Recent judgments relating to Trusts

Under general law, a ‘trust’ is defined as an obligation attached to the ownership of property, and arising out of the confidence reposed by the author of the trust in the trustees. In the Income Tax Act (hereafter referred to as the Act), however, the word has been used in a wider sense to include any other legal obligation, even where the legal requirements for creation of a trust are not strictly met.

Section 11 of the Act excludes income of a charitable or religious trust from the total income of the person in receipt of such income. Section 12 of the Act exempts the income of a charitable or religious trust derived from voluntary contributions and applicable solely to charitable or religious purposes. Section 2(15) defines that “charitable purposes” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and advancement of any other object of general public utility.

This article attempts to discuss few latest decisions of the judiciary on various aspects pertaining to charitable or religious trust :

Registration of Trust :

For availing of exemption under section 11 & 12 of the Act, registration of the trust or institution is a must. In the case of CIT v. U.P. Forest Corpn. [1998] 230 ITR 945/97 Taxman 259 (SC), it was observed that in order to take advantage of the provisions of section 11, a trust or institution has to get itself registered.

Cancellation of registration :

According to section 12AA(3) of the Act, if the CIT is satisfied that the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, he shall, after giving reasonable opportunity of being heard to the concerned trust or institution, pass an order in writing cancelling the registration granted under the said section.

In the latest judgment of a High Court, the Bombay High Court in the case of DIT (Exemption) v. North Indian Association [2017] 79 taxmann.com 410 in its decision dated 14-02-2017 expressed the view that jurisdiction to issue a notice under section 12AA(3) would only arise if one of the two conditions for its exercise is satisfied, i.e., either the trust should not be genuine or the activities of the trust are not carried out in accordance with its objects.

In one of the latest decision on the issue from the ITAT, the ITAT, Mumbai Bench-B  in its decisions dated 08-02-2017 in the case of Bhakti Kala Kshetra v. DIT (Exemptions) [2017] 163 ITD 440/79 taxmann.com 66 (Mum.-Trib.), held that even if trust or institution was hit by monetary limits mentioned under section 2(15) w.e.f. 1-04-2009, the same would adversely affect entitlement of assessee towards claim for exemption under section 11 of the Act, but, the same cannot lead to cancellation/withdrawal of registration granted under section 12A/12AA of the Act. 

In the case of Vignana Jyothi v. Dy. CIT [2017] 81 tamann.com 204 (Hyderabad – Trib.), the ITAT, Hyderabad Bench held that trust registration could not be cancelled for receiving of voluntary donation (capitation fee) from students while seeking admission.

Filing of Form 10 during re-assessment :

In the case of CIT v. Sakal Relief Fund [2017] 81 taxmann.com 396 (Bombay), the Bombay High Court held that filing of Form 10 during re-assessment proceedings was same as it was filed within the time allowed for furnishing the return of income under section 139(4); intimation in Form 10 had to be filed before completion of assessment, and therefore, the benefit of accumulation under section 11(2) could not be denied if Form 10 was filed during the re-assessment proceedings. In the instant case, the assessee-trust filed its return of income consequent to notice issued under section 148 and Form 10 for the purpose of availing accumulation of income under section 11(2) was filed later during the course of assessment. Assessing Officer (AO) rejected Form 10 on the ground that the same was not filed with the return. Accordingly, the accumulation of income wasn’t allowed and the income was brought to taxation.

Non-filing of return and denial of trust’s registration :

In the case of CIT (Exemptions) v. Shri Shirdi Sai Darbar Charitable Trust (Dharamshala) [2017] 81 taxmann.com 49 (Punjab & Haryana), the Punjab & Haryana High Court held that denial of trust’s registration merely on the ground of non-filing of return in the earlier years was unjustified. In the instant case, CIT (Exemptions) denied registration to the trust on the ground that it had not filed any return of income for the earlier assessment years. The High Court held that the CIT (Exemptions) had to satisfy two conditions while granting registration under section 12AA, firstly, whether the objects of the assessee were charitable in nature and, thus, the activities were genuine.

Miscellaneous :

In the case of DIT (Exemptions) v. Shree Nashik Panchvati Panjrapole [2017] 81 taxmann.com 375 (Bombay), it was held that where the dormant activity carried out by the trust was to take care of old, sick and disable cows, any incidental activity of selling milk which might have resulted in receipt of money, by itself would not make it trade, commerce or business nor an activity in the nature of trade, commerce or business to be hit by the proviso to section 2(15).

In the case of CIT v. Seth Anandram Jaipuria Edu. Society Cantonment [2017] 80 taxmann.com 96 (Allahabad), the Allahabad High Court has held that grant of scholarship to deserving students to pursue higher studies was charitable in nature.                                      

Beyond the routine

I have been asked to write something. I kept thinking what subject would be most appropriate. I have not found the time to write in a long time owing to professional pre-occupations. Now that I have to pen a thought, I want to make it worthwhile. I desire to impart something that would be of benefit to the student community at large and also aspirants of various competitive examinations. I like to share a thing or two from my experiences till date.

I joined government service towards the fag end of 2008. It has almost been 9 years since I became part of the salaried class. Even as students in colleges chalk out their career and those out of regular academics compete for a place in the sun, it is to be noted that certain things never fail the test of time. Taking up something beyond the routine or finding interest in something beyond the regular or being passionate about a particular subject/activity, is one such. Call it a hobby or an extracurricular activity or a passion. It really helps to excel in something over and above the basic activity one is normally engaged in.

 The Longman Dictionary of Contemporary English defines a ‘hobby’ as an activity that one enjoy doing in one’s free time. Extracurricular activities are not part of the course that a student is doing at school or college. The definition of ‘passion’ in this context would be ‘a very strong liking for something’ or ‘a very strong belief or feeling about something’. A blended meaning of ‘hobby’, ‘extracurricular’ and ‘passion’ would generate the point that I like to convey. An ‘aficionado’ is someone who is very interested in a particular activity or subject and knows a lot about it. Being good at something beyond office work is really helpful and valuable. The ‘good’ we refer here means excelling – you are simply one of the best around. Your ability should be pronounced, recognizable and above ordinary, if not extraordinary.

 It can be a game – badminton, tennis, golf, cricket, football, etc. It can be musical – vocalist, guitarist, pianist, sitarist, drummer, songwriter, etc. It can be artistic – cartoonist, sketch artist, graphic designer, painter, etc. It can be literary – poet, essayist, scriptwriter, freelancer, etc. It can be cultural – classical dance, folk dance, contemporary dance, traditional dance, etc. It can be adventurous – mountaineering, fishing/angling, cycling/biking club, nature watch, etc. It can be many others – compering, philanthropy, public/meeting presentations, event managements, etc. The above are not exclusive but some of the fairly common citable examples.

It is always helpful and beneficial to excel in something over and above regular academics. More so, after getting into a regular job/employment. The reasons are manifold – first, it bust stress from your routine work and provides relaxation to body and mind; second, it brings you close to people/colleagues who share the same interest, which normally has positive impact across the hierarchy and also facilitates smooth task execution; third, exhibiting your talent in the right forum enhance your profile and stature in the workplace; fourth, you become engaged productively in your free time; fifth, it enhances your self-concept and worth, gives you satisfaction and contentment. Having said so, the importance and irreplaceability of doing well in basic academics remain paramount. What is discussed here is about value-addition in life and career and the concept of remaining relevant, resourceful and useful.

 If you are a really good badminton player, if you are a good golfer, if you play excellent tennis, if you are a great singer or accomplished musician, if you have written and published acclaimed essays or authored reasonably readable books, if you are an accomplished artist in any form of dance, if you are an experienced hand in outdoor activities, etc.; rest assured, you will not be without friends wherever you go. It is also true that instead of being mediocre in many fields, it is better to excel in a chosen genre. In the chosen subject, one should also make effort to be a cut above the rest. A talented employee or student is always loved, admired, adored and cared for. Mistakes and other shortcomings are also more prone to being overlooked or dealt by giving gentle advice rather than resorting to punitive measures.

 Cultivating and nurturing a skill or talent does not bring any loss, but only gain. You may have to invest substantial time and resource, but at the end of the day, it is more than worth. A plate of green salad to the main course adds spice to the meal and lifts the discourse. The routine we keep doing and cannot avoid as it is skeletal to the job. In course of time, monotony sets in and can be very uninteresting. The working relationship borne out of formal tasks is result-oriented, the informal relationship emanating from activities beyond routine is value-oriented. Take up something beyond routine today and be more valuable !!

 “Do something that you love. Whatever you’re going to do is going to be tough enough. Find something that gets you so excited that the sun can’t come up early enough in the morning because you want to go do your thing.” – Chris Gardner, author of ‘The pursuit of Happyness”.

[The article was published in the August 2017 Issue of LAMHIL, mouthpiece of Kuki Students' Organisation, Delhi]