2015 (8) TMI 1365 - AT - Income Tax

Registration u/s 12AA rejected - scope of the powers of the Ld. CIT for granting or refusing registration u/s 12AA - Held that - While granting or refusing registration to a Trust the Ld. CIT is only required to examine whether the objects of the Trust were for charitable purpose and whether the activities of the Trust were genuine. The finding of the Ld. CIT that the accounts of the assesse were not correctly maintained does not effect the genuineness of the activities of the Trust. Genuineness of the activities of the Trust has to be seen keeping in mind the objects of the Trust. The Ld. CIT has to satisfy himself about the fact that the activities are genuine and in consonance with the objects of the Trust. The enquiry regarding genuineness of the activities cannot be stretched beyond this. We therefore find that this ground for rejecting registration u/s 12AA is not correct. However AO is not precluded from examining this issue during the course of assessment proceedings while examining the assessees claim for benefit u/s 11 and 12 of the Income Tax Act, 1961, in accordance with law. CIT contention that the assessee had been earning huge profits year after year which showed that it was not running for the purpose of charity does not justify the refusal of registration as profit earning per se has no reflection on the genuineness of the activities of the Trust. In fact it is not the earning of surplus which is relevant but its utilization for non charitable purposes which effects the genuineness of the activities of the Trust. The Supreme Court in Queens Educational Society Vs. CIT 2015 (3) TMI 619 - SUPREME COURT has stated that mere surplus does not mean that the institution is existing for making profit. The predominant object test must be applied. - Decided in favour of assessee.

Issues Involved:
1. Whether the aims and objects of the trust are charitable.
2. Whether the trust's accounts were maintained correctly.
3. Whether the trust's activities were genuine.
4. Whether the trust's profit-making nature affects its eligibility for registration under section 12AA.

Issue-wise Detailed Analysis:

1. Charitable Nature of Trust's Aims and Objects:
The CIT refused registration primarily because the trust's aims included running a coaching center, which was not considered as providing education. The CIT relied on the decisions in Yogiraj Charity Trust vs. CIT and Fast India Industries (Madras) (Pvt) Ltd., stating that if a trust has both charitable and non-charitable objects, it fails as a whole. However, the appellate tribunal found that the trust's primary purpose was education, with no activities other than education being pursued. The tribunal cited the Supreme Court's ruling in Yogiraj Charity Trust vs. CIT, which held that if the primary purpose of a trust is charitable, ancillary non-charitable objects do not invalidate the trust's charitable status. The tribunal concluded that the trust's objects were charitable, and the inclusion of a coaching center, which was not pursued, did not negate this.

2. Maintenance of Accounts:
The CIT argued that the trust's accounts were not maintained correctly because it did not show interest on FDRs as part of its receipts, thus misrepresenting its total receipts to be below Rs. 1 crore to avail exemption under section 10(23C)(iiiad). The tribunal clarified that the CIT's role in granting registration under section 12AA is to examine the genuineness of the trust's activities and its charitable objects, not the correctness of account maintenance. The tribunal stated that non-inclusion of accrued interest was a technical fault and did not affect the genuineness of the trust's activities. The tribunal also mentioned that the AO could examine this issue during assessment proceedings.

3. Genuineness of Activities:
The CIT held that the trust's activities were not genuine, partly because the trust did not show interest on FDRs in its receipts. The tribunal emphasized that the CIT must ensure that the activities align with the trust's charitable objects. The tribunal found that the trust's activities were indeed genuine and consistent with its educational objectives, thus rejecting the CIT's ground for refusal.

4. Profit-Making Nature:
The CIT noted that the trust earned significant profits year after year, suggesting it was not run for charity. The tribunal countered this by stating that profit-making does not inherently negate the charitable nature of a trust. It referenced the Supreme Court's decision in Queens Educational Society vs. CIT, which clarified that surplus generation does not imply a profit motive if the surplus is used for charitable purposes. The tribunal found that the trust's profits were utilized for expanding educational activities, thus maintaining its charitable status.

Conclusion:
The tribunal set aside the CIT's order and directed the CIT to grant registration under section 12AA, finding that the trust's aims and objects were charitable, its activities genuine, and that profit-making did not preclude its charitable status. The appeal of the assessee was allowed.

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