2014 (11) TMI 890 - HC - Income Tax

Validity to grant registration u/s 12AA Whether the assessee who is carrying on business activity or indulging in developing the properties is entitled for registration u/s 12AA - Held that - CIT(A) rightly held that there is no doubt that the objectives are charitable in nature and are covered u/s 2(15) - The tribunal also held that the trust is engaged in various charitable activities like feeding poor children in schools etc. and about 5,00,000 children are provided midday meals and food by the trust - They are also running Ayurveda Wellness Center and similar institutions affording treatment, cure, rest, recuperation and other medical relief to the public and therefore, there is no doubt that the trust is charitable in nature and covered by Section 2(15) of the Act and the activities of the trust are genuine - The trust is already engaged in various charitable activities for attainment of various objectives - There is no material to show that the income from business as provided in Clause 10 of the original deed dated 17.05.2004 would not be utilised by the trust for the purpose of achieving objectives of the trust. As held in Sanjeevamma Hanumanthe Gowda Charitable Trust Versus Director Of Income-Tax (Exemption) 2006 (3) TMI 91 - KARNATAKA High Court - what the Commissioner has to look into is not the source of income of the Trust but whether such income is applied for charitable or religious purpose - The satisfaction of the Commissioner should be regarding the application of the income of the trust for the aforesaid purposes which only entitles the assessee to claim exemption - Once the trust deed shows the objectives of the Trust is charitable and the material on record, shows that the Trust is carrying on charitable activities, merely because they proposed to carry on the business in future to augment the income to support charitable purposes, the registration cannot be declined - the tribunal was justified in passing the order and directing the Commissioner to grant the certificate Decided against revenue.

Summary

Issues Involved:
1. Whether the assessee carrying on business activity or indulging in developing properties is entitled to registration under Section 12AA of the Income Tax Act.
2. The applicability of Section 11(4A) of the Income Tax Act concerning the business activities of the trust.
3. The genuineness of the trust's activities and the application of its income for charitable purposes.

Detailed Analysis:

1. Entitlement for Registration under Section 12AA:
The primary issue revolves around whether the trust, which engages in business activities such as developing properties, qualifies for registration under Section 12AA of the Income Tax Act. The Tribunal, after examining several judgments and the objectives clause of the trust deed, concluded that the nature of the business is not the criterion to determine compliance with Section 12A of the Act. The essential test is whether the income from the business is utilized by the trust to achieve its charitable objectives. The Tribunal found no evidence from the Director of Income Tax (Exemptions) suggesting that the income from the housing project would not be used for the trust's objectives. Consequently, it held that Clause 10 of the trust deed, which permits business activities to support the trust's objectives, cannot be grounds for refusing registration.

2. Applicability of Section 11(4A):
The revenue argued that Section 11(4A) of the Act, applicable from 01.04.1992, only allows business activities ancillary to the charitable purpose of the trust. They contended that the trust's main business of acquiring land, constructing housing, and marketing it is not incidental but the primary business. However, the Tribunal and the High Court referenced the judgment in Sanjeevamma Hanumanthe Gowda Charitable Trust, which clarified that the Commissioner should focus on whether the income is applied for charitable purposes rather than the source of income. The High Court reiterated that the trust's business activities, intended to support its charitable objectives, do not disqualify it from registration under Section 12AA.

3. Genuineness of Trust's Activities:
The Director of Income Tax (Exemptions) acknowledged that the trust's objectives are charitable under Section 2(15) of the Act. The Tribunal and the High Court emphasized that the trust is engaged in various charitable activities, such as feeding poor children and running medical centers. The High Court noted that there was no evidence to suggest that the income from business activities would not be used for charitable purposes. It also pointed out that the Commissioner should assess the application of income for charitable purposes rather than speculate on future activities. The High Court concluded that the trust's proposed business activities to augment income for charitable purposes do not undermine its genuineness or charitable nature.

Conclusion:
The High Court upheld the Tribunal's decision, directing the Commissioner to grant registration under Section 12AA of the Income Tax Act. It affirmed that the trust's business activities, aimed at supporting its charitable objectives, do not disqualify it from registration. The appeal by the revenue was dismissed, and the substantial question of law was answered in favor of the assessee.