IN HIGH COURT OF DELHI AT NEW DELHI

Decided on: May 14, 2015

ITA 1312/2010
COMMISSIONER OF INCOME TAX ..... Appellant
ITA 1322/2010
DIRECTOR OF INCOME TAX ..... Appellant
Through: Mr.Rohit Madan, Adv.

versus

RAM KISHAN KULWANT RAI CHARITABLE TRUST
..... Respondent
Through: Mr.Sandeep Mittal, Adv.
+ ITA 16/2013
DIRECTOR OF INCOME TAX (EXEMPTION)
..... Appellant
Through: Mr.N.P.Sahni, Sr.Standing Counsel
and Mr.Nitin Gulati,Jr.Standing
Counsel.

versus

IILM FOUNDATION (NEW) ..... Respondent
Through: Mr.Sandeep Mittal, Adv.

CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K.GAUBA

MR. JUSTICE S. S. RAVINDRA BHAT
%

1. This order is proposed to decide three connected appeals, i.e. ITA
Nos. 1312/2010, 1322/2010 and 16/2013. substantial question of law




ITA Nos.1312,1322/2010 &16/2013 Page 1
framed in first two appeals, i.e. 1312/2010 and 1322/2010 is as follows:
Whether in circumstances of case, Assessing Officer could have
rendered findings questioning exemption under Section 12-A enjoyed by
the assessee, on basis of donation which was made to Ram
Krishna and Sons Charitable Trust.


2. question of law which arises in ITA 16/2013 is:
Whether in circumstances of case ITAT was justified in setting
aside order of Director of Income Tax (Exemption), which had
cancelled assessees registration under Section 12A.
3. Brief facts are that assessee was registered as trust on 01.02.2001.
Its application for registration as charitable trust was granted on
27.12.2001. On 30.06.2002 assessee received IILM Undergraduate
Business School,from Ram Krishna and Sons Charitable Trust
(RKSCT). It is not in dispute that assessee has established and manages
other educational institutions and has derived income from them. For
Assessment Year (AY) 2003-04 and 2004-05, based upon certain
remittances made by assessee to RKSCT, AO held that assessee
was not in fact carrying on charitable activities and was, therefore, not
entitled to benefit of Section 12A of Income Tax Act, 1961. Thus
the Assessment orders were carried in appeal; CIT (Appeals) confirmed
them. On further appeal Income Tax Appellate Tribunal (ITAT) granted
relief to assessee. ITAT reasoned that AO was not empowered
to comment either on correctness or otherwise of certificate which
had been granted under Section 12A and that appropriate statutory
authority in that regard was Director of Income Tax (DIT) (Exemption).




ITA Nos.1312,1322/2010 &16/2013 Page 2
Against orders of ITAT, Revenues appeals have arisen in ITA
1312/2010 & 1322/2010.
4. Having regard to submissions of parties and provisions of
Section 12A, we are of opinion that ITATs finding as to absence
of power of AO to doubt certificate granted under Section 12A
cannot be faulted. Whilst AO is certainly empowered to examine the
nature of expenditure in application of trust, he cannot go behind the
certificate issued under Section 12A. Such being established position,
the question of law framed in these appeals is to be answered against the
Revenue and in favour of assessee.
5. second question which arises for consideration in ITA
No.16/2013 is as to legality of revocation of certificate under
Section 12-A ordered by DIT (Exemption). order took note of the
decision of AO for AY 2003-04 and 2004-05 and thereafter the
concerned authorities appears to have issued show cause notice to the
assessee on 03.12.2009. assessee appears to have responded on
26.05.2010, and relied almost unsuccessfully upon Appellates order, for
the AY 2003-04 and 2004-05. It also relied upon orders of ITAT.
The DIT (Exemption) after discussing replies and submissions of the
assessee held as follows:
submissions made in above letter and verbal
discussion held with AR of applicant, same were not
found convincing and acceptable, as assessment
proceedings u/s 12AA(3) are separate proceedings from each
other and outcome of one proceedings does not have any
impact on other proceedings. Being charitable institution,
there is obligation on its part to conduct its activities in more
transparent and reliable manner. General public, even




ITA Nos.1312,1322/2010 &16/2013 Page 3
Government agencies are looking towards charitable
organizations for various philanthropic purposes. As a
consequence of such trust voluntary donations and grants are
being given to such charitable institutions to carry
philanthropic activities for benefit of general public and
society at large. Further, tax incentives have been extended not
only to these charitable institutions exempting their income
from tax but also donors to these charitable institutions are
given tax benefits as well. In this background it is mandatory
on part of these voluntary organizations to keep their
activities transparent and to maintain their books of account in
reliable manner. In instant case, on going educational
institution has been transferred to assessee society in the
books of account as voluntary received whereas in actual
conduct, assessee society has repaid crores of rupees year
after year to institution which transferred educational
institution i.e. IILM Undergraduate Business School (IILM-
UBS). entire transaction of transfer and so called
donation to such institution is nothing but colorable device to
subvert provision of law and to gain benefits among
specified person u/s 13 of Income Tax Act, 1961. The
activity of Trust does not fall within meaning of
Charitable activity, as transfer of running Business School
from Ram Krishan and Sons Charitable Trust to Ram Krishan
Kulwant Rai Charitable Trust (the assessee trust) is purely a
business transaction for benefit of common trustees and not
in favour of general public.

