2015 (10) TMI 1444 - AT - Income Tax

Registration u/s.12A denied - Held that - At the time of registration u/s.12A, the CIT is required to verify the objects of the trust and genuineness of its activities. If the objects of trust is charitable and its activities are genuine, the registration is to be granted. If subsequently it is found that assessee is not following its object or that objects are not charitable or its activities are not genuine then during the course of assessment, the AO has all the powers to tax such receipts of the trust which are non-charitable or commercial in nature or to apply the provisions of Section 13 of the Act so as to exclude inform from properties held under a trust for private religious purposes which does not enure for the benefit of the public. During the course of assessment, the AO is also empowered to exclude such receipts/income of the trust if he finds that any funds of the trust or institution are invested or deposited in any form or mode specified in sub-section (5) of Section 11. The AO is also empowered to exclude income of such trust from the provisions of exemption if he finds that such funds were utilized for benefit of any of the persons, who made substantial contribution to the trust or institution, any trustee of the trust or manager of the institution or any concern, in which any of the persons referred in clause (a), (b), (c) and (d) of the sub-section 3, as substantial interest. Furthermore, various clauses in the trust deed with regard to promote education, medical relief in no way amounts to carry on any business so as to deny the claim of registration u/s.12AA. - Decided in favour of assessee.

Summary

Issues:
Appeal against DIT(E) order declining registration u/s.12A for Assessment Year 2012-2013.

Analysis:
The appeal was filed by the assessee against the order of DIT(E) declining registration u/s.12A of the Act for the Assessment Year 2012-2013. The DIT(E) observed that for registration under Section 12AA(l)(b), both the charitable objects of the trust and the genuineness of its activities must be satisfied. The DIT(E) noted that the trust's deed contained both charitable and non-charitable/business objects. The trustees had full discretion to apply the income of the trust towards any of its objects, including non-charitable ones. However, the trustees argued that there was no commercial element involved in the activities, and the beneficiaries were the general public without any distinction. The DIT(E) declined the registration based on the discretionary nature of income application towards non-charitable objects.

Upon careful consideration, the tribunal found that none of the trust's objects were non-charitable as highlighted by the DIT(E). The tribunal noted that the objects were charitable in nature, and the genuineness of the trust's activities was not in doubt. The tribunal emphasized that the CIT, during registration u/s.12A, must verify the charitable objects and genuine activities of the trust. If the objects are charitable and activities genuine, registration should be granted. The tribunal highlighted that during assessment, if it is found that the trust is not following its charitable objects or its activities are not genuine, the AO has the authority to tax non-charitable receipts or apply Section 13 of the Act to exclude properties held for private religious purposes. The tribunal concluded that the trust's clauses promoting education and medical relief did not amount to carrying on a business to deny registration u/s.12AA.

In light of the above analysis, the tribunal found no merit in the DIT(E)'s order declining registration u/s.12A and allowed the appeal of the assessee.