2016 (9) TMI 912 - AT - Income Tax

Registration u/s 12A denied - religious trust - Held that - While registration in accordance with the provisions of Section 12AA of the Act is a condition precedent for claiming the benefits u/s. 11 and 12 of the Act, registration as per Section 12AA by itself will not automatically confer the benefits of Section 11 and 12 of a trust, but the trust will get the benefit only on complying with the requirements of Section 11 & 12 of the Act, which compliance can be examined by the assessing authority while processing the return filed by the trust. So long as the trust has objects which are charitable in nature, it satisfies for registration u/s. 12AA of the Act, unless there is a finding that the trust is not genuine. Even if the objects are mixed in the sense, there are charitable and religious objects, still the trust is entitled for registration as held by various decisions of the judicial authorities. Here, there is no objection on the reason that the trust is a religious trust. So long as the objects are charitable in nature, assessee deserves registration u/s. 12AA of the Act. Just because the reply is not given as desired by the DIT, it does not mean that the trust is not genuine. Moreover, as submitted by the Ld. Counsel, various clauses of the trust operate independently and there is no confusion as made out by the DIT. In fact the DIT himself got confused in understanding the irrevocability of the trust and power of the trustees in dissolving the trust while administering the same. With reference to number of trustees also there is no confusion as trustees are empowered to enhance the initially constituted trust members to a maximum number of 18, which does not mean that there is no clarity at any given point of time. There can only be trustees as specified in the original trust deed or as enhanced by the Board keeping in view of the requirements. With reference to the foreign national being member of the trust, Ld. DR did not specify any of the law under which it is prohibited. So long as the trust objects are charitable in nature and trust activities/benefits claimed are within India, the trust can get the registration. . Considering the principles laid down on the subject and the fact that assessee s objects are charitable in nature, we direct the DIT to grant registration u/s. 12AA - Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of registration under Section 12AA of the Income Tax Act.
2. Assessment of the genuineness of the trust’s activities and objects.
3. Trust’s activities outside India.
4. Clauses in the Trust Deed regarding irrevocability and dissolution.
5. Number of trustees and clarity in the Trust Deed.
6. Inclusion of foreign nationals as trustees.

Detailed Analysis:

1. Rejection of Registration under Section 12AA:
The assessee filed applications for registration under Section 12AA, which were rejected by the Director of Income Tax (Exemptions) on 29-11-2012 and 28-08-2014. The primary issue in both appeals is the rejection of registration under Section 12AA.

2. Assessment of the Genuineness of the Trust’s Activities and Objects:
The DIT did not object to the objects of the trust but questioned the genuineness of its activities. The Tribunal noted that Section 12AA requires the DIT to call for documents or information to satisfy himself about the genuineness of the activities and objects of the trust. Since there was no adverse comment about the charitable nature of the trust's objects, the Tribunal presumed no objection from the DIT on this matter.

3. Trust’s Activities Outside India:
The DIT raised concerns about the trust intending to carry out activities outside India. The Tribunal referenced the Hon'ble Delhi High Court's decision in M.K. Nambyar Saarc Law Charitable Trust Vs. Union of India [269 ITR 556], which clarified that the application of income outside India is not a valid ground for refusing registration. The Tribunal also cited the Co-ordinate Bench decision in Manhatten Foundation Vs. CIT (Exemptions), which supported the view that registration cannot be denied solely because the trust's activities might extend outside India.

4. Clauses in the Trust Deed Regarding Irrevocability and Dissolution:
The DIT found an anomaly in the Trust Deed, noting that it was stated to be irrevocable under Clause-7, while Clause-37 allowed trustees to dissolve the trust. The Tribunal clarified that irrevocability applies to the creator of the trust, while trustees can dissolve the trust if they cannot administer it as per its objects. These clauses operate independently and should not be grounds for rejecting registration.

5. Number of Trustees and Clarity in the Trust Deed:
The DIT pointed out inconsistencies regarding the number of trustees, with Clause-14 specifying a minimum of two and a maximum of 12 trustees, while Clause-15 allowed for up to 18 trustees. The Tribunal found no confusion, stating that the power to increase the number of trustees is clear and does not affect the trust's genuineness.

6. Inclusion of Foreign Nationals as Trustees:
The DIT objected to the inclusion of ex-officio members of the German Consulate as trustees, suggesting it compromised the trust's independence. The Tribunal found no legal restriction against foreign nationals being trustees, provided the trust's activities and benefits are within India.

Conclusion:
The Tribunal concluded that the DIT had taken extraneous considerations into account in refusing registration. The Tribunal directed the DIT to grant registration under Section 12AA, emphasizing that the Assessing Officer could examine compliance with Sections 11 and 12 during assessment. Both appeals by the assessee were allowed, with the second appeal considered academic in nature due to the decision in the first appeal.

Order Pronounced:
The order was pronounced in court on 10th August 2016.