2013 (6) TMI 736 - AT - Income Tax

Exemption u/s 11 - Held that - On perusal of trust deed, it is noticed that there is no clause in the trust deed imposing legal obligation on the assessee-trust or its members to hold income of the assessee-trust only for charitable purpose. There is no clause in the trust deed by which the element of private gain is excluded. Similarly, there is no clause in the trust-deed to show that the profits would not be divided or distributed among the members at any time or at the time of dissolution. In the absence of such a clause, it is difficult to treat the assessee-trust as a charitable trust because it is possible for the members of the trust, upon its dissolution, to divide the remaining funds among trustees. In view of the foregoing, it is considered appropriate to set aside the order passed by the Ld Commissioner of Income-tax and restore the matter to his file so that reasonable time is made available to the assessee-trust to amend the trust deed and also enable the Commissioner of Income-tax to take a reasonable view in the matter in conformity with law. The assessee-trust can amend the trust deed within a period of three months from the date of receipt of this order failing which the Commissioner shall be free to pass such order as he considers appropriate in the matter.

Summary

Issues:
1. Rejection of application for registration under section 12(A)(a) of the Income-tax Act due to lack of provision in trust deed for property transfer upon dissolution.

Comprehensive Analysis:
Issue 1:
The appeal before the Appellate Tribunal ITAT RAJKOT concerned the rejection of the assessee-trust's application for registration under section 12(A)(a) of the Income-tax Act by the Ld. Commissioner of Income-tax, Jamnagar. The primary ground for rejection was the absence of a provision in the trust deed regarding the transfer of properties to another trust with similar objects upon dissolution. The Ld. Commissioner emphasized the necessity of such a provision to fulfill the conditions under the Act for registration. The assessee-trust, in response, argued that being registered under the Bombay Public Trust Act, 1950, the dissolution of the trust would require court approval, irrespective of the presence of a dissolution clause in the trust deed. The Appellate Tribunal noted the importance of distinguishing between revocable and irrevocable trusts for tax exemption purposes, highlighting the need for specific clauses in the trust deed to ensure charitable purposes and prevent private gain. The Tribunal, relying on legal precedents, directed the assessee-trust to amend the trust deed within three months to include necessary clauses and granted the Commissioner the authority to decide accordingly.

In-depth Analysis:
The issues raised in the appeal pertained to the rejection of the assessee-trust's application for registration under section 12(A)(a) of the Income-tax Act by the Ld. Commissioner of Income-tax, Jamnagar. The crux of the matter revolved around the absence of a provision in the trust deed concerning the transfer of properties to another trust with similar objectives upon the dissolution of the trust. The Ld. Commissioner emphasized the significance of such a provision as a prerequisite for registration under the Act. The assessee-trust, on the other hand, contended that being registered under the Bombay Public Trust Act, 1950, any dissolution of the trust would necessitate court approval, irrespective of the explicit inclusion of a dissolution clause in the trust deed.

The Appellate Tribunal delved into the distinction between revocable and irrevocable trusts, crucial for determining tax exemption eligibility. It underscored the essentiality of specific clauses within the trust deed to ensure the charitable nature of the trust and prevent any potential for private gain. The Tribunal, drawing from legal precedents, directed the assessee-trust to amend the trust deed within a stipulated timeframe of three months to incorporate the requisite clauses. Additionally, the Tribunal empowered the Commissioner to evaluate the amended trust deed and make a decision in accordance with the law and the presented arguments.

This comprehensive analysis encapsulates the core issues, arguments, and the Tribunal's directives regarding the rejection of the registration application under section 12(A)(a) of the Income-tax Act due to the absence of a property transfer provision in the trust deed upon dissolution. The detailed examination provides a thorough understanding of the legal complexities and implications involved in the judgment delivered by the Appellate Tribunal ITAT RAJKOT.