2011 (7) TMI 764 - AT - Income Tax

Registration u/s 12AA - The reason pointed out by the Director is that the main activity of the assessee is to accumulate huge investments in purchase of assets and earn rental income from those assets without engaging itself in any charitable activities - It is true that the assessee trust has been established since more than 100 years and the assessee is running the school with hostel facilities attached to it - If the object of the assessee trust is to run educational institution and the assessee has been carrying on that activity alone, the construction of buildings and purchase of property, cannot be treated as a point against the assessee - the most important point to be noted in the context is that all the properties owned by the assessee trust are held in trust for the purpose of carrying on charitable activities out of the income arising out of such properties - Registration granted

Summary

Issues:
1. Rejection of registration under sec. 12AA by the Director of Income-tax (Exemptions).
2. Challenge of the Tribunal's decision by the Hon'ble High Court of Madras.
3. Consideration of the issue by the Director of Income-tax (Exemptions) post High Court's directions.
4. Eligibility of the assessee for registration under sec. 12AA.

Analysis:
1. The appeal was against the rejection of registration under sec. 12AA by the Director of Income-tax (Exemptions) due to the main activity of accumulating investments and earning rental income without engaging in charitable activities. The Tribunal initially allowed the appeal, but the High Court remitted the matter back to the Director for fresh consideration.

2. The assessee, a trust running a school with hostel facilities, argued that running the school constituted a charitable activity. Most properties were bequeathed to the trust, with only a few directly purchased. The Commissioner's ex parte order was challenged, claiming the trust's main activity was investing in properties for rental income to support charitable activities.

3. The Revenue contended that ample opportunities were given for the assessee to present its case, but the trust failed to do so, leading to an ex parte conclusion by the Director. The main activity of the trust was deemed to be investing in properties for rental income, not charitable activities, justifying the rejection of the registration application.

4. The Tribunal noted the trust's century-old establishment, running the school and hostel as its primary charitable activities. Despite income from various sources, funds were used for educational purposes and construction. The trust's activities were deemed charitable, including acquiring assets to support its mission. Inconsistencies in the Director's reasoning led the Tribunal to grant registration under sec. 12AA, directing approval of the trust's application.

In conclusion, the Tribunal allowed the appeal, granting registration under sec. 12AA to the trust, emphasizing the charitable nature of its activities and the legitimate acquisition of assets to support its mission.