2007 (6) TMI 507 - AT - Income Tax

Summary

Issues Involved:
1. Non-submission of audit report in Form 10B.
2. Non-acceptance of photocopy of the trust deed.
3. Absence of clause for treatment of net assets/income upon dissolution.
4. Misinterpretation of income from running an ambulance.
5. Alleged diversion of trust funds.

Summary:

1. Non-submission of audit report in Form 10B:
The assessee Trust, created on 17-8-2006, applied for registration u/s 12AA. The CIT rejected the application citing non-submission of the audit report in Form 10B. The Tribunal noted that the CIT's letter dated 1-5-2007 did not request the audit report but only the statement of income and expenditure account and balance sheet, which the Trust had submitted. The Tribunal found the CIT's reason for rejection invalid and quashed it.

2. Non-acceptance of photocopy of the trust deed:
The CIT rejected the registration application because the Trust submitted a photocopy of the trust deed instead of the original. The Tribunal observed that the original trust deed was produced for verification and that the Trust was prevented by sufficient cause from submitting the original document with the application. The Tribunal set aside the CIT's reason for rejection on this ground.

3. Absence of clause for treatment of net assets/income upon dissolution:
The CIT rejected the registration due to the absence of a clause in the trust deed regarding the treatment of net assets/income upon dissolution. The Tribunal noted that the Trust was irrevocable and that the provisions of the Indian Trust Act would apply. The Tribunal also highlighted that the CIT did not provide the Trust an opportunity to address this issue. The Tribunal set aside the CIT's reason for rejection on this ground.

4. Misinterpretation of income from running an ambulance:
The CIT assumed that the amount of Rs. 18,770 shown in the income and expenditure account was the net income from running an ambulance. The Tribunal clarified that this amount was the gross receipt and that the Trust charged nominal amounts for ambulance services, sometimes providing them for free. The Tribunal concluded that the CIT erred in holding that the Trust was not a charitable institution.

5. Alleged diversion of trust funds:
The CIT questioned the application of donations, alleging diversion of funds. The Tribunal found that the purchase of an ambulance, medical equipment, and a mobile phone was in line with the Trust's objectives. The Tribunal determined that there was no misuse of funds and that the CIT erred in holding otherwise.

Conclusion:
The Tribunal found the CIT's reasons for rejecting the registration u/s 12AA invalid and directed the CIT to grant the Trust registration as a charitable trust. The appeal of the assessee was allowed.