2014 (6) TMI 1048 - AT - Income Tax

Exemption u/s 11 - application of the Assessee for registration u/s 12AA - As per CIT-A as per the objectives stated in the amended constitution, the prime object of the Assessee is to preach and practice, teach and educate the tenets of Christianity in the district of Mayurbhanj, neighbouring districts and states. Therefore, the Trust is basically a religious trust created for the benefit of particular religious community or caste - HELD THAT - From the Income and Expenditure account which was filed before us, we noted that the Assessee has income from sale of literature as well as sale of agricultural product. These incomes clearly show that the activities of the Assessee are in the nature of trade, commerce or business. The words used in proviso to Sec. 2(15) are any activity in the nature of trade, commerce or business . This denotes that the Assessee need not actually be engaged in trade, commerce or business but the activities are such which can be in the nature of trade, commerce or business. The words activity in the nature , in our opinion, has been used by the legislature as the legislature is fully aware that for carrying out trade, commerce or business there should be a profit motive. A trust or society which is created for charitable purposes does not have profit motive in carrying out its activities. Therefore, wherever the activities are of the nature of trade, commerce or business, it cannot be said that the trust/institution is engaged in charitable purposes. As the Assessee has income from sale of literature as well as sale of agricultural product, the aforesaid discussion proves that the activities of the trust/institution are not genuine. Even the Assessee could not prove the genuineness of the trust/institution. We, therefore, do not find any illegality or infirmity in the order of CIT as, in our opinion, any trust/institution seeking registration u/s 12AA has to be governed by the Indian Income Tax Act. We, accordingly, dismiss the appeal filed by the Assessee. - Decided against assessee.

Summary

Issues:
1. Rejection of application for registration under Sec. 12AA of the Income Tax Act.

Analysis:
The appeal was filed against the rejection of registration under Sec. 12AA of the Income Tax Act by the CIT. The Assessee, an entity incorporated in Australia, applied for registration with the CIT, stating its objectives related to religious and charitable purposes. However, the CIT found the Trust's objectives to be primarily focused on preaching Christianity and only secondarily on rehabilitating leprosy sufferers, deeming it not genuinely created for charitable purposes. The CIT cited a Supreme Court decision to support the view that the Trust was not entitled to exemption under Sec. 11 due to its specific beneficiary criteria.

Further Analysis:
During the proceedings, the Assessee presented bye-laws emphasizing its charitable activities, including care for leprosy sufferers and the downtrodden in India. The Assessee argued that it was genuinely a charitable trust, contrary to the CIT's findings. On the other hand, the Revenue contended that the Trust's activities did not align with charitable purposes, pointing out discrepancies in the Trust's Constitution and registration status under Indian law.

Detailed Analysis:
The ITAT considered the requirements under Sec. 12A, emphasizing that for exemption under Sec. 11, the trust/institution must be registered under Sec. 12AA. The ITAT observed discrepancies between the Constitution submitted before the CIT and the one presented during the appeal. The Constitution lacked details about registration under Indian law and was governed by Australian tax laws, raising doubts about the Trust's genuineness. The ITAT highlighted that for registration under Sec. 12AA, the trust must be governed by Indian Income Tax Act provisions in its bye-laws, which were absent in the Trust's submission.

Conclusion:
The ITAT concluded that a trust registered outside India must comply with Indian tax laws to establish its genuineness for registration under Sec. 12AA. As the Trust's activities included income from sales, indicating commercial aspects, it was deemed not genuinely engaged in charitable purposes. Therefore, the appeal filed by the Assessee was dismissed, upholding the CIT's decision to reject the registration application under Sec. 12AA of the Income Tax Act.