Kanakia Art Foundation, Mumbai vs Assessee

This is an appeal filed by the assessee against the order of DIT(E)

dated 21-12-2012 for the Assessment Year 2012-2013, in the matter of

order passed u/s.12AA(1)(b)(ii) r.w.s.12A of the Act, declining the

registration u/s.12A of the Act.

2. Rival contentions have been heard and record perused. The

assessee trust has filed an application for registration uls.12A of the IT.

Act, 1961 in the prescribed Form No.10A on 04.06.2012. The trust has

been constituted by a Deed of Trust dated 10.09.2011. It has been

registered with the Charity Commissioner, Mumbai on 15.02.2012 while

deciding registration u/s.12AA. The DIT(E) observed as under :- 2 ITA No.1547/13

"3. As per the provisions of Section 12AA(l )(b), a trust is to be granted registration if the Commissioner is satisfied about the objects of the trust and the genuineness of its activities. Both these requirements are cumulative and not alternative. If either of these conditions is not satisfied, the applicant will not be entitled to registration. A perusal of the Trust Deed reveals that the applicant trust has charitable as well as non-charitable/ business objects such as the following :-

"E To create a culture among the elite class of the society for considering work of art an asset that can be passed on to the next generation with pride and prestige. F. ......to convert plays into .. episodes on TV...... H. to conduct classes or courses for the development of dramatic arts, including acting, stage settings and decorations, face painting and make up.

M. To produce documentary films on social and cultural subjects and to exhibit them through T.V. or.... N. To establish a mini academy to carry out any one or more of the above mentioned objects.

S. To open, establish, maintain .... Industrial homes and institutions..

AG To establish, maintain .... Public hall or gallery for ....means of public recreation.

AJ ... To encourage promotion of .... Sports, games and health science by establishing, maintaining ....gymnasiums ....recreation centres..... health centres. "

Further, as per clause 4 at Page-4 of the Trust Deed, the trustees shall apply the income or any part of the corpus of the Trust Fund for all or any of the objects as they may in their absolute discretion think-fit from time to time. - In other words, the trustees enjoy full discretion to apply the income of the trust towards attainment of anyone or more of its objects including non charitable ones and there is no binding legal obligation on them to apply such income / trust funds solely for charitable purposes. In this connection, the applicant vide letter dated 16.11.2012 submitted that there was no element of commerce involved in the above objects and that the beneficiaries of all the above activities were general public without any distinction of religion, colour, class or creed. It is argued that if these objects were commercial in nature, the Charity Commissioner would have asked the applicant to delete the same. It is submitted that in fact trustees will have to spend the time and money on the activities to achieve the objects of the trust rather than carry out any commercial activities."

3. Accordingly, assessee's claim of registration was declined. Against the above order of DIT(E), assessee is in further appeal before us.

4. We have considered rival contentions, carefully gone through the

order of the DIT(E) and found that registration was declined on the plea 3 ITA No.1547/13

that the trustees enjoy full discretion to apply the income of the trust

towards attainment of anyone or more of its objects including non

charitable ones and there is no binding legal obligation on them to apply

such income / trust funds solely for charitable purposes. We had carefully

gone through the various object clause in the trustee deed and especially

the object clause highlighted by the DIT(E) at page 1 of his order,

however, nowhere we found that any of the object of the trust was for

non-charitable one. The decisions cited by the ld. DR are distinguishable

on facts, insofar as all the objects of the trust was charitable in nature,

genuineness of its activities were not in doubt. It is also pertinent to

mention here that at the time of registration u/s.12A, the CIT is required to

verify the objects of the trust and genuineness of its activities. If the

objects of trust is charitable and its activities are genuine, the registration

is to be granted. If subsequently it is found that assessee is not following

its object or that objects are not charitable or its activities are not genuine

then during the course of assessment, the AO has all the powers to tax

such receipts of the trust which are non-charitable or commercial in nature

or to apply the provisions of Section 13 of the Act so as to exclude inform

from properties held under a trust for private religious purposes which

does not enure for the benefit of the public. During the course of

assessment, the AO is also empowered to exclude such receipts/income

of the trust if he finds that any funds of the trust or institution are invested

or deposited in any form or mode specified in sub-section (5) of Section

11. The AO is also empowered to exclude income of such trust from the

provisions of exemption if he finds that such funds were utilized for benefit 4 ITA No.1547/13

of any of the persons, who made substantial contribution to the trust or

institution, any trustee of the trust or manager of the institution or any

concern, in which any of the persons referred in clause (a), (b), (c) and (d)

of the sub-section 3, as substantial interest. Furthermore, various clauses

in the trust deed with regard to promote education, medical relief in no

way amounts to carry on any business so as to deny the claim of

registration u/s.12AA.

5. In view of the above, we do not find any merit in the order passed

by the DIT(E) declining the claim of registration u/s.12A.

6. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on this 21/01/2015.

21/01/2015

Sd/- Sd/- ( ) ( ) (SANJAY GARG) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 21/01/2015 /pkm, PS Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A), Mumbai. 4. / CIT 5. / DR, ITAT, Mumbai

6. Guard file. //True Copy// / BY ORDER,

(Asstt. Registrar) / ITAT, Mumbai