Section 12AA Registration Cannot Be Denied for Genuine Charitable Payments: ITAT Amritsar

Dharam Chandan Charitable Trust Vs CIT (Exemption) (ITAT Amritsar)

Summary: The Income Tax Appellate Tribunal, Amritsar Bench, in Dharam Chandan Charitable Trust Vs CIT (Exemption), allowed the assessee’s appeal against the rejection of its application for registration under Section 12AA of the Income-tax Act, 1961. The Commissioner of Income Tax (Exemptions), Chandigarh, had rejected the application by order dated 29 August 2019 after questioning certain payments made by the trust. The Tribunal examined the written submissions and supporting documents furnished by the assessee and concluded that the payments were connected with charitable activities. It consequently set aside the rejection order and directed that registration be allowed.

The assessee maintained that its activities satisfied the definition of charitable purpose under Section 2(15). Its activities included operating a dispensary for poor and less privileged persons and providing financial assistance for children’s education. The CIT(E), however, raised objections regarding the identity of certain recipients, the nature of expenditure and its connection with the trust’s objects. The principal dispute was whether the questioned transactions undermined the genuineness of the trust’s charitable activities and justified refusing registration under Section 12AA.

The Revenue specifically questioned payments to Bharat Timber Store, Jai Maa Enterprises and Platinum Health Care, besides payments associated with Shree Gau Sewa Society (Regd.) and the education of two children. The Departmental Representative submitted that the assessee had failed to establish the purpose of the expenditure and the relationship between the recipients and the trust. The Revenue therefore supported the CIT(E)’s rejection order and requested the Tribunal to uphold it.

The assessee explained that the payment to Bharat Timber Store related to furniture purchased for the dispensary, while payment to Shri Anil Kumar represented remuneration for his services as an MBBS doctor. Payments to Jai Maa Enterprises and Platinum Health Care were stated to relate to medicines purchased for the dispensary. The trust relied on bills, ledger accounts, salary records, medical expense accounts and financial statements to substantiate these explanations. It also submitted financial information for financial years 2019-20, 2020-21 and 2021-22 showing expenditure on doctors’ salaries and medical supplies. According to the assessee, these records established that it was operating a dispensary for the relief of poor and underprivileged persons.

Regarding the payments to Shree Gau Sewa Society (Regd.), the assessee explained that donations aggregating ₹62,000 had been made through banking channels in two instalments of ₹31,000 each. The payments were intended to support the education of two less privileged children, identified as Vimal Yadav and Ram Partap Yadav. The trust produced declarations from the recipient society explaining the purpose of the payments. It challenged the CIT(E)’s objection that the money had not been paid directly to the children’s parents, arguing that this circumstance alone did not establish that the transactions were non-genuine. The assessee also submitted that donations to charitable institutions formed part of its objects and could constitute application of income under Section 11.

The appeal was decided on the basis of written submissions because nobody appeared personally for the assessee. The Tribunal considered the available documentary evidence and the Revenue’s arguments. It emphasised that, for registration under Section 12AA, the CIT(E) was required to satisfy himself regarding the trust’s objects and the genuineness of its activities. On examining the explanations and supporting records, the Bench found that the disputed payments related to charitable activities. It also observed that the Departmental Representative had not raised any substantial objection to the evidence produced before the Tribunal.

Accordingly, the Tribunal held that the rejection of registration could not be sustained. It set aside the CIT(E)’s order and directed that the assessee be granted registration under Section 12AA. The appeal was allowed by order pronounced on 26 April 2023. The decision illustrates that the examination of genuineness during charitable trust registration proceedings must take account of the actual purposes of expenditure and the supporting evidence. In this case, payments for medical facilities, doctors’ services, medicines and educational assistance were accepted as being connected with the trust’s charitable activities.

Statutory Provisions Discussed: Section 12AA(1)(b)(ii), Section 2(15) and Section 11 of the Income-tax Act, 1961.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

The instant appeal of the assessee is directed against the order of the ld. Commissioner of Income Tax (Exemptions), Chandigarh,[in brevity the ‘CIT (E)’] order passed u/s 12AA(1)(b)(ii) of the Income Tax Act 1961[in brevity the Act], order dated 29.08.2019.

The assessee has taken the following grounds:

“1. That the ld. CIT-Exemptions Chandigarh, has erred in law and facts of the case, while denying the registration to applicant u/s 12AA of the Income Tax Act, 1961, without appreciating the fact that such trust is engaged in activities, which are within the meaning of Charitable purpose”, as defined u/s 2(15) of the Act.

2. That the appellant craves the right to add, amend or delete any grounds of appeal before it is finally disposed off.”

2. The assessee was called for hearing, but none was present on behalf of the assessee. The assessee filed written submission and also placed the letter that the matter should be disposed of on basis of written submission. In view of the above and considering the nature of dispute, we proceed to dispose the appeal after hearing the learned DR and on the basis of material available on the record.

