IS NOT A CRITERIA FOR ALLOWING REGISTRATION. PURSUANT TO THE AFORESAID ORDER LEARNED CIT VIDE O RDER DATED 2.11.2007 REJECTED THE APPLICATION OF THE ASSESSEE AND DENIED REGISTRATION ON THE 5 PLEA THAT THE TRUSTEES ARE NOT AUTHORIZED TO SELL T HE IMMOVABLE PROPERTY SALE OF PROPERTY IS NOT THE OBJECT OF THE TRUST AND SALE PROCEEDS WERE NOT USED FOR THE OBJECTS OF THE TRUST. ON A QUERY BY TH E BENCH REGARDING SALE OF THE IMMOVABLE PROPERTY IT WAS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE TRUST SOUGHT PERMISSION FROM THE SDO AND MONEY WAS DONATED TO OTHER TRUSTS WHICH ARE HAVING THE SAME OBJECTS AND ARE REGISTERED U/S 12AA OF THE ACT. 5. BEFORE COMING TO ANY CONCLUSION IT IS OUR DUTY TO ANALYSE THE OBJECTS OF THE TRUST WHEN IT WAS CREATED (THE OBJEC TS ARE AVAILABLE AT PAGES 13 AND 14 OF THE PAPER BOOK). AS PER OBJECT NO. 9 OF THE OBJECTS THE ASSESSEE TRUST WAS TO EARN INCOME FROM THE AGRI CULTURAL LAND AND TO COLLECT MONEY FOR THE DEVELOPMENT OF THE ASSESSEE T RUST AND TO USE THE EARNING FROM THE LAND FOR THE BENEFIT OF THE TRUST. IT IS PERTINENT TO MENTION HERE THAT THERE IS NO OBJECT IN THE ORIGINAL TRUST DEED THAT THE ASSESSEE TRUST IS AUTHORIZED TO SELL THE LAND. HOWEVER WIT H THE PERMISSION OF THE CONCERNED SDO THE LAND WAS SOLD TO DIFFERENT PERSO NS AND MAJOR PART OF THE SALE PROCEEDS WAS DONATED TO OTHER TRUST. HOWE VER WE ARE REFRAINING OURSELVES FROM COMMENTING UPON THE SALE OF THE AGRICULTURAL LAND OWNED AND SOLD BY THE TRUST. 6. SO FAR AS THE OTHER OBJECTS OF THE TRUST ARE CON CERNED THESE ARE BROADLY OF RELIGIOUS NATURE BECAUSE WE FIND THAT TH E MAJOR OBJECTS ARE TOWARDS SAFETY OF MOVABLE AND IMMOVABLE PROPERTY C LEANING AND 6 REPAIRING OF TEMPLES TO PROVIDE FOOD TO SAINTS AND ALSO TO PROVIDE THEM ACCOMMODATION. ANOTHER POINT PERTINENT TO MENTION HERE IS THAT BROADLY THE ASSESSEE TRUST IS COLLECTING MONEY FROM DIFFERE NT SOURCES FOR ITS DEVELOPMENT BUT THE SALE PROCEEDS OF THE LAND ITSEL F WAS DONATED TO OTHER TRUST WHICH ARE REGISTERED U/S 12AA OF THE AC T. 7. NOW THE QUESTION ARISES AS TO WHETHER REGISTRATI ON U/S 12AA OF THE ACT CAN BE GRANTED TO THE ASSESSEE TRUST ? ON PERU SAL OF THE OBJECTS IT CAN BE SAID THAT WHILE GRANTING REGISTRATION THE A SSESSEE IS SUPPOSED TO SATISFY THE GENUINENESS OF ITS ACTIVITIES PURSUANT TO ITS OBJECTS AND THE APPLICATION OF INCOME IS NOT THE ONLY CRITERIA FOR DENYING REGISTRATION AT THE STAGE OF GRANTING REGISTRATION BECAUSE THE ASSE SSING OFFICER IS FREE TO ANALYSE THE APPLICATION OF INCOME AUDITED ACCOU NTS AT THE RELEVANT TIME. IF THE TOTALITY OF FACTS IS ANALYSED WE ARE OF THE CONSIDERED OPINION THAT IN THE INSTANT CASE SINCE THE ASSESSEE HAS MO VED FIRST APPLICATION FOR GRANT OF REGISTRATION ON 5.3.99 WHICH FALLS IN THE FY 1998-99 RELEVANT TO THE ASSESSMENT YEAR 1999-00 THEREFORE IN THE F ITNESS OF THINGS WE DIRECT LD. CIT TO GRANT REGISTRATION W.E.F. 