2012 (9) TMI 1009 - AT - Income Tax

Summary

Issues involved:
The issue involves the denial of registration u/s. 12AA of the Income-tax Act, 1961 to the assessee trust by the Director of Income-tax (Exemptions) [DIT(E)], Hyderabad, based on the trust deed's provision allowing the author/founder to revoke the trust at any time.

Details of the judgment:

Issue 1: Denial of registration u/s. 12AA
The assessee trust filed an application seeking registration u/s. 12AA, but the DIT(E) refused registration citing the trust deed provision allowing the author/founder to revoke the trust at any time. The DIT(E) observed that the trust's continuity is subject to the will of the Indian Company, controlled by a Dutch Multinational. The DIT(E) concluded that the trust cannot be treated as a wholly public charitable trust due to its revocable nature.

Issue 2: Arguments of the parties
The assessee's counsel argued that the revocability of the trust deed does not disentitle the trust from registration u/s. 12AA, as on revocation, assets will be transferred to another registered trust or society with similar objectives. The counsel relied on precedents to support the argument. On the other hand, the Departmental Representative (DR) supported the DIT(E)'s decision.

Issue 3: Tribunal's decision
The Tribunal noted the absolute power given to the author/founder to revoke the trust deed, which could affect the trust's existence. The Tribunal did not uphold the assessee's arguments but suggested amending the trust deed to the satisfaction of the DIT(E) for registration. The entire issue was remitted back to the DIT(E) for fresh consideration, and the appeal of the assessee was allowed for statistical purposes.

This judgment highlights the importance of the provisions in a trust deed regarding revocability and its impact on the charitable status of a trust under the Income-tax Act, 1961.