3. The assessee is a charitable trust, and the application was made u/s 12AA for registration. The dispute was raised by the CIT(E) related to payment to the party. As per revenue, the assessee was unable to substantiate and to recognize the payment in relation to the activities. The assessee filed a detailed submission before the revenue. The application of registration was rejected by the CIT(E). Being aggrieved assessee filed an appeal before us.

4. The ld. DR vehemently argued and fully relied on the order of the CIT(E). The ld. DR further placed that the payment made by the assessee to M/s Bharat Timber Store, amounting to Rs.22,500/-& M/s Jai Maa Enterprises & Platinum Health Care, amounting to Rs.3,68,761/- were failed to explain related to the purpose of payment, identity, and relationship with the assessee-trust. The ld. DR further argued that the payment made to M/s Shree Gau Sewa Society (Regd), and payment to Sh. Ram Pratap Yadav and to Sh. Vimal Yadav, two children for their education are also unexplained before the authority. The ld. DR prayed that the order of the CIT(E) should be uphold.

5. We heard the rival submission and considered the documents available in the record. The assessee filed a written submission which is kept in the record. The assessee made an explanation related to this payment which is reproduced as under:

“1) Assessee had made certain payments through banking channels to M/S Bharat Timber Store, Sh. Anil Kumar, M/S Jai Maa Enterprises & Platinum health care, amounting to Rs.3,68,761/-.

2) Donation of Rs.62,000/- was made to Shree GauSewa Society (Regd) on 19-12-2017 & 06-02-2018 amounting to Rs.31,000 each, through Banking Channels.

With respect to first alleged infirmity it is submitted that the Ld. CIT-E never asked for the details regarding these payments. In this regard it is humbly submitted that payment to Bharat Timber Store was made for purchase of furniture on 09-02-2018 to be used in dispensary. Copy of A/c & Copy of Bill is enclosed on Page no.84-85 of Paper book. Payment to Shree Anil Kumar was made for the services he rendered in capacity of a doctor. He is MBBS doctor, serving the institution since long, till date. Copy of salary A/C is enclosed herewith on page no 86 of paper book. Further, payment to Jay MAA enterprises & Platinum Healthcare is made on A/C of medical expenses incurred to buy medicines from them. Photocopies of the bills & their copies of accounts are placed on page no.80-83 & 87-95 of paper book.

Furthermore, Balance sheets & Income & Expenditure A/Cs for the period ending 31-03-2020, 31-03-2021 & 31-03-2022 along with copy of A/c of salaries and medical expenses (substantiated by invoices of medicines purchased) are enclosed on page no. 96-105 of paper book. These all documents so submitted along with documents submitted earlier with CIT-E are good enough to demonstrate that dispensary is being run for the relief of the poor, downtrodden & less privileged.

Regarding Second Point of donation to Shree Gausewa Society (Regd) amounting to Rs.62000/- it is humbly submitted that a declaration from Shree GauSewa Society (Regd) are enclosed on page no.77-78 of paper book. In Both the declarations, it was mentioned that payment was made for the study of children of two less privileged persons named Vimal Yadav & Sh. Ram Partap Yadav. However the Ld. CIT-E, doubted the genuineness of the transactions for the reason that why these payments were not directly made to the parents of the Children. No material was brought on record to prove the contention. This Doubt of the Ld. CIT-E is without any basis. One should not be exercising the powers capriciously and in whimsical manner. Another point worth mentioning here is that the Ld. CIT-E has not challenged the donation. Which means he has not doubted the payment of donation. Without prejudice to the argument of making payment to society for fees of children, it is submitted that even if it is a donation, that also qualifies for exemption as application u/s 11 of The Act, since donation to charitable institutions is also part of object clause of the trust.

Following tabular chart would also help in appraisal of activities of the trust:

It is pertinent to mention here that the trustee are interested in pursuing the charitable activities at very large scale. They were somewhere discouraged because of rejection of this application of registration. Moreover, now under new law, every trust has to renew its registration after every five years. This would give opportunity to the authorities to appraise the activities of the trust. Therefore, the undersigned prays to appraise/evaluate/examine the documents submitted in response to both questionnaire of the CIT-E and documents now being submitted to substantiate the contentions, from page no 1-125 of paper book, in substance and spirit of the Law.”

5.1 We consider the submission of the assessee and ld. DR. We find that the said payment was related to the charitable activities of the trust. For registration u/s 12AA it is clearly stipulating that the ld. CIT(E) shall satisfy himself about the objects and the genuineness of its activities. The assessee made the payments in relation to charitable activities of trust. The ld. DR had not made any strong objection related to submission of the assessee and the evidence which are filed before the bench. We set aside the order of the ld. CIT(E) and direct to allow the registration of the assessee.

6. In the result, the appeal of the assessee bearing ITA No. 653/Asr/2019is allowed.

Order pronounced in the open court on 26.04.2023