2015 (5) TMI 5 - HC - Income Tax

Necessity of dissolution clause in the deed of charitable trust - whether the assessee is a public charitable trust, should the deed not have a clause that upon dissolution no asset will go to any trustee, donor settler etc.? - Held that - When the trust deed specifically provides for a closure of the trust and it specifically provides that if necessary to close the trust, than the property of the trust be handed over to other institution - trust having similar objects by passing resolution by minimum 2/3rd majority of the trust and unanimous decision of the committee working trustees and considering the above, when the learned Tribunal has directed the DIT (E) to grant the registration under section 12(aa) of the Act, it cannot be said that the learned Tribunal has committed any error, which calls for the interference of this Court. It goes without saying that any decision to close the trust even in the eventuality as per the aforesaid clause shall always be after obtaining appropriate permission from the Charity Commissioner under the Bombay Public Trust Act. Thus the substantial questions of law raised/framed are not required to be answered and are accordingly not answered.

Summary

Issues:
1. Appeal against the judgment of the Income Tax Appellate Tribunal regarding the registration under section 12(aa) of the Income Tax Act for a charitable trust.
2. Whether a dissolution clause is necessary in the deed of a charitable trust.

Analysis:
The High Court heard an appeal challenging the decision of the Income Tax Appellate Tribunal (ITA) regarding the registration under section 12(aa) of the Income Tax Act for a charitable trust. The appellant contested the Tribunal's order, which directed the Director of Income Tax (Exemptions) to grant registration to the respondent trust. The main issue raised was whether a dissolution clause is required in the deed of a charitable trust. The Tribunal had relied on a previous case involving a similar trust with a dissolution clause. The Division Bench had confirmed the decision in that case. The High Court observed that the respondent trust's deed did include a dissolution clause, ensuring the proper handling of trust assets in case of closure. The trust deed specified that if necessary, the trust's property should be transferred to another institution with similar objectives. The Court noted that the Tribunal's decision to grant registration was justified based on the presence of the dissolution clause in the trust deed. It emphasized that any decision to close the trust would require approval from the Charity Commissioner under the Bombay Public Trust Act. Consequently, the Court dismissed the appeal, stating that the substantial legal questions raised did not warrant further consideration.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of a dissolution clause in the deed of a charitable trust. The presence of such a clause ensures the proper transfer of trust assets in case of closure. The Court clarified that the decision to close the trust would require approval from the Charity Commissioner. The appeal was dismissed, and no costs were awarded.