2015 (12) TMI 1415 - AT - Income Tax

Registration u/s 12AA denied - CIT(A) s first conclusion is that amendment carried out through supplementary deed was illegal and unacceptable - Held that - In the case in hand also the amendment has been carried out under the authority granted by the settler company and it was registered with Registration Authorities rather than court. The supplementary deed was otherwise not found to be fictitious or shame by the learned Commissioner of Income-tax in case in hand. We find that in view of clear judgment of the Hon ble High Court of Rajasthan in the case of Laxminarayan Lath Trust (1987 (5) TMI 12 - RAJASTHAN High Court) the amendment carried out in the trust deed through supplementary deed without approval of Court was a valid one and there was no illegality in the same. The second conclusion of the ld. Commissioner of Income-tax that certain provisions of the trust deed were not clear. We are of the opinion that non10 clarity of one or two words in the deed can t be a ground for refusing the registration if otherwise the trust fulfills the conditions for registration. The third conclusion drawn by CIT(A) that certain clauses of trust deed envisage control of the company over the activities of the trust and serve the interest of the settler company. It is seen that, sometimes settler wants to have some sort of control over the affairs of the trust so as to ensure that Trust work in the direction of its objects and for this purpose , the settler also become one of the trustee of the trust and exercise control over the affairs of the trust. In the case in hand, the settler has not become trustee. Further, CIT(A) has not brought on record how the trust has served the interest of the company. If it was so , before refusing the registration, he was required to clearly record such activities in his order. We are of view that doubt raised by the CIT(A) that the trust would serve the interest of the settler company, is without any evidences and based only on the presumptions and possibilities. The object clauses containing welfare of the employees had already been removed through supplementary deed and now there was not any object which was in violation of charitable object as defined in section 2(15) of the Act. Fourth conclusion also the CIT(A) has expressed general notion that trustees being employees of the company look forward toward corporate office and do not carry out activities of the trust independently. We find nothing wrong in taking certain assistance of ministerial or clerical level for carrying out meeting etc. from the office of settler. The CIT(A) was required to examine whether taking any assistance rendered the activities of the trust not genuine. He has not given any finding in this respect. Further, the last conclusion drawn by the CIT(A) is that the activities of the trust were very little and did not instill any confidence. It was the first year of the activity of the trust and the trust had started the activities in the nature of relief to poor like distribution of blanket etc. The activities were not started as large scale as there were no funds in the trust. As regards to the activity, the ld. Commissioner has not concluded that same were not genuine, might be at small scale. The discrepancies observed by the ld. Commissioner in recording bills or minutes of meeting are not material in sense when we look the activities which were carried out were charitable in nature. The learned Commissioner of Income-tax (Departmental Representative) has made allegations that the trust was acting as subsidiary of the company. We find that all the allegations are devoid of evidences as far as the charitable activities carried out by the trust are concerned. - Decided in favour of assessee

Issues Involved:
1. Refusal to grant registration under Section 12AA of the Income Tax Act.
2. Legality of amendments made to the original trust deed via a supplementary deed.
3. Control of the company over the trust.
4. Genuineness and scale of the trust's activities.
5. Clarity of the trust deed provisions.

Detailed Analysis:

1. Refusal to Grant Registration under Section 12AA:
The primary issue was the refusal by the Commissioner of Income Tax to grant registration under Section 12AA of the Income Tax Act, 1961. The Commissioner cited several reasons, including the legality of the amendments made to the trust deed, the control of the company over the trust, and the genuineness and scale of the trust's activities.

2. Legality of Amendments Made to the Original Trust Deed:
The Commissioner found that the amendments made to the original trust deed via a supplementary deed were not for rectification of any 'mistake' but were regular amendments, which were not routed through the court and thus deemed illegal. The assessee argued that the amendments were authorized by the original resolution of the company and registered with the Joint Registrar of Registration of properties. The Tribunal referred to the judgment of the Hon'ble Rajasthan High Court in the case of Laxminarain Lath Trust Vs. Commissioner of Income Tax, which allowed for amendments to clarify the settler's intention without court intervention. The Tribunal concluded that the amendments were valid and not illegal.

3. Control of the Company Over the Trust:
The Commissioner observed that certain clauses in the trust deed indicated direct and indirect control of the company over the trust, such as the requirement for trustees to be company employees and the need for company approval for major decisions. The Tribunal noted that while some control by the settler (the company) is common, the Commissioner failed to provide concrete evidence that the trust served the company's interests rather than charitable purposes. The Tribunal emphasized that the Commissioner has the power to cancel the registration if it is later found that the trust's activities are not genuine.

4. Genuineness and Scale of the Trust's Activities:
The Commissioner questioned the genuineness of the trust's activities, noting minor discrepancies in record-keeping and the small scale of activities. The Tribunal found that the trust had carried out various charitable activities within its first year, such as distributing blankets and organizing diabetic camps. The Tribunal concluded that the activities were charitable in nature and the discrepancies in record-keeping were not significant enough to question the genuineness.

5. Clarity of the Trust Deed Provisions:
The Commissioner noted that certain provisions of the trust deed were unclear. The Tribunal held that the lack of clarity in one or two words in the deed should not be a ground for refusing registration if the trust otherwise meets the conditions for registration.

Conclusion:
The Tribunal set aside the order of the Commissioner of Income Tax and directed the Commissioner to grant registration to the trust under Section 12AA of the Income Tax Act. The Tribunal found that the reasons provided by the Commissioner for refusing registration were based on possibilities and presumptions rather than concrete evidence. The Tribunal emphasized that the objects of the trust were charitable in nature and the activities carried out were genuine, albeit on a small scale. The decision was pronounced in the open court on 16th December 2015.

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