2011 (12) TMI 12 - AT - Income Tax

Registration u/s 12A - Trust has no dissolution clause - Assessee failed to bring concrete evidence in support of its activities required to be performed - Held that - In view of DIT vs. Garden City Educational Trust (2009 - TMI - 202845 - Karnataka High Court) observed that registration u/s 12A is one of the procedural aspect for claiming benefit u/s 11& 12 of the Income Tax Act. The issues whether assessee would earn income, it will apply its income for the purpose of its activity or not are relevant while assessing the income of the assessee. For registration U/s 12A, Ld. Commissioner is required to look into prime facie about the genuineness of the activities of the assessee. The activities reported in the aims and objects should be in accordance with law. They should not for the purpose of carrying out any illegal activities. Registration was granted.

Issues Involved:
1. Rejection of application for registration under section 12A of the Income Tax Act.
2. Rejection of application for registration under section 80G(5) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12A:

The assessee filed an application for registration under section 12A of the Income Tax Act on January 5, 2011. The Director of Income Tax (Exemption) [DIT] issued a show cause notice on January 27, 2011, asking for various details and explanations. Despite several adjournments and submissions by the assessee, the DIT rejected the application on July 8, 2011. The reasons for rejection included:

- Lack of an undertaking ensuring no infringement of section 2(15) of the IT Act.
- Absence of a dissolution clause in the trust deed.
- Incomplete submission of accounts since the inception of the trust.
- No clause in the trust deed ensuring that funds/property would be used solely for the trust's objectives.
- Insufficient documentary evidence supporting the trust's activities since inception.
- Failure to justify the claim for registration under sections 12AA and 80G.
- Inadequate proof of income applied for charitable activities.
- Missing contact details of the applicant and its members.
- Absence of a no-objection certificate from the landlord and proof of ownership/occupancy.
- Lack of a detailed note on the focus area of charitable activities and a plan of action for the next two years.
- Incomplete details of donations received and made, including corpus donations.

The DIT observed that clauses 15 and 16 of the trust deed indicated a profit motive, as they involved leasing out properties and collecting rents. The DIT also noted the absence of a dissolution clause and found the trust's activities lacking in concrete evidence, thereby questioning the genuineness of the trust's aims and objects.

The appellant argued that the clauses in question were ancillary and not the primary objectives of the trust. They contended that the trust's activities were genuine and charitable in nature, citing a note on planned activities and some evidence of aids given to needy individuals. The appellant emphasized that the DIT should form a prima facie opinion on the genuineness of the activities and the charitable nature of the trust's aims and objects, as suggested by the Hon'ble Karnataka High Court in the case of DIT vs. Garden City Educational Trust.

Upon consideration, the tribunal found that the trust's aims and objects were prima facie charitable and that the DIT should have granted registration under section 12A. The tribunal directed the DIT to grant the registration as per rules.

2. Rejection of Application for Registration under Section 80G(5):

The DIT referenced the order passed under section 12AA(1)(b) to reject the application for registration under section 80G(5). The DIT cited the decision of the Hon'ble Kerala High Court in the case of Self Employers Service Society vs. CIT, which emphasized the need for the Commissioner to be satisfied with the charitable nature of the objects and the genuineness of the activities of the trust.

The tribunal, however, found that the facts of the present case differed from the cited case. The aims and objects of the assessee were charitable, and the trust had taken steps towards fulfilling these objectives. The tribunal noted that the registration could be withdrawn if the trust did not act in accordance with its aims and objects. Therefore, the tribunal concluded that the trust was genuine and deserved exemption under section 80G to facilitate receiving maximum aids and donations.

Conclusion:

The tribunal allowed both appeals, directing the DIT to grant registration under sections 12A and 80G(5) of the Income Tax Act, recognizing the charitable nature and genuineness of the trust's activities.

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