1.4.199 8 AND NOT FROM THE DATE OF CREATION OF THE TRUST FIRSTLY BECAUSE WHILE FILI NG THE APPLICATION THE AUDITED BALANCE-SHEET SHOULD ACCOMPANY THE PRESCRIB ED FORM DULY SIGNED AND VERIFIED BY AUTHORIZED ACCOUNTANT ON THE PRESCRIBED FORMAT. AS PER RULE 17B THE AUDIT REPORT AS REQUIRED TO BE FILED IN FORM NO. 10B AND THE AUDITOR WHILE GIVING THE AUDIT REPORT IS SU PPOSED TO CERTIFY THAT 7 THE SAME HAS BEEN PREPARED AFTER EXAMINING THE BALA NCE-SHEET AND PROFIT AND LOSS ACCOUNT FOR THE YEAR AS PER THE BOO KS OF ACCOUNTS MAINTAINED BY THE APPLICATION TRUST. THE REPORT OF LAST THREE YEARS IS SUPPOSED TO BE ATTACHED WITH THE APPLICATION FORM. THERE IS A SPECIFIC FINDING IN THE IMPUGNED ORDER THAT THIS PROCEDURAL REQUIREMENT EVEN WAS NOT COMPLIED WITH. THE COMPETENT AUTHORITY GAVE PE RMISSION TO THE ASSESSEE TO SELL THE PROPERTY ON 28.1.1998 AND THE PROPERTY WAS SOLD IN PIECES TO VARIOUS PARTIES ON DIFFERENT DATES AND AL SO IN DIFFERENT YEARS. AS PER THE REVENUE (ON THE BASIS OF SALE DEEDS) THR EE SALE DEEDS TOTALING RS. 11 10 000/- WERE EXECUTED IN FINANCIAL YEAR 1997-98 7 SALE DEEDS FOR A CONSIDERATION OF RS.25 90 000/- IN FINA NCIAL YEAR 1998-99 8 SALE DEEDS WERE EXECUTED IN FINANCIAL YEAR 2000-01 FOR RS.32 48 000/- 6 5AND TWO SALE DEEDS WERE EXECUTED IN FINANCIAL YE AR 2001-02 FOR RS.59 750/-. AS PER THE REVENUE THE VALUE OF BALAN CE PROPERTY SOLD IN SUBSEQUENT YEARS IN 2000-01 AND 2001-02 WERE NOT SH OWN IN THE BALANCE-SHEET PLACED ON RECORD. DURING HEARING THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE ALSO POINTED OUT THAT T HE ASSESSEE TRUST SOUGHT PERMISSION FROM SDO/REGISTRAR FOR SALE OF 8. 3 HECTARES OF LAND WHEREAS THE TOTAL LAND SOLD WAS 7.75 HECTARES ONLY. 8. WHILE GRANTING REGISTRATION THE LEARNED CIT MAY EXAMINE WHETHER THE APPLICATION IS MADE IN ACCORDANCE WITH THE REQU IREMENTS OF SECTION 12A READ WITH RULE 17A ALONG WITH FILLING OF FORM N O. 10A. HE MAY ALSO 8 EXAMINE WHETHER THE OBJECTS OF THE TRUST ARE CHARIT ABLE OR NOT. AT THIS STAGE IT IS NOT PROPER TO EXAMINE THE APPLICATION OF INCOME. OUR VIEW IS FORTIFIED BY THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN 5 TH GENERATION EDUCATION SOCIETY V. CIT (185 ITR 634) NEW LIFE IN CHRIST E. ASSOCIATION VS. CIT; 246 ITR 532 (MAD). IT IS N OT THE CASE OF THE REVENUE THAT NONE OF THE CHARITABLE OBJECTS MENTION ED IN THE DEED WAS CARRIED OUT BY THE ASSESSEE OR THE ACTIVITIES CARRI ED OUT WERE FOR THE PURPOSES OF GENERATING INCOME OF THE TRUSTEE MEMBER S. REGISTRATION CANNOT BE DENIED MERELY ON THE GROUND OF APPLICATIO N OF INCOME. FOR THE PURPOSE OF REGISTRATION U/S 12A WHAT THE LEARNED CI T HAS TO SATISFY IS ABOUT THE GENUINENESS OF THE ACTIVITIES OF THE TRUS T. HOWEVER WE ARE MAKING IT CLEAR THAT MERE REGISTRATION U/S 12AA OF THE ACT WOULD NOT IN ITSELF BE A GROUND MUCH LESS A CONCLUSIVE PROOF FOR EXCLUDING SUCH INCOME DESCRIBED IN