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2011 (11) TMI 351 - AT - Income TaxTrust registered u/s 12A, 10(23(C) - application made for registration u/s 80G(5)(vi) Revenue denying approval on the ground that few clauses of Trust Deed enable income or assets of the Trust to be transferred or applied for any non-charitable purpose Held that - Considering all the clauses together of trust deed, it is evident that the true import of it was to carry out its activities subject to restrictions laid down under the Income Tax Act. Thus, Commissioner was required to find out the real purpose, as distinguished from the ostensible purpose of establishment of the Society or the Trust. He could not deny the registration solely on the basis of one clause, which could not be acted upon in view of the restriction contained in other clauses. The provision for the transfer or application of income or assets of the institution for the purposes other than charitable purpose should be capable of acted upon by the management, then only the registration could be denied in view of section 80G(5)(ii). However now, in any view of the matter, since the assessee-Trust has already amended its Trust Deed, therefore, registration is to be granted to the assessee. - Decided in favor of assessee.
Issues Involved:
1. Whether the assessee-Trust qualifies for approval under section 80G(5)(vi) of the Income Tax Act, 1961. 2. The interpretation of specific clauses in the Trust Deed and their compliance with the provisions of the Income Tax Act. 3. The relevance of prior approvals under sections 12A and 10(23C) in granting approval under section 80G(5). 4. The impact of subsequent amendments to the Trust Deed on eligibility for approval under section 80G(5). Issue-wise Detailed Analysis: 1. Qualification for Approval Under Section 80G(5)(vi): The assessee filed an application for approval under section 80G(5)(vi) of the Income Tax Act, 1961. The Commissioner of Income Tax (CIT) observed that clauses in the Trust Deed allowed trustees to invest in non-charitable purposes and modify the Trust Deed freely. Consequently, the CIT concluded that these clauses violated section 80G(5)(ii), which requires that no part of the income or assets of the Trust be applied for non-charitable purposes. Thus, the CIT rejected the application for approval under section 80G(5). 2. Interpretation of Specific Clauses in the Trust Deed: The assessee's counsel argued that the Trust Deed should be read as a whole and not in isolation. Clause 3 of the Trust Deed emphasized that the income and corpus of the Trust Funds should only be applied for purposes that ensure eligibility for tax exemption under the Income Tax Act. Clause 13 explicitly stated that no part of the Trust property or income shall be applied for non-charitable purposes. The counsel argued that clause 9, which allowed investments in non-charitable undertakings, was subject to the restrictions in clauses 3 and 13, ensuring compliance with the Income Tax Act. 3. Relevance of Prior Approvals Under Sections 12A and 10(23C): The assessee's counsel highlighted that the Trust had been granted registration under sections 12A and 10(23C), indicating its charitable purpose. The CIT's denial of approval under section 80G(5) was contested on the grounds that the Trust had already been recognized for charitable purposes under these sections. However, the CIT argued that registration under section 80G(5) is not automatic and must meet specific conditions independently. 4. Impact of Subsequent Amendments to the Trust Deed: The assessee-Trust executed a supplementary deed modifying clauses 9(d) and 17 to align with the provisions of the Income Tax Act. The CIT's representative maintained that the initial clauses violated section 80G(5)(ii) and that subsequent amendments did not automatically qualify the Trust for approval. The Tribunal, however, considered the amendments and the overall context of the Trust Deed, concluding that the true intent was to comply with the Income Tax Act. Tribunal's Conclusion: The Tribunal analyzed the scheme of the Income Tax Act, emphasizing the distinction between sections 11, 12, and 80G. It noted that section 80G(5) lays down stringent conditions for granting approval to ensure public donations are used for charitable purposes. The Tribunal agreed with the assessee's counsel that the Trust Deed, when read as a whole, indicated compliance with the Income Tax Act. It emphasized that the CIT should consider the real purpose of the Trust and not deny approval based on isolated clauses. Given the subsequent amendments to the Trust Deed, the Tribunal directed the CIT to grant registration under section 80G(5). Result: The appeal filed by the assessee was allowed, and the CIT was directed to grant registration under section 80G(5) of the Income Tax Act.
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