2014 (9) TMI 1101 - HC - Income Tax

Grant of registration to assessee trust - whether the assessee trust is generating wealth by accumulating huge surpluses over the years in guise of a charitable trust? - ITAT directing to grant registration - Held that - Apart from the fact that the question so raised is a question of fact, the mere fact that the assessee generated wealth by accumulating surpluses from donations, which are said to be doubtful etc. cannot be a ground to deny registration as a Charitable Trust. The charitable nature of an institution depends upon its activities. It is not denied that the respondent runs three different educational institutions. Thus, the mere fact that the Trust may have received donations, which as per the revenue are doubtful, though without referring to any material much less prima facie material cannot be a ground to reject registration, as a Charitable Trust. - Decided against revenue

Summary

Issues:
Challenge to order directing registration of respondent as Charitable Trust based on accumulation of wealth through donations and family trustees.

Analysis:
The High Court addressed the challenge to the order passed by the Income Tax Appellate Tribunal directing the Commissioner of Income Tax to register the respondent as a Charitable Trust. The revenue contended that the respondent, despite receiving donations, is not a Charitable Trust as trustees are family members and the Trust benefits them personally. The revenue argued that the donations received were not charitable and the Tribunal's decision to register the respondent was arbitrary and illegal. On the other hand, the respondent's counsel argued that the Tribunal rightly directed registration after considering the activities of the Trust, emphasizing that the charitable nature of an institution depends on its activities, not just donations. The respondent operates educational institutions, which are considered charitable activities. The High Court noted that the mere accumulation of wealth through donations, even if questionable, does not automatically disqualify the Trust from being registered as charitable. The Court found no merit in the revenue's appeal and ruled against them, allowing the respondent to be assessed as directed by the Tribunal.

In response to the substantial question of law raised by the revenue regarding the justification of directing registration for a trust accumulating wealth through donations, the Court emphasized that the charitable nature of an institution is determined by its activities, not just financial aspects. The Court highlighted that the respondent operates educational institutions, which are considered charitable activities, regardless of the source of donations. The Court dismissed the revenue's argument that accumulation of wealth through donations, even if doubtful, should disqualify the Trust from being registered as charitable. The Court ruled in favor of the respondent, stating that the questionable nature of donations alone is not sufficient to reject registration as a Charitable Trust.

In conclusion, the High Court upheld the Tribunal's decision to register the respondent as a Charitable Trust, emphasizing that the nature of activities conducted by the Trust, such as operating educational institutions, is crucial in determining its charitable status. The Court rejected the revenue's argument that accumulation of wealth through donations, even if questionable, should prevent registration, stating that the source of donations does not automatically disqualify a Trust from being considered charitable. The Court ruled against the revenue's appeal, allowing the respondent to be assessed as directed by the Tribunal.