2014 (12) TMI 1334 - AT - Income Tax

Rejection of application of registration of trust - as there is no winding up clause hence the application cannot be said to have constituted a valid public charitable trust - Held that -Admittedly, as per the provisions of section 12AA(1)(b) of the Act, the authority concern is expected to satisfy himself about the objects of the trust of institution and the genuineness of its activities, but at the same time, such satisfaction is objective in nature. DIT(E) while rejecting the application of the assessee has nowhere mentioned that he was not satisfied with the objects of the trust or genuineness of its activities. DIT(E) has merely perused the audited accounts of the assessee and receipt of donation of ₹ 6 lakh out of which ₹ 3,50,000/- were incurred for educational activities including expenses on printing and stationary, salary, uniform expenses and welfare activities. So far as, scope of powers of the ld. Commissioner/DIT(E) for the purposes of section 12AA of the Act are concerned, the Authority have to satisfy about the genuineness of its activities of the trust or institution. The objects of the trust are available at pages 11 onwards of the paper book (internal pages 5 onwards of the trust deed). So long, the trust has the objects of charitable nature, in our view, the registration should not be denied. So far as, application of funds and as to whether the assessee can claim benefit of exemption in terms of section 11 and 12 are concerned, these has to be examined by the Assessing Officer at the stage when situation so arises. The assessee vide letter dated 21/11/212 clarified that for winding up of charitable trust section 55 of the Bombay Public Trust Act, 1950 will come into play. The totality of facts clearly indicates that it is a fit case where registration should have been granted by the ld DIT(E). However, we are making it clear that, if at any stage, the assessee trust is found violating the objects of charity or misusing the funds for non charitable purposes/commercial purposes, the Department shall be at liberty to take appropriate action in accordance with law - decided in favour of assessee.

Summary

Issues Involved:
1. Denial of registration u/s 12A of the Income Tax Act, 1961 based on absence of a winding-up clause in the trust deed.
2. Dispute over the interpretation of the trust deed regarding the distribution of net assets on winding up.
3. Allegation of the D.I.T. (E) not considering the material on record regarding the activities of the trust.
4. Appeal for the grant of registration u/s 12AA of the Act or direction to the D.I.T.-(E) for necessary action.

Issue 1: Denial of Registration based on Absence of Winding-Up Clause:
The assessee challenged the denial of registration u/s 12A due to the absence of a winding-up clause in the trust deed. The D.I.T. (E) rejected the application citing this reason. However, the Tribunal observed that the rejection lacked a clear mention of dissatisfaction with the trust's objectives or activities. The Tribunal emphasized that the satisfaction of the authority should be objective and focused on the genuineness of the trust's activities. The Tribunal referred to relevant case laws to support the requirement of examining the trust's charitable nature and the genuineness of its activities for registration purposes.

Issue 2: Interpretation of Trust Deed for Net Assets Distribution:
Another contention arose regarding the interpretation of the trust deed concerning the distribution of net assets on winding up. The assessee argued that the trust could be amalgamated with another trust with similar objectives, thereby preventing the distribution of funds to its members. The Tribunal noted the provisions of section 55 of the B.P.T. Act and the principle of CY PRES, suggesting that assets should be distributed through the Charity Commissioner on winding up. The Tribunal found merit in the assessee's interpretation and directed the D.I.T. (E) to grant registration considering the trust's charitable nature.

Issue 3: Allegation of Ignoring Material on Trust Activities:
The appellant alleged that the D.I.T. (E) failed to consider the material on record regarding the trust's activities for the last three years, including audited accounts. The Tribunal acknowledged the importance of assessing the trust's activities and genuineness while granting registration under section 12A. The Tribunal highlighted the need for a thorough examination of the trust's charitable objectives and activities to ensure compliance with the Act.

Issue 4: Appeal for Registration u/s 12AA or Direction to D.I.T.-(E):
Lastly, the appellant sought registration under section 12AA of the Act or requested a directive to the D.I.T.-(E) for necessary action. The Tribunal, after evaluating the facts and legal precedents, directed the D.I.T. (E) to grant registration to the assessee, emphasizing the charitable nature of the trust and the need for proper utilization of funds for charitable purposes. The Tribunal cautioned that any misuse of funds for non-charitable purposes could lead to appropriate legal actions by the Department.

In conclusion, the Tribunal's judgment addressed the issues raised by the appellant regarding the denial of registration under the Income Tax Act. The decision emphasized the importance of assessing the trust's charitable nature, genuineness of activities, and proper utilization of funds for charitable purposes. The Tribunal directed the D.I.T. (E) to grant registration to the assessee, highlighting the need for compliance with legal provisions and the charitable objectives of the trust.