2012 (2) TMI 651 - AT - Income Tax

Summary

Issues Involved:

1. Genuineness of the objects and activities of the appellant trust.
2. Control of the trust by one family.
3. Financial control and transfer of assets by trustees.
4. Compensation for transferred leased assets.
5. Valuation of donated land.
6. Profit percentage and corpus increase.
7. Source of donations and their genuineness.

Summary:

1. Genuineness of the objects and activities of the appellant trust:
The CIT denied registration u/s 12AA(1)(b)(ii) on grounds questioning the genuineness of the trust's activities. The tribunal noted that the trust's objects, listed in the trust deed, were charitable in nature and there was no evidence to suggest otherwise. The trust deed explicitly stated that the trust and trustees would be subject to sections 2(15), 11, 12, 12A, 13, 80(G) of the Income Tax Act, 1961.

2. Control of the trust by one family:
The CIT's objection that the trust was controlled by one family was dismissed by the tribunal, stating that it is common for charitable trusts to be managed by family members. The tribunal emphasized that unless there is evidence of misuse or personal benefit, this factor alone cannot justify denial of registration.

3. Financial control and transfer of assets by trustees:
The CIT raised concerns about the trustees' power to transfer assets. The tribunal noted that the trust deed had been amended to ensure that such powers were vested in the Board of Trustees rather than individual trustees, thus addressing the CIT's concerns.

4. Compensation for transferred leased assets:
The tribunal addressed the CIT's concern regarding the return of leased assets without compensation by noting that the trust deed had been amended to ensure suitable compensation would be taken for any construction or new building erected on leased land.

5. Valuation of donated land:
The CIT objected to the valuation of donated land at Rs. 1 crore. The tribunal clarified that the valuation was based on circle rates and the trust only paid registration fees, not the full amount. The tribunal found no irregularity in this aspect.

6. Profit percentage and corpus increase:
The CIT cited the trust's profit percentage and increase in corpus as reasons for denial. The tribunal found these factors irrelevant for registration purposes, stating that they could be examined during assessment proceedings. The tribunal noted that the CIT did not provide specific discrepancies in these factors.

7. Source of donations and their genuineness:
The CIT questioned the genuineness of donations from agriculturists. The tribunal found no material evidence to suggest irregularities in the trust's activities or accounts. The tribunal emphasized that the trust was running three educational institutions, which was accepted by the ACIT.

Conclusion:
The tribunal directed the CIT to grant registration to the assessee trust, noting that the objections raised were either addressed through amendments to the trust deed or were irrelevant for the purpose of registration. The tribunal also highlighted that the CIT has the power u/s 12AA(3) to cancel registration if the trust's activities are later found to be non-genuine. The appeal was allowed.