In a decision by ITAT-Delhi, following important aspects of a charitable institution were decided upon.
- Whether for registration under S.12AA/12A, execution of a formal deed of trust is necessary, without which registration could not be granted ?
- Whether tax authorities, while determining the registration under S.12AA/12A could go into the issue of income & expenditure account?
- Whether the activities of the Trust for the benefit of a particular caste or community and performing charitable activities for this purpose would be debarred from registration under S. 12AA?
- Whether supreme head of the Trust taking food and clothes, etc. from the funds of the Trust was violative of the provisions of S.13 of IT Act?
The case is relating to Tsurphu Labrang, a Trust created in 1159 AD and presently headed by the 17th Gyalwang Karmapa, residing in exile in Dharamsala. The Trust could not file the original Trust Deed, instead filed an affidavit that the trustees have in their possession all the Trust funds comprising of both movable & immovable properties, duly accounted for in its accounts and that all income arising from trust properties shall be applied for the aims and objects of the Trust, which were detailed in the affidavit itself.
The Tribunal stated that the Income Tax Act does not lay down any requirement that execution of a formal deed of Trust is necessary without which the registration could not be granted. It examined Rule 17A of Income Tax Act in this regard, which states that where the Trust is created under an instrument, copy of an instrument will need to be submitted with the application alongwith accounts for which activities have been completed, but in no case more than for 3 years. The second limb of the said Rule states that where Trust is created or the Institution is established, otherwise than under an instrument, the document evidencing the creation of the Trust is sufficient. There is no specific provision on what type of this document is required, thus it could be of any type. Even Indian Trust Act allows oral creation of a Trust and if the assessee is able to give some evidence of creation of such Trust by a word of mouth, the same shall be eligible for registration under S.12AA/12A. In this regard the present Head of the Trust has given a full declaration giving complete history of the organisation from 1159 AD. The Tribunal gave reference of Laxminarayan Maharaj vs CIT [1984] where Trust was created 100 years ago without any Trust document. MP HC decided in favour of the assessee on account of other evidences. Even an appeal to the SC was dismissed.
The Tribunal relying on several judgments stated that at the time of registration revenue authorities are required to examine only the aims and objects of the Trust and whether these are charitable in nature. The stage for application of income shall arise only when the Trust files its IT return. Cases relied upon include CIT vs Surya Educational & Charitable Trust [2013] a decision by Punjab & High Court.
Tax authorities argued that the trustees took refuge in Sikkim for 35 years but neither any Income Tax returns were filed nor any application moved under S.12A. The Tribunal stated that the Trust has moved application for registration on 31st March 2011 and therefore delay is not relevant, since the assessee has sought exemption from AY 2011-12 onwards only. It also rejected the argument of the Dept. that name of the 17th Karmapa is involved in certain foreign contribution violations, that those proceedings are on a different footing and would continue in a different court.
The Tax authorities’ objections that the objects given under the Declaration could not be original objects as existing in 1159, the Tribunal stated that the Objects of a Trust are likely to be dynamic which can always be modified to reflect present human needs and need not remain stagnant. Main consideration should be that the objects at the time of filing of declaration are charitable in nature and other essential conditions required for an organisation to be granted exemption are existing.
The Tribunal also rejected the argument that the activities of the Trust are for the benefit / charitable purpose of a particular community. The Tribunal stated that it is a well settled law that an object beneficial to a section of the public is an object of general public utility. The intention of the institution should be impersonal in nature and for a sufficiently defined and identifiable section of the public. It referred to several cases while arriving at this conclusion, including Ahemdabad Rana Caste Association vs CIT, Gujarat (1971 – SC) & CIT vs Dawoodi Bohra Jamat [2014 – SC].
The last issue that the Tribunal decided whether the Supreme Head of the institution who was receiving food and clothes, etc. from the funds of the Trust was violative of S.13. The Tribunal observed that the 17th Karmapa, who has renounced the world. He even diverts all offerings made to him to the Trust. He was full-time involved in the affairs of the Trust and was not taking any salary or other monetary compensation for the same. It observed that Section 13 does not debar the genuine basic expenditure of the Mehant or supreme head of the trust for their survival. The provision is meant to debar the author or trustees from parting away part of the income or Trust property for their personal benefit.
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