2014 (3) TMI 850 - HC - Income Tax

Denial to grant registration u/s 12A of the Act Interpretation and Scope of section 24(iv) of Delhi Sikh Gurudwara Act, 1971 Powers of the committee to enter into JV on revenue sharing basis - Held that - Reliance placed by ITAT on Section 24 (iv) of the Act is misplaced neither Section 24 nor Section 40 (which empowers the Committee to frame regulations) enables the Committee to efface their duties and create other entities for carrying out their functions - Even more importantly, such creations cannot do what Committees are not permitted to perform, i.e utilize Committees properties or monies through the device of trusts and societies, to engage in indirect commercial activity, which the trust was authorized and created to indulge the ITAT clearly fell into error in holding that the Act permitted the Committee to enter into the agreement which enabled it to set up a joint venture for a hospital, on revenue sharing basis - such trust was ultra vires the Committee s powers and beyond its statutory mandate thus, the order of the Tribunal set aside and the denial of exemption u/s 12A by DIT(E) restored Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Section 24 (iv) of the Delhi Sikh Gurudwara Act, 1971 regarding the powers of the Committee to create a trust.
2. Legality of the establishment of the Trust and its registration under Section 12A of the Income Tax Act, 1961.

Analysis:

Issue 1: Interpretation of Section 24 (iv) of the Delhi Sikh Gurudwara Act, 1971
The High Court addressed the appeal against the ITAT's decision to grant registration to the assessee under Section 12A of the Income Tax Act. The ITAT held that Section 24 (iv) of the Delhi Sikh Gurudwara Act empowered the Committee to constitute a trust for providing medical treatment. However, the High Court disagreed, stating that the powers outlined in Section 24 are specific and exhaustive, and the creation of a trust and transfer of property are not within the powers of the Committee as a statutory creation.

Issue 2: Legality of the establishment of the Trust
The Trust was created by the Committee to manage a hospital, and it sought registration under Section 12A of the Income Tax Act. The DIT (Exemption) rejected the application, citing that the creation of the Trust itself was contrary to law as it exceeded the powers of the Committee. The ITAT reversed this decision, but the High Court held that the creation of the Trust for commercial activities was ultra vires the Committee's powers and statutory mandate. The Court emphasized that the Committee's functions are outlined in Section 24 of the Act, and creating entities like the Trust to engage in indirect commercial activities was impermissible.

In conclusion, the High Court set aside the ITAT's order and restored the denial of exemption under Section 12A by the DIT (Exemptions), stating that the Trust's establishment for commercial activities was beyond the Committee's statutory powers.