2018 (7) TMI 1618 - AT - Income Tax

Grant of registration u/s 12AA denied - President and the Managing Trustee were to be chosen from the two families viz. family of late Shri Moti Ram Ghiraiya and late Shri Lala Dhanik Ram Ghiraiya and as per the Ld. C.I.T. (E), this was in the nature of revocable transfer which was not permissible in view of section 63 - Held that - In the case of Smt. Mansukhi Devi Bihani Jan Hitkari Trust 2004 (2) TMI 302 - ITAT JODHPUR it has been held that the Trust could not be denied registration u/s 12AA of the Act merely on the ground that the Board of trustees was to be constituted of family members. As we have already noted, the Ld. Commissioner of Income Tax (E) has not examined the assessee s application for registration in light of the genuineness of the objects of the Trust. Accordingly, we deem it fit to restore the issue to the file of the Ld. C.I.T. (E) with a direction to re-examine and reconsider the assessee s application for registration after duly examining the objects of the assessee trust and also after duly considering the order above - decided in favour of assessee for statistical purposes.

Summary

Issues:
- Denial of registration u/s 12AA of the Income Tax Act, 1961 to the appellant society based on the reservation of key positions for specific families in the trust deed.

Detailed Analysis:
1. The appellant, a religious trust, appealed against the denial of registration u/s 12AA by the Ld. CIT (Exemption) due to the reservation of key positions for specific families in the trust deed. The Ld. CIT (E) noted that the trust's President and Managing Trustee positions were reserved for descendents of two families, leading to concerns about the trust's control and genuineness of activities.

2. The appellant challenged the denial, arguing that the reservation of positions did not constitute a revocable transfer, and there was no adverse inference on the trust's objectives. Citing a similar case, the appellant sought registration based on charitable purposes, emphasizing the importance of examining the trust's objects.

3. The Ld. CIT DR defended the denial, highlighting the familial reservation as making the trust a private discretionary trust, akin to an AOP. The denial was justified based on governance and financial control vested in specific families.

4. Upon review, the ITAT found that the denial was solely due to the familial reservation, without assessing the charitable nature of the trust's objectives. Referencing a precedent, the ITAT emphasized that familial board composition alone should not bar registration for a trust with charitable aims.

5. Consequently, the ITAT directed the Ld. CIT (E) to reevaluate the registration application considering the trust's charitable objectives and the precedent cited, ensuring a fair opportunity for the appellant to present its case. The appeal was allowed for statistical purposes, emphasizing the need for a comprehensive review based on charitable intent.

6. In conclusion, the ITAT overturned the denial of registration u/s 12AA, stressing the importance of assessing charitable objectives rather than solely focusing on familial board composition. The case was remanded for a fresh decision, highlighting the significance of proper examination and due consideration of the trust's charitable nature.