2014 (7) TMI 772 - AT - Income Tax

Cancellation of registration u/s 12AA(3) Activities of Trust as per object or not - Whether the activities of the trust are genuine or not and whether the activities are being carried out in accordance with the objects - Held that - None of the objections and the grounds which have been taken by the DIT(E) in the order for cancelling the registration can be held to be sustainable, so as to hold that the activities of the trust are either not genuine or they are not being carried out in accordance with the objects within the scope of section 12AA(3) - nothing has been brought on record to show that the application of the income of the trust from year-to-year has not been made towards attainment of the objects i.e., for the charitable purposes - If no discrepancy has been found in the income and expenditure account and there is a proper application of income towards the objects in accordance with the provisions of section 11, then neither the charitable nature of the trust should be doubted nor it can be held that its activities are not genuine or are not in accordance with the objects for which registration was granted order of DIT(E) is set aside and the registration granted to the assessee cannot be cancelled u/s 12AA(3) on the ground stated by the learned DIT(E) in the order Decided in favour of Assessee.

Issues Involved:
1. Legality and adherence to principles of natural justice in the cancellation of registration under section 12AA(3) of the Income Tax Act.
2. Whether the activities of the trust were in accordance with its objects.
3. Purchase of a luxury car in the trustee's name using trust funds.
4. Association with PAAK Foundation and the routing of scholarships.
5. Advertisement for the sale of land allotted for hospital construction.

Issue-wise Detailed Analysis:

1. Legality and Adherence to Principles of Natural Justice:
The assessee challenged the legality of the order dated 28th February 2014, by the Director of Income Tax (Exemption) [DIT(E)], Mumbai, which canceled the registration under section 12AA(3) of the Income Tax Act, 1961. The assessee argued that the order was illegal, bad in law, and passed without following the principles of natural justice.

2. Activities of the Trust in Accordance with its Objects:
The trust, registered under the Bombay Public Trust Act, 1950, and granted registration under section 12A on 23rd January 2002, had its name changed to "Cancer Aid and Research Foundation" in 2005. The trust aimed to provide assistance to cancer patients, spread awareness, promote research, and establish cancer-related facilities. The DIT(E) canceled the registration on grounds that the activities were not in line with the trust's objects, specifically pointing to the purchase of a luxury car, association with PAAK Foundation, and the advertisement for the sale of land.

3. Purchase of Luxury Car in Trustee's Name:
The trust purchased a BMW 325i car in the name of a trustee, Mr. Abdul Qadir Kazi, using trust funds. The DIT(E) deemed this act as non-charitable and against the trust's objects. However, the Commissioner (Appeals) had previously ruled that the car was for trust purposes, the loan was in the trust's name, and no contravention of section 13 was found. The car was later sold, and proceeds credited to the trust account. The Tribunal held that this issue should be examined under section 13 and could not be grounds for cancellation of registration under section 12AA(3).

4. Association with PAAK Foundation and Routing of Scholarships:
The DIT(E) objected to the trust's association with PAAK Foundation, where a common trustee, Prof. A.A. Kazi, was involved. The trust provided scholarships through PAAK Foundation, which the DIT(E) viewed as a misuse of funds. However, the Tribunal found that scholarships were directly given to educational institutions, not to PAAK Foundation, and this activity was in line with the trust's objects. The temporary advance of Rs. 20.50 lakhs to PAAK Foundation was returned within a month, and no adverse inference was drawn.

5. Advertisement for Sale of Land Allotted for Hospital Construction:
The trust advertised the sale of land in Ratnagiri, allotted by MIDC for hospital construction, as "commercial land." The DIT(E) saw this as a commercial activity. However, the Tribunal noted that the trust invested significantly in the hospital project but faced financial constraints. The sale was intended to recover funds for other charitable activities, and no commercial intent was found. The land was not sold, negating the DIT(E)'s presumption.

Conclusion:
The Tribunal found that none of the DIT(E)'s objections justified the cancellation of registration under section 12AA(3). The trust's activities were genuine and in accordance with its objects. The Tribunal reversed the DIT(E)'s decision, allowing the assessee's appeal and reinstating the registration. The order emphasized that proper application of income towards charitable purposes should not lead to doubting the trust's genuineness or its adherence to its objects.

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