2017 (11) TMI 1224 - HC - Income Tax

Grant registration under Section 12AA - Held that - Sub-Section (4) of Section 12AA will come into operation after the registration is carried out in consonance with the provisions of object of the trust not at the time of registration. In that view of the matter, registration will be given to trust and the observations made by the Tribunal are just and proper - Decided in favour of assessee

Summary

Issues:
Challenge to Tribunal's order granting registration under Section 12AA of the Income-Tax Act, 1961.

Analysis:
1. The appellant challenged the Tribunal's order granting registration under Section 12AA of the Income-Tax Act, 1961. The High Court admitted the appeal and framed substantial questions of law regarding the correct interpretation of Section 12AA(4) inserted w.e.f. 01.10.2014. The issue was whether the CIT could examine violations of Section 13(1) at the time of registration itself.

2. The appellant's counsel referred to the CITA's order, highlighting that the society was essentially allowing a profit-making company to run the school activities, contrary to the charitable purpose. The counsel argued that the CIT Commissioner had the power to examine the object and activities under the amended provisions of Section 12AA. The Tribunal's view that only the object and genuineness of the trust could be examined at the registration stage was contested.

3. The respondents' counsel relied on a previous court decision to support their argument that issues related to expenses, diversion, or control by private individuals should be considered after assessment, not at the time of registration. The court emphasized that the main intention of the legislation was to ensure income from public trusts was used for charitable purposes.

4. After hearing both sides, the court concluded that Sub-Section (4) of Section 12AA would come into operation after registration, in line with the trust's objectives. Therefore, the court upheld the Tribunal's decision to grant registration to the trust, dismissing the appeal in favor of the assessee.

5. The judgment favored the assessee, emphasizing that the registration process should focus on the trust's objectives rather than scrutinizing activities or fund applications. The court's decision aligned with the interpretation that Section 12AA(4) applies post-registration, ensuring the trust's compliance with its charitable purpose.

6. In conclusion, the High Court upheld the Tribunal's order granting registration under Section 12AA, emphasizing the importance of aligning the registration process with the trust's charitable objectives and activities. The judgment clarified the timing and scope of examination regarding trust registration and compliance with relevant tax laws.