2016 (9) TMI 307 - HC - Income Tax

Registration as a Trust under Section 12AA cancelled - Held that - It was stated that the objects of the trust were wholly charitable and religious in nature. The ITAT has in its impugned order set out in some detail the contents of the said affidavit regarding the creation of the Trust in Central Tibet in 1159 AD and its objectives and activities over the years. The Court concurs with the ITAT that a formal deed of trust was not necessary for the grant of registration under Section 12A/12AA of the Act. On the question whether the objects and purposes of the Trust were charitable thereby qualifying for registration, the ITAT has set out in its impugned order in detail, the objects of the Trust as declared in the affidavit filed by the 17th Karmapa. It concluded from reading of the various aims and objects that they were charitable in nature. It has been rightly pointed out by the ITAT that it is not necessary that present aims and objects of the Trust should be the same at the time of its establishment. As further rightly pointed out, the stage for examining if the income of the Trust was being applied for its objects would arise only when a return of income is filed by the Trust. The said issue would not affect the grant of registration. Whether the fact that the 17th Karmapa who is the supreme head of the Trust was taking food and clothes and meeting his basic needs from the funds of the Trust resulted in a violation of Section 13 of the Act? - Held that - The ITAT correctly held that Section 13 does not debar the main whole-time trustee/trustees from meeting their basic needs from the funds of the institution/trust particularly when they are not deriving any monetary benefit from the institution/trust. - Decided in favour of assessee

Summary

Issues:
1. Delay in re-filing the appeal.
2. Eligibility of the Assessee for registration as a Trust under Section 12AA of the Income Tax Act, 1961.
3. Requirement of filing documents for creation of a Trust.
4. Objects and purposes of the Trust being charitable.
5. Benefit of the Trust for a particular community.
6. Compliance with Section 13 of the Act regarding the use of Trust funds.

Analysis:
1. The judgment begins by addressing the delay in re-filing the appeal, which is condoned for reasons stated in the application, and the application is disposed of promptly.

2. The main issue revolves around the eligibility of the Assessee for registration as a Trust under Section 12AA of the Income Tax Act, 1961. The ITAT set aside the order rejecting the Assessee's claim, emphasizing that a formal deed of trust was not necessary for registration, and detailed the history and objectives of the Trust, which were found to be wholly charitable and religious in nature.

3. The question of filing documents for the creation of a Trust was raised by the Revenue, citing a specific requirement. However, the ITAT referred to Rule 17A(a) of the Income Tax Rules, which allows for the creation of a Trust "otherwise than under an instrument," and concluded that a formal deed of trust was not essential for registration.

4. The judgment delves into whether the objects and purposes of the Trust were charitable, as required for registration. The ITAT detailed the charitable nature of the Trust's aims and objects, emphasizing that the current aims need not match those at the establishment stage, and clarified that the income application issue would not affect the registration process.

5. The Trust's benefit for a particular community was also examined, with the ITAT concluding that an object beneficial to a section of the public qualifies as an object of general public utility, provided the intention is impersonal and for a defined section of the public.

6. Lastly, compliance with Section 13 of the Act regarding the use of Trust funds was analyzed. The ITAT held that the main trustees meeting their basic needs from Trust funds, without deriving monetary benefits, does not violate Section 13. The judgment praised the detailed and reasoned analysis of the ITAT, finding no substantial legal question to arise, and ultimately dismissed the appeal.