2016 (8) TMI 1465 - AT - Income Tax

Rejection of registration of trust u/s 12A - HELD THAT - Application of income of the trust has to be seen at the time of assessment and it is premature to examine the said issue at the time of grant of registration u/s 12A of the Act. The case of the assessee is supported by a decision of the Tribunal Life Shines Educational and Charitable Trust Vs ACIT 2015 (10) TMI 1478 - ITAT CHENNAI in which it is held that the issue of application of income or the activities carried on were to be considered at an appropriate proceedings i.e. the assessment proceedings and not at the time of granting registration u/s 12A. In view of the ratio laid down in the decisions cited (supra), we find that the order of ld.CIT(A) is wrong and cannot be sustained as registration has been denied for no valid reasons. We ,therefore following the ratio laid down by the above said decisions, set aside the order of ld.Director (Exemption) with a direct to grant registration to the assessee u/s 12A of the Act.

Summary

Issues:
1. Rejection of registration u/s 12A of the Income Tax Act, 1961 by the Director of Income Tax (Exemption) based on absence of dissolution clause in the trust deed and the application of 29% of gross receipt for religious activities.

Analysis:
The appellant filed an appeal against the order of the Director of Income Tax (Exemption) rejecting registration u/s 12A. The rejection was based on two grounds: absence of a dissolution clause in the trust deed and the expenditure of 29% of gross receipts on religious activities. The appellant argued that the rejection was unjustified, citing relevant case laws. The Tribunal agreed with the appellant, noting that the absence of a dissolution clause cannot be a sole reason for denial of registration, as supported by case law. Regarding the expenditure on religious activities, the Tribunal held that such issues should be examined during assessment proceedings, not at the time of registration. Relying on precedent, the Tribunal set aside the Director's order and directed the grant of registration u/s 12A to the appellant.

The Tribunal emphasized that denial of registration solely based on the absence of a dissolution clause in the trust deed was unfounded, citing relevant case law to support its decision. Additionally, the Tribunal highlighted that the issue of expenditure on religious activities should be addressed during assessment proceedings, not during the registration process. By following established legal principles, the Tribunal concluded that the Director's decision to reject registration was erroneous and ordered the grant of registration u/s 12A to the appellant.