2008 (11) TMI 422 - AT - Income Tax

Charitable or religious trust - Rejection of application for registration u/s 12A - violation of the provisions of Trust Deed - trust was a Public Charitable Trust nor the activities carried out by it came within the purview of the religious and charitable nature as provided under section 2( 15 ) - expenditure incurred for the purpose of the acquisition of agricultural land. HELD THAT - A reading of the provisions of sub-clauses ( a ) and ( b ) of section 12AA makes it clear that the CIT has to satisfy himself about the genuineness of the activities of the trust or institution and also about the objects of the trust or the institution. In order to satisfy himself about the genuineness of the activities of the trust, he can call for such documents or information from the trust as he thinks necessary and he is also empowered to make such enquiries as he may deem necessary in this behalf - The objects of the trust can be had from the bye laws or the deed of the trust as the case may be and as held in the case of Red Rose School 2007 (2) TMI 575 - ALLAHABAD HIGH COURT unless the objects of the Trust apparently make out that they are not in consonance with the public policy or that they are not the objects of any charitable purpose, registration cannot be refused on this ground. Genuineness of the activities of the Trust - HELD THAT - If it is found that the activities are not genuine and they are not being carried out in accordance with the objects of the Trust, the registration can be refused on this ground also. However as held by Hon ble Allahabad High Court in the case of Red Rose School , mere presumptions and surmises that income derived by the Trust is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any objects, the registration applied for under section 12A cannot be rejected. The procedure for registration laid down in section 12AA thus requires the Commissioner to satisfy himself about the genuineness of the activities and the charitable nature of objects of the Trust and as such, the scope of his powers is limited in this regard to make such enquiries as he may deem fit to satisfy himself in respect of these two aspects - in the present case, the enquiries made by the ld. CIT as well the adverse observations recorded by him were neither relevant nor sufficient to doubt or dispute the charitable nature of the objects of the assessee s trust or even the genuineness of its activities. For instance, his allegation about the unverifiable nature of source of funds contributed by the settlor as well as the investment made by the said settlor in the properties which were mortgaged for securing a bank guarantee in favour of the Trust had no relation whatsoever with the charitable nature of the objects of the assessee-trust or genuineness of its activities. Moreover the said allegation was based merely on suspicion and surmises and there was no evidence to support and substantiate the same - there was no violation of the provisions of the Trust Deed on this count as rightly pointed out by the ld. counsel for the assessee from the relevant portion of the trust deed. Whether the expenditure incurred for the purpose of the acquisition of agricultural land was not for the object of the Trust was totally misconceived ? - Agricultural land was acquired by the assessee-trust for the purpose of construction of its college premises was not denied - Once it was established that the educational institution was set up by the assessee-trust for imparting education which by itself was a charitable activity, it was not required for the assessee-trust to provide for any concession in fees or other charges and the absence of such provision, in our opinion, would not make its activity of imparting education as non-charitable as alleged by the ld. CIT. On perusal of the trust deed clearly shows that the assessee-trust was established for the purpose of setting-up and running an institution in order to impart education which by itself was an activity of charitable nature within the meaning given in section 2( 15 ) - the genuineness of its activity was also duly established. Thus, the conditions for getting registration under section 12A thus were duly satisfied by the assessee-trust and in our opinion, it was entitled to get such registration. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Rejection of application for registration under section 12A.
2. Examination of the genuineness of the activities and charitable nature of the Trust.
3. Adequacy of infrastructure and financial management.
4. Compliance with Trust Deed provisions and regulatory approvals.
5. Allegations of profit-making and non-charitable activities.
6. Onus of proof on the assessee-trust.

Detailed Analysis:

1. Rejection of Application for Registration under Section 12A:
The appeal was directed against the order of the CIT, Hissar, rejecting the application for registration under section 12A. The CIT's rejection was based on multiple observations questioning the charitable nature and genuineness of the Trust's activities.

2. Examination of the Genuineness of the Activities and Charitable Nature of the Trust:
The CIT observed that the Trust received a corpus fund of Rs. 25,37,000 from various individuals, with some contributors not being assessed to tax, raising doubts about the source of funds. Additionally, the Trust secured a bank guarantee of Rs. 37.50 lakhs against the mortgage of properties, with the investment in these properties being unverifiable. The CIT also noted that the Trust started educational institutions from Mahendragarh instead of Charkhi Dadri, Bhiwani, allegedly violating the Trust Deed. However, the Tribunal found these observations based on suspicion and not sufficient to dispute the charitable nature of the Trust's objects or genuineness of its activities.

3. Adequacy of Infrastructure and Financial Management:
The CIT questioned the adequacy of infrastructure, noting that the colleges were started from rented premises with insufficient accommodation and facilities. The Tribunal, however, pointed out that the CIT's inference was based on financial statements of the Trust alone, without considering the separate books of account maintained for the colleges. The Tribunal emphasized that the genuineness of activities should be seen in light of the objects, and the mere inadequacy of infrastructure, based on probability, was not relevant for denying registration.

4. Compliance with Trust Deed Provisions and Regulatory Approvals:
The CIT highlighted the Trust's failure to furnish necessary approvals or permissions from government authorities or universities for the colleges. The Tribunal clarified that such regulatory compliance was not a requirement for granting registration under section 12A and should not have been a basis for rejection.

5. Allegations of Profit-Making and Non-Charitable Activities:
The CIT alleged that the Trust's activities were commercial in nature, with no provision for fee concessions for poor students, and that the Trust received Rs. 5 lakhs from its own Art & Craft Institute, indicating profit-making. The Tribunal countered that the internal transfer of funds and the absence of fee concessions did not negate the charitable nature of the Trust's activities. The Tribunal held that the primary objective of imparting education was charitable, and the possibility of earning profit did not disqualify the Trust from registration.

6. Onus of Proof on the Assessee-Trust:
The Tribunal noted that the onus was on the assessee to prove the charitable nature of its objects and the genuineness of its activities. The CIT's observations were found to be based on presumptions and not supported by concrete evidence. The Tribunal concluded that the conditions for registration under section 12A were satisfied, and the CIT's action in rejecting the application was unjustified.

Conclusion:
The Tribunal set aside the CIT's order and directed the grant of registration under section 12A to the assessee-trust, emphasizing that the Trust's activities of imparting education were charitable in nature, and the adverse observations made by the CIT were neither relevant nor material to dispute the genuineness of the Trust's activities.