2015 (10) TMI 2715 - AT - Income Tax

Registration of trust u/s 12AA - whether the objects are not covered u/s 2(15) and that the activities and objects are not charitable? - Held that - What needs to be examined is that where an object of general public utility is not merely a mask to hide the true purpose or rendering of any service in relation thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of general public utility , whether the carrying on of bona fide activities in furtherance of such objectives of general public utility will also be hit by the proviso to section 2(15) of the Act. In the instant case, the matter therefore, requires detailed examination in terms of main objects of Urban Improvement Trust, the relevant governing legislation / Notification under which Urban Improvement Trust was established as well as activities of the trust in order to decide whether trust is eligible for registration u/s 12AA of the Act. Thus, in the light of the above, the matter is set aside to the file of the ld. CIT to decide afresh in light of Board Circular No. 11 of 2008 dated 19-12-2008 by providing reasonable opportunity of being heard to the assessee. The assessee is also directed to cooperate in the proceedings. Thus, the appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Registration of trust u/s 12AA of the Income Tax Act.
2. Eligibility of trust for registration u/s 12AA based on the nature of its activities and objects.

Analysis:

Issue 1: Registration of trust u/s 12AA of the Income Tax Act

The appeal was filed by the assessee against the order of the ld. CIT(A), Alwar, rejecting the registration of the trust u/s 12AA of the Act. The trust was created through a Gazette Notification and applied for registration u/s 12A(a) of the I.T. Act. The ld. CIT observed that the trust failed to provide the original trust deed as required under Rule 17-A(a) of the Income-tax Rules, 1962. It was noted that the trust, although engaged in the advancement of general public utility, was involved in activities that could not be considered charitable due to charging fees and other considerations. The ld. CIT held that the trust did not meet the necessary requirements for registration u/s 12AA, leading to the rejection of the application.

Issue 2: Eligibility of trust for registration u/s 12AA based on the nature of its activities and objects

The key consideration was whether the trust's activities involved carrying on trade, commerce, or business for which fees were charged, as this would impact its eligibility for charitable status. Reference was made to CBDT Circular No. 11 of 2008, emphasizing that entities engaged in commercial activities would not be eligible for exemption under relevant sections of the Act. The judgment highlighted that the true purpose of the trust must be the advancement of general public utility and not a guise for trade or business activities. Each case must be evaluated based on its specific facts. The judgment concluded that a detailed examination of the trust's main objects, governing legislation, and activities was necessary to determine its eligibility for registration u/s 12AA. The matter was remanded to the ld. CIT for fresh consideration in line with the CBDT Circular, providing the assessee with a reasonable opportunity to present their case. The assessee was directed to cooperate in the proceedings. Ultimately, the appeal of the assessee was allowed for statistical purposes.

In conclusion, the judgment addressed the issues of trust registration under the Income Tax Act, emphasizing the importance of the nature of trust activities and objects in determining eligibility for charitable status. The detailed analysis underscored the need for a factual assessment in each case to ascertain compliance with legal provisions and guidelines.