6. In view of above fact and considering reply of the
assessee, it is established beyond reasonable doubt that the
society has violated provisions of Section 2(15), activity by
society, it does not quality for registration u/s 12A.
Accordingly, registration granted u/s 12A to assessee
society is cancelled from A.Y. 2003-04.

6. In appeal, ITAT accepted assessees contention and held as
follows:




ITA Nos.1312,1322/2010 &16/2013 Page 4
bare perusal of clause would reveal that registration
already granted to assessee can be cancelled if activities
of trust are not genuine or activities of trust are not
carried on in accordance with objects of trust. Ld.
DIT in order to demonstrate activities of trust are not
genuine or not carried out in accordance with objects has
observed that entire transaction of transfer and so
called donation to such institution is nothing but colorable
device to subvert provisions of law and to gain benefits
amongst specified persons u/s 13 of Income Tax Act 1961.
Ld. DIT has not specified how it is colorable device and how
any specified person under Section 13 would gain benefit. Both
trusts are enjoying benefit under Section 12A. Let us take a
hypocritical example. assessee, if not acquired the
institution by donation and it had not donated sum of 4.43
crore to RKSCT then probably there would be no prejudice to
revenue and there could be no grievance. receipt ought
to be received by RKSCT and it would then treated as
application of income by that trust towards its objects. Ld. DIT
has not pointed out as to how donations made by assessee are
not in accordance with objects and it cannot be treated as
genuine activities of trust. This is not only institution
run by trust, RKSCT is running various other
institutions and its activities have not been doubted. show
cause notice is based on observations of AO in asstt.
Year 2003-04. However, those observations were not upheld by
Ld. First Appellate Authority as well as by ITAT. Copy of
Tribunal orders have been placed in paper book on
pages No.185 to 211. These are orders for asstt. Year
2003-04 to 2006-07. On due consideration of facts and
circumstances, we do not find any ground or cancellation of
registration. Therefore, we allow appeal of assessee and
quash order of Ld. DIT, registration already granted to
assessee is restored back.

7. We have heard counsel for parties. Whilst there can be quarrel
with ITATs generalization that Director of Income Tax, in order to




ITA Nos.1312,1322/2010 &16/2013 Page 5
hold that exemption certificate under Section 12A has to be revoked, is
to base himself or herself on material and cogent reasoning, at same
time, circumstances in this case are such that assessee ought to have
displayed more vigilance. AO in present case noticed that after the
donation of institution to assessee on 26.05.2002 significant portion
of income i.e. fee collection etc., was donated to RKSCT. Now, when
the notice was issued under Section 12A by Director of Income Tax, the
assessee was under duty to furnish particulars and satisfy authority as
to how and why amounts made over to Ram Krishan & Sons Charitable
Trust from its earnings through its charitable activities were either not a
device, or were permissible under its trust. Given significance of the
amounts involved i.e. 2.74 crore and 60 lakhs in AY 2004-05 and
4,43,37,505/- crores in AY 2003-04, assessee was certainly expected to
give explanation better than one it argued that AOs reasoning
was not supported by law as he was not authority to doubt such
expenditure. obligation required of charitable trust enjoying the
benefit of tax exemption under Section 12A is clearly categorical in that it
has applied for registration under Section 80G(5) towards its charitable
activities. In these circumstances DIT (Exemption) was certainly within
her rights to insist on proper explanation which in circumstances of the
case, assessee failed to provide perhaps more as result of its mistake
on his mis-apprehension that entire basis for revocation proceedings
or AOs opinion for AY 2003-04 and 2004-05. Once notice under
Section 12A proposing revocation was issued in independent nature of
the proceedings had to be satisfied. assessee was under obligation to
provide such material to satisfy that donation fulfilled objective and




ITA Nos.1312,1322/2010 &16/2013 Page 6
were of charitable nature and as such rendered any proposed action for
revocation unwarranted.
8. For above reason, this Court is of opinion that impugned
order of ITAT cannot be sustained and it is set aside. At same time
we are of opinion that DITs order also has to be set aside. The
matter is remitted to DIT (Exemption) for fresh examination after
consideration of such material as assessee may choose to place on record
within next four weeks.
9. ITA No. 16/2013 is partly allowed in above terms.



S. RAVINDRA BHAT, J



R.K.GAUBA, J
MAY 14, 2015
mr




ITA Nos.1312,1322/2010 &16/2013 Page 7
COMMISSIONER OF INCOME TAX v. RAM KISHAN KULWANT RAI CHARITABLE TRUST