2015 (1) TMI 477 - HC - Income Tax

Donation to other trust out of trust fund - whether can be termed as genuine activity towards its object and same is charitable activity as defined u/s.2(15) of the Act? - Held that - As concluded by the decision of Apex Court in the case of Commissioner of Income tax v. Sarladevi Sarabhai Trust 1988 (3) TMI 53 - GUJARAT High Court that so far as donor-trust is concerned, once it makes payment of the donated amount to the donee-Trust which is a religious and charitable trust which has to utilize the donation for its own purposes, it would be a proper application of the income for charitable and religious purposes. In favour of assessee. Whether ITAT is justified in law and on facts in giving registration u/s.12(A) of the Act to the assessee trust? - Held that - As decided in KUTCHI DASA OSWAL MOTO PARIWAR AMBAMA TRUST case 2012 (12) TMI 876 - GUJARAT HIGH COURT if the activities of the trust have not commenced, the Commissioner has no authority to reject its application for registration on the ground that the Trust failed to convince him about the genuineness of the activities. In favour of assessee.

Summary

Issues:
1. Appeal against the rejection of registration u/s.12A of the Income Tax Act, 1961.
2. Interpretation of the term "charitable activity" u/s.2(15) of the Act.
3. Validity of granting registration u/s.12(A) of the Act to the assessee trust.

Analysis:
1. The appeal was filed against the rejection of registration u/s.12A of the Income Tax Act, 1961. The assessee applied for registration on 13.03.2013, but the application was rejected as the conditions for registration were allegedly not met. The Income Tax Appellate Tribunal allowed the appeal filed by the assessee against this rejection. The Revenue, dissatisfied with this decision, filed the present appeal.

2. The first substantial question of law raised was whether giving donations to other trusts out of the trust fund can be considered a genuine charitable activity u/s.2(15) of the Act. The High Court referred to a decision of the Apex Court in a similar matter and a specific instruction issued by the Board. The instruction clarified that payment from one charitable trust to another for utilization by the donee trust towards its charitable objects is a proper application of income for charitable purposes. The High Court agreed with this interpretation, highlighting that such donations contribute to charitable activities and do not disqualify the donor trust from exemption under section 11 of the Income Tax Act, 1961.

3. The second substantial question of law pertained to the validity of granting registration u/s.12(A) of the Act to the assessee trust. The High Court relied on a previous decision rendered in a similar case where it was emphasized that the Commissioner must be satisfied about the objectives and genuineness of the trust's activities before granting registration. The Court clarified that the Commissioner cannot reject an application solely based on the trust's activities not commencing, as long as there is sufficient material to assess the trust's objectives and activities. The High Court upheld the Tribunal's decision in this regard, emphasizing the importance of the Commissioner's satisfaction regarding the trust's objectives and activities for registration.

4. In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee and against the Revenue. The Court based its decision on the precedents and legal interpretations discussed in the judgment, providing a clear and concise reasoning for the dismissal of the appeal.