2016 (9) TMI 1031 - AT - Income Tax

Application of the trust for registration u/s.12A rejected - obligation on the trustees on applying income / funds of the applicant trust solely for charitable purposes - Held that - On appraisal of the all mentioned objects we found nowhere commercial in nature. So far as the clause 9 of the Act is concerned it speaks about the discretion of the trustees only to select any object of the trust. The trustees have no discretion to apply the income outside the object which is not within the scope of trust. No doubt this clause speaks about the discretion to use their discretion in connection with the object of the trust. It is to be seen whether in view of the above said objects the application moved by the trust is liable to be rejected or not. This controversy can be looked into at the time of assessment. It is liable to be considered whether the assessee is entitled for the exemption u/s.12A of the Act or not. In brief the allowability of the deduction u/s.11 and 12 of the Act is to be looked into by the Assessing Officer while completing the assessment in the hand of the assessee at the relevant time. The said violation of the trust if any on account of provision u/s.13(1)(b) of the Act are not required to be considered by the authority while granting registration u/s.12A of the Act. In view of the said circumstances we are of the view that the rejection of the application of the assessee is wrong and against the law and facts, therefore, the order passed by the authority in question is ordered to be set aside. We direct the concerned authority to re-examine the matter afresh and to decide the same in view of the observation made above by giving an opportunity of being heard to the assessee in accordance with law. - Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of application for registration u/s.12A of the Income Tax Act, 1961 by the Director of Income Tax (Exemptions), Mumbai.
2. Determination of charitable and non-charitable/commercial objects of the trust.
3. Legal obligation on trustees to apply income/funds solely for charitable purposes.
4. Classification of activities like setting up nursing homes, family planning centers, and providing mediclaim insurance as charitable purposes.
5. Consideration of giving prizes to specific communities for educational and religious purposes.
6. Compliance with section 13(1)(b) of the Income Tax Act regarding benefits to specific religious communities.
7. Eligibility for exemption u/s.11 as a charitable or religious trust.

Analysis:
1. The appeal was filed against the DIT(E)'s order rejecting the application for registration u/s.12A for A.Y. 2014-15 due to mixed charitable and non-charitable/commercial objects of the trust. The assessee challenged this decision on various grounds.
2. The issues raised by the assessee included objections to the classification of activities like establishing nursing homes, family planning centers, and providing mediclaim insurance as non-charitable/commercial. The trust argued that these activities were for the benefit of society and not for trade or business.
3. The legal obligation of trustees to apply income/funds solely for charitable purposes was contested by the assessee, emphasizing that the discretion to select any object of the trust did not imply using income outside the trust's objectives.
4. The trust's activities, such as giving prizes for educational and religious achievements, were questioned by the DIT(E) as benefiting specific communities, leading to concerns about compliance with charitable purposes under the Act.
5. The rejection was also based on the perceived breach of section 13(1)(b) of the Act regarding benefits to particular religious communities, raising doubts about the trust's eligibility for exemption u/s.11 as a charitable or religious trust.
6. The ITAT Mumbai, after considering the arguments and perusing the record, found the rejection of the application to be incorrect and ordered a re-examination of the matter, directing the authority to decide in accordance with the observations made and provide the assessee with an opportunity to be heard.
7. The appeal was allowed, setting aside the order of rejection and highlighting the need for a thorough reassessment of the trust's eligibility for exemption under the Income Tax Act.

This detailed analysis provides insights into the various legal issues raised in the judgment and the reasoning behind the ITAT Mumbai's decision to allow the appeal and order a re-examination of the matter.