2014 (9) TMI 951 - AT - Income Tax

Registration under section 12A denied - Director of Income-tax (Exemption) opined that in absence of necessary information with regard to carrying on of activities by the trust, the genuineness of the activities cannot be ascertained, hence, the trust cannot be granted registration under section 12A - Held that - Commencing of activities is not the sole criterian to ascertain genuineness of the activities. As can be seen, the trust was created in March, 2013 and it applied for registration in June 13. Therefore, within a span of three/four months, it cannot be expected that the trust will be undertaking activities on a large scale. Moreover, it appears from the materials on record that the trust in fact has undertaken certain activities though on a limited scale, to generate/create awareness amongst the general public with regard to fraud committed in the health sector. In this view of the matter, it cannot be said that the trust has not commenced its activities. Further, it has to be noted that trust or institution is not prohibited from carrying on of any activity of commercial nature if such commercial activity is intended for achieving the objects of the trust. So far as Director of Income-tax (Exemption) s observation with regard to violation of provision contained under section 11(1)(d) of the Act is concerned, on going through the said provision, we are of the view that the observation made by the Director of Income-tax (Exemption) is not only irrelevant but is also misplaced. Furthermore, if there is any violation of the provision contained under section 11, the same can be looked into by the Assessing Officer while examining the assessee s claim under section 11 of the Act in the course of assessment proceeding. At the time of grant of registration under section 12A of the Act, the Director of Income-tax (Exemption) cannot step into the shoes of the Assessing Officer and examine the claim of the assessee under section 11. In view of the aforesaid, we hold that the Director of Income-tax (Exemption) was not justified in rejecting the assessee s application for grant of registration under section 12A. Accordingly, we set aside the impugned order of the Director of Income-tax (Exemption) and direct him to grant registration to the assessee under section 12A. Further, we direct the Director of Income-tax (Exemption) to grant approval under section 80G(5) of the Act subject to fulfilment of conditions prescribed under clauses (i) to (v) of section 80G(5) of the Act. - Decided in favour of assesse.

Summary

Issues Involved:
1. Rejection of registration under section 12A of the Act.
2. Non-commencement of activities by the trust.
3. Empowerment of trustees to carry on trade or business activities.
4. Alleged violation of section 11(1)(d) of the Act.

Detailed Analysis:

1. Rejection of Registration under Section 12A:
The primary issue in this case is the rejection of the assessee's application for registration under section 12A of the Income-tax Act by the Director of Income-tax (Exemption) (DIT(E)). The DIT(E) rejected the application on the grounds that the trust did not commence its activities and had provisions in its trust deed that were inconsistent with the Act, specifically sections 11(1)(d) and 12A.

2. Non-Commencement of Activities:
The DIT(E) noted that the trust had not provided sufficient evidence of its activities, only submitting a press release dated April 17, 2013. The DIT(E) argued that without proof of activities, the genuineness of the trust could not be ascertained. However, the Tribunal held that the commencement of activities is not the sole criterion for granting registration under section 12AA. The Tribunal cited the case of Kusumba Dhirajlal Parekh and Lila Nautamlal Parekh Foundation, emphasizing that a new trust cannot be expected to have undertaken large-scale activities within a short period. The Tribunal also referenced the Gujarat High Court's decision in CIT v. Kutchi Dasa Oswal Moto Pariwar Ambama Trust, which held that the Commissioner cannot reject an application solely because the trust's activities have not commenced.

3. Empowerment of Trustees to Carry on Trade or Business Activities:
The DIT(E) also objected to the clause in the trust deed that allowed trustees to carry on trade or business activities, arguing that this disqualified the trust from being considered fully charitable. The Tribunal countered this by stating that carrying on trade or business activities is permissible if it is intended to achieve the trust's charitable objectives. The Tribunal referenced the Madras High Court's decision in New Life in Christ Evangelistic Association v. CIT, which held that a trust could carry on business activities to achieve its charitable objectives.

4. Alleged Violation of Section 11(1)(d):
The DIT(E) argued that the trust deed's provision allowing donations to be treated as corpus funds violated section 11(1)(d) of the Act. The Tribunal found this reasoning irrelevant and misplaced, stating that any violation of section 11(1)(d) should be examined by the Assessing Officer during the assessment proceedings, not at the time of granting registration under section 12A.

Conclusion:
The Tribunal concluded that the DIT(E) was not justified in rejecting the application for registration under section 12A. The Tribunal set aside the DIT(E)'s order and directed the DIT(E) to grant registration under section 12A and approval under section 80G(5), subject to the fulfilment of conditions prescribed under clauses (i) to (v) of section 80G(5). The Tribunal also clarified that registration under section 12AA does not automatically entitle the assessee to exemption under section 11, as the assessee must fulfil additional conditions.

Result:
The appeal of the assessee was allowed, and the DIT(E) was directed to reconsider the application for registration under section 12A and approval under section 80G(5) in light of the Tribunal's observations.