2011 (9) TMI 590 - HC - Income Tax

Legality of Trust - Commissioner held trust being created to get away from clutches of Urban Land Ceiling Act Though in the deed of trust it is mentioned that trust created for educational purpose, exemption denied - Held That - once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein, schools and colleges are being run and educational institutions are being run as rightly held by the Tribunal, nothing more requires to be established to show that the trust in question is a genuine trust and therefore, the assessee is entitled to the registration under Section 12AA of the Act.

Issues Involved:
1. Whether the trust is genuine.
2. Whether the prominent object of the assessee trust, i.e., education, falls within the definition of charitable purpose under Section 2(15) of the Income Tax Act.
3. Whether the trust should be registered under Section 12A of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Whether the trust is genuine:
The revenue's appeal challenged the Tribunal's order, questioning the genuineness of the trust. The Commissioner argued that the trust's real objective was to save valuable property from the Urban Land Ceiling Act and other tax laws, rather than for charitable purposes. The Commissioner cited various activities, such as treating trust property as family property, executing a rectification deed, offering the property as security for loans, and misappropriating funds, as evidence of the trust's lack of genuineness. However, the Tribunal concluded that the trust's activities, including running educational institutions, were genuine and aligned with the trust deed's objectives.

2. Whether the prominent object of the assessee trust, i.e., education, falls within the definition of charitable purpose under Section 2(15) of the Income Tax Act:
The Tribunal found that the trust's primary objective, education, is a charitable purpose as defined under Section 2(15) of the Income Tax Act. The Tribunal noted that the trust had established an engineering college and a school, which was not disputed by the revenue. The High Court agreed with this assessment, stating that the objects set out in the trust deed, such as establishing and maintaining schools and colleges, are charitable in nature.

3. Whether the trust should be registered under Section 12A of the Income Tax Act:
The High Court emphasized the importance of registration under Section 12A for claiming tax exemptions under Sections 11 and 12 of the Income Tax Act. Section 12AA outlines the procedure for registration, requiring the Commissioner to be satisfied with the trust's objects and the genuineness of its activities. The Court noted that once the authors of the trust transferred the property to the trust, they had no right to meddle with it. Any subsequent actions by the trustees that deviated from the trust's declared purposes would constitute a breach of trust but would not nullify the trust itself. The Court concluded that the trust's activities, such as running schools and colleges, demonstrated its genuineness and charitable purpose. Therefore, the trust was entitled to registration under Section 12AA.

Conclusion:
The High Court dismissed the revenue's appeal, affirming the Tribunal's decision that the trust is genuine and its primary objective, education, is a charitable purpose under Section 2(15) of the Income Tax Act. The trust is entitled to registration under Section 12A, enabling it to claim tax exemptions, subject to compliance with Section 13 of the Act. The substantial question of law was answered in favor of the assessee and against the revenue.

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