SECTIONS 11 AND 12 FROM THE TOT AL INCOME OF THE PERSON/ASSESSEE OR TRUST FROM INCOME OF THE PREVIOU S YEAR. IF THE TRUST OR THE INSTITUTION IS NOT REGISTERED U/S 12AA IT W OULD NOT BE ABLE TO CLAIM ANY EXEMPTION OR EXCLUSION OF ITS INCOME FROM THE T OTAL INCOME OF THE PREVIOUS YEAR EVEN IF SUCH INCOME IS OTHERWISE LIA BLE TO BE EXCLUDED UNDER ANY OF THE CLAUSES OF SECTION 11 OR SECTION 1 2. A READING OF PROVISIONS OF SUB-CLAUSES (A) AND (B) OF SECTION 12 AA MAKES IT CLEAR THAT THE COMMISSIONER HAS TO SATISFY HIMSELF ABOUT THE G ENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTITUTION AND ALSO ABO UT THE OBJECTS OF THE TRUST 9 OR THE INSTITUTION. MERELY ON THE BASIS OF SOME MI SAPPREHENSION THAT THE INCOME MAY NOT BE USED IN PROPER MANNER AND FOR THE PURPOSES RELATING TO ANY CHARITABLE OBJECTS REJECTION CANNOT BE MADE . SECTION 12AA WHICH LAYS DOWN THE PROCEDURE FOR REGISTRATION DOE S NOT SPEAK ANYWHERE THAT THE CIT WHILE CONSIDERING THE APPLIC ATION FOR REGISTRATION SHALL ALSO SEE THAT THE INCOME DERIVED BY THE TRUST OR THE INSTITUTION IS EITHER NOT BEING SPENT FOR CHARITABLE PURPOSES OR S UCH INSTITUTION IS EARNING PROFIT. OUR VIEW IS FORTIFIED BY THE DECIS ION FROM CIT V. RED ROSE SCHOOL; 163 TAXMAN 19 (ALL). 9. AS FAR AS NON-CONSIDERING THE APPLICATION DATED 5.3.1999 WITHIN SPECIFIED TIME AS PROVIDED U/S 12AA(2) WOULD RESUL T IN DEEMED GRANT OF REGISTRATION AS WAS HELD IN SOCIETY FOR PROMOTION O F EDUCATION ADVENTURE SPORTS AND CONSERVATION OF ENVIRONMENT V . CIT; 171 TAXMANN 113 (ALL). HOWEVER SINCE WE HAVE GRANTED REGISTRATION W.E.F. 1.4.1998 THEREFORE WE ARE REFRAINING OURSELVES FR OM COMMENTING FURTHER. IN VIEW OF THESE FACTS AND JUDICIAL PRONO UNCEMENTS THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 10. NOW WE SHALL TAKE UP THE APPEALS IN ITA NOS. 36 7 TO 371/IND/2006 FOR DIFFERENT ASSESSMENT YEARS I.E. 1998-99 TO 2002 -03 WHEREIN THE FIRST GROUND PERTAINS TO REOPENING THE ASSESSMENT U/S 147 OF THE ACT. DURING HEARING THIS GROUND WAS NOT ARGUED BY THE LD. COUN SEL FOR THE ASSESSEE THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 10 11. AS FAR AS TAKING THE FAIR MARKET VALUE OF LAND AS ON 1.4.1981 AND ENTITLEMENT OF DEDUCTION U/S 11 OF THE ACT IS CONCE RNED SINCE WHILE DISPOSING OF APPEAL IN ITA NO. 780/IND/2007 WE HAVE GRANTED REGISTRATION TO THE ASSESSEE W.E.F. 1.4.1998 THESE WILL BE CONSEQUENTIAL IN NATURE AND THE ASSESSING OFFICER IS DIRECTED TO DECIDE THE FAIR MARKET VALUE AS PER THE PROVISIONS OF THE ACT IN THE LIGHT OF GRANT OF REGISTRATION W.E.F. 1.4.1998. THEREFORE ALL THESE APPEALS ARE D ISPOSED OF AS INDICATED ABOVE. 12. FINALLY THE APPEALS ARE PARTLY ALLOWED AS INDI CATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 24 TH FEBRUARY 2011. (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24 TH . 2.2011 COPY TO: APPELLANT RESPONDENT CIT CIT(A) DR G UARD FILE DN/-