2004 (5) TMI 51 - HC - Income Tax

Application of income for charitable or religious purposes in/out India- genuineness of its activities - trust submitted two applications for registration u/s 12A and recognition u/s 80G - application was rejected on the ground that the applicant itself has admitted that the scholarships can be paid to the members even outside India section 12AA does not refer to the activities in India or outside India. It refers to application of income for charitable or religious purposes in India as also with direction or order of the Board for application of income as aforesaid outside India - So far as income which is applied outside India is concerned it is not a relevant criteria for rejecting the application. - order made by the Director of Income-tax (Exemptions) rejecting the application is quashed and set aside with a direction to consider the application strictly in accordance with law.

Summary

Issues:
1. Rejection of registration under section 12A and recognition under section 80G of the Income-tax Act, 1961.
2. Interpretation of Section 11 of the Act regarding income derived from property held under trust for charitable or religious purposes.
3. Procedure for registration under Section 12AA and the role of the Commissioner in examining the genuineness of trust activities.

Analysis:
1. The High Court addressed the issue of rejection of registration under section 12A and recognition under section 80G of the Income-tax Act, 1961. The trust had applied for registration, but the Director of Income-tax (Exemptions) rejected the application based on the trust's admission that scholarships could be paid to members outside India. The court held that the rejection was based on irrelevant criteria as the application of income outside India is not a relevant criterion for rejecting the application. The court quashed the order and directed the Commissioner to reconsider the application in accordance with the law within four weeks.

2. The court analyzed Section 11 of the Income-tax Act, which deals with income derived from property held under trust for charitable or religious purposes. It highlighted that income applied to such purposes in India can benefit from Section 11(1)(a), while income applied outside India falls under Section 11(1)(c). The court emphasized that without an order under Section 11(1)(a) and (c), one cannot seek benefits for applying income outside India. The court clarified that the Board's permission is required for such applications, and the rejection based on income applied outside India was deemed incorrect.

3. The judgment also delved into the procedure for registration under Section 12AA and the Commissioner's role in examining the genuineness of trust activities. It emphasized that the Commissioner must satisfy himself about the trust's objects and activities before passing an order for registration. The court noted that the Commissioner failed to apply his mind properly in this case and directed a fresh consideration of the applications under both Section 12A and Section 80G. The court highlighted the need for proper examination and adherence to the procedure laid down under Section 12AA for registering trusts or institutions.

In conclusion, the High Court's judgment focused on rectifying the erroneous rejection of registration under section 12A and recognition under section 80G, interpreting the provisions of Section 11 regarding income applied inside and outside India, and emphasizing the importance of following the prescribed procedure under Section 12AA for registration of trusts.