2016 (2) TMI 460 - AT - Income Tax

Registration granted under Section 12AA and registration under Section 80G rejected - extending loan to the trust by the trustees - Held that - Nothing wrong in extending loan to the trust by the trustees. In the case in hand, the trustees or their relatives have extended loan and transferred land at arm s length price as trustees and their families to fulfill the desire of charitable activity have extended loans or transferred the property to the trust. By these actions of the trustees or their relatives, the trust is not at disadvantage or the transactions are not prejudicial to the interests of the trust. Thus, we find that the finding of the ld CIT that trust has not maintained its affairs in transparent and logical manner and transaction made by the trust for purchase of land were highly disproportionate to the known funds available with the trust are completely devoid of merit and deserve to be rejected. Further, interpretation of the fact and circumstances of the assessee as a colorable transaction by the ld CIT DR, is also without correct appreciation of facts and circumstances. The ld CIT DR contended that in view of the purchase of land and extending loan by trustee shows that the trust and family members of the trust are acting as one entity is not convincing. In India, generally, the families keep the affairs of the trust with them so that they can advance the purpose of charitable nature for which the trust is established. But, if the family or any trustee abuse his power and authority and take undue and unlawful advantage from the trust, in that circumstances, it may be called as a colourable device, but in the facts of the case till the stage there is nothing, which could constitute a colorable transaction. A colourable transaction is a transaction, which is apparently a valid transaction but really unlawful and illusory. We don t find any such circumstances in the present case. Thus, in our opinion, the transactions carried out by the assessee are not colourable transactions and the activities of the trust are genuine till the relevant period of time. Further, the learned Commissioner of Income Tax has not given any finding as regard to the fact that the objects of the assessee were not charitable in nature. - Decided in favour of assesseee

Summary

Issues Involved:
1. Refusal to grant registration under Section 12AA of the Income Tax Act, 1961.
2. Refusal to grant registration under Section 80G of the Income Tax Act, 1961.

Issue 1: Refusal to Grant Registration under Section 12AA

The assessee trust appealed against the Commissioner of Income Tax's (CIT) decision to deny registration under Section 12AA of the Income Tax Act, 1961. The CIT's refusal was based on the observation that the trust did not maintain its affairs in a transparent and logical manner, particularly due to the disproportionate financial transactions related to the purchase of land.

The assessee argued that the CIT's role was to examine the charitable nature of the trust's objects and the genuineness of its activities. The CIT had not found any adverse findings regarding the charitable objects or the genuineness of the activities but had focused on the transparency of financial dealings. The trust had purchased land from a relative of a trustee, financed by loans from trustees, which the CIT viewed as a colorable transaction.

The Tribunal noted that the trust was new and had started its activities by purchasing land for educational purposes. The charitable nature of the trust's objects was undisputed. The Tribunal found no evidence of undue advantage or prejudicial transactions to the trust. It concluded that the transactions were genuine and the trust's activities were in line with its charitable objectives. The Tribunal directed the CIT to grant registration under Section 12AA, rejecting the CIT's findings as devoid of merit.

Issue 2: Refusal to Grant Registration under Section 80G

The facts and grounds of appeal for the refusal to grant registration under Section 80G were identical to those under Section 12AA. The CIT had extended the same reasons for rejecting the claim under Section 80G, viewing it as consequential to the Section 12AA decision.

Following the decision in the appeal for Section 12AA, the Tribunal directed the CIT to grant registration under Section 80G. The Tribunal allowed both appeals, ensuring the trust's eligibility for the benefits under both sections of the Income Tax Act.

Conclusion:

The Tribunal concluded that the trust's activities were genuine and its objects were charitable. It directed the CIT to grant the requested registrations under Sections 12AA and 80G of the Income Tax Act, 1961, thereby allowing both appeals filed by the assessee. The decision was pronounced in the open court on January 13, 2016.