2019 (9) TMI 636 - HC - Income Tax

Claim for registration u/s 12AA - division of the property - whether Constitution/ Bye-laws of the Trust is not having any provision in relation to disbursement of balance funds in the eventuality of the dissolution of Trust ? - HELD THAT - This Court is of the opinion that the absence of dissolution clause or condition as rightly contended by the assessee, is an uncertain future event. Further-more, given that the property is vested in a public charitable trust, it is always open to the concerned party including the Revenue, to approach the Civil Court for a remedy under Section 91-92 of the Code of Civil Procedure. Court noticed the situation contemplated by the Commissioner of Income Tax (Exemption), has now taken care of in any way under Section 115(TD)(c) brought into force w.e.f. 1st June, 2016. Decided in favour of assessee and against the revenue.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in accepting the assessee's claim for registration under Section 12AA despite the absence of provisions in the Trust's Constitution/Bye-laws regarding disbursement of balance funds in the event of Trust dissolution?

Analysis:
In the case before the High Court, the appellant, a Trust managing a historical temple, applied for registration under Section 12-A of the Income Tax Act seeking exemption. The Commissioner of Income Tax denied registration, citing the lack of provision for property devolution in case of Trust dissolution, fearing asset dissipation. The Trust argued that dissolution was an uncertain event and absence of such a condition should not be a basis for rejection. The Income Tax Appellate Tribunal (ITAT) allowed the appeal, emphasizing that the Trust's activities were genuine and charitable, and the absence of dissolution provisions did not warrant denial of registration. The High Court concurred, directing the CIT to grant registration, highlighting that registration under Section 12A is a prerequisite for exemption, subject to meeting Section 13 requirements.

The Revenue contended that the absence of dissolution clause could lead to fund misutilization, emphasizing public interest. However, the Court noted that the absence of such a clause was an uncertain future event, suggesting civil court recourse under the Code of Civil Procedure if needed. The Court ruled in favor of the assessee, dismissing the appeal and upholding the ITAT's decision.

In a related appeal, the Court addressed a similar question of law from a different case, reiterating the decision in favor of the assessee based on the judgment in the earlier case. The Court also referenced Section 115(TD)(c) of the Income Tax Act, