Perpetual succession in appointment of trustee, cannot dis-entitle assessee-institution from getting registration u/s 12AA IT Act, 1961

SUMMARY OF THE CASE LAWS

A person who is contributing to the charitable cause may keep in his mind that the control of charitable activity may be with him or his family members, but that fact alone cannot dis-entitle the institution from registration unless any material is brought on record to suggest that either the objects of the charitable trust are not charitable in nature or there is a clause in the trust deed according to which certain benefits can be given either to the settler or to the trustees or to the persons related to them.

CASE LAWS DETAILSI

DECIDED BY: ITAT, DELHI BENCH `F’, NEW DELHI,

IN THE CASE OF: NLB Charitable Trust Vs. CIT, APPEAL NO: ITA No. 1707/Del/2009, DECIDED ON March 12, 2010

RELEVANT PARAGRAPH

9. In the light of the above facts, we have to examine that whether Ld. CIT was right in refusing the registration to the assessee. Section 12A regulates the conditions for applicability of Section 11 and 12 and Section 12AA regulates the procedure for grant of registration. Section 12A inter alia stipulates that the provisions of Section 11 and 12 which regulates the income of charitable institutions will not apply in relation to income of any Trust or institution unless a person in receipt of income has made an application for registration of Trust in the prescribed format in the prescribed manner which inter alia include the submission of application before the expiry of a period of one year from the date of the creation of Trust or institution; and such institution should be registered u/s 12AA. Section 12AA stipulates that the Commissioner on receipt of an application as specified in Section 12A shall call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about genuineness of the activities of the Trust or institution anc may also make such inquiries as he may deem necessary in this behalf anc after satisfying himself about the object of the trust or institution and the genuineness of its activity he shall pass an order in writing either registering the said trust or institution and if not so satisfied shall pass an order in writing refusing the registration to the said institution and a copy of such order shall be served en the applicant. From the above provisions it is clear that a trust or institution which has submitted an application within the prescribed time, Commissioner, after examining such application shall call for such documents or information sc as to enable him to satisfy about the genuineness of the activities of the Trust any may also make such inquiry as he may deem it necessary and after satisfying himself… about the objects of such Trust and the genuineness of its activity shall grant the said trust/ institution the registration u/s 12A of the Act.

10. Now, in the order passed by the Ld. CIT refusing to grant registration it is not his case that the objects of the Trust or institution are not charitable in nature. Ld. CIT is also not speaking of non-genuineness of the trust or its activity. The only objection raised by Ld. CIT is that there is a perpetual succession to the trust properties and, thus, such perpetual succession has given a colour of private trust to the applicant. The second objection of Ld. CIT is that the trustees would exercise full control over the working of the trust for all the time to come. Let us take an example of an ordinary institution created by some individual to carry out the charitable activity. A person who is contributing to the charitable cause may keep in his mind that the control of charitable activity may be with him or his family members, but that fact alone cannot dis entitle the institution from registration unless any material is brought on record to suggest that either the objects of the charitable trust are not charitable in nature or there is a clause in the trust deed according to which certain benefits can be given either to the settler or to the trustees or to the persons related to them. Here also it is not the case of the Ld. CIT that according to the conditions laid down in trust deed any of such contravention could be done or there is any possibility of applying any income or asset for the benefit of the settler, trustees or the persons related to them. Here, it will be relevant to mention that there is a prohibition clause in the trust deed which is clause No. 7 and which is described as under:

7. PROHIBITION OF TRUSTEES The trustees shall be prohibited from:-

(i) Making any distinction or discrimination in the beneficiaries . on the ground of caste, race, area or religion except in favour of Scheduled Castes, Scheduled Tribes, backward classes and oppressed people of the country and the world.

(ii) Receiving any, remuneration, for the conduct of the trust, subject however to clause 5 (xiii) and 5 (xiv) above.

(iii) Deriving any direct or indirect pecuniary advantage out of the trust properties, income or application thereof, for themselves and their relatives and associates.

(iv) Spending the trust properties on any object which is not – .enumerated in objects of the Trust.

(v) Acting against the interest of the Trust.”

11. According to the above mentioned prohibition clause, the trustees are prohibited from making any distinction or discretion in the beneficiaries on the ground of cast, race, area or religion except favouring the Scheduled Casts, Scheduled Tribes, backward classes and oppressed people of the country and the world. Similarly, it prohibits grant of any remuneration for the conduct of trust subject to clause 5 (xiii) and (xiv) which read as under:-

“(xiii) To receive out of pockets expenses incurred by them in the course of discharging the objects of the trust. Any trustee can be paid honorarium for the work he does for carrying out the activities of the trust. The amount of honorarium will have to have approval of the Board of Trustees.

(xiv) To be indemnified and reimbursed for all lawful acts in the discharge of objects of the trust.”

12. These clauses describe only reimbursements of out-of-pocket expenses incurred by the trustees in the course of discharging the objects of the trust and for payment of honorarium for the work a particular trustee do for carrying out the activities of the trust and honorarium will have to have the approval of Board of Trustees and other clause deals with indemnification and reimbursement for the lawful acts in the discharge of objects of the trust. The trustees are prohibited from deriving any direct or indirect pecuniary advantage out of trust properties, income or application thereof for themselves and their relatives and associates. The spending of trust properties on any object which is not enumerated in the objects of trust is also prohibited and the trustees act against the interest of trust is also prohibited. Thus, according to the prohibition clause trustees cannot derive any direct or indirect pecuniary advantage either out of property of the trust or from income or application thereof not only for themselves, but for their relatives and associates. In any case, if later on it is found by the department that trustees or their relatives or their associates are deriving any direct or indirect pecuniary advantage out of trust property or its income and if any such property or income is applied for that purpose, then it will be contravention of the trust deed. Therefore, in our opinion, the simple fact that there is perpetual succession in the appointment of trustee, cannot disentitle the assessee institution from getting registration. Moreover, the trust deed has to be read as a whole according to well established law. It has been stated in clause 2 (ii) that if any of the first trustees resigned during his/her life time, the vacant seat will be filled by the Board of first trustees with W majority and, thus, nominated will also be called first trustee. Clause 2 (iii) provides that the number of trustees could be increased by moving an amendment of the trust and getting approval of 3/4 number of first trustees, however, the total number of trustees cannot exceed 10. In view of this clause also it cannot be said that there is perpetual succession of the post of the trustee.

13. In view of the above discussion, we are of the opinion that the reason assigned by Ld. CIT for rejecting the request of the assessee for grant of registration is not in accordance with the law. Since Id. CIT has not doubted about the nature of objects of the trust which are charitable in nature, we are of the opinion that the assessee is entitled for registration u/s 12A of the Act. Accordingly, we direct the Ld. CIT to grant the registration to the assessee. Here it can be mentioned that if later on Ld. CIT found that the activities of the assessee are not charitable in nature, he can utilise his power provided in subsection (3) of Section 12AA of the Act and he may adopt the procedure laid down therein in accordance with law. With these observations, we allow the appeal filed by the assessee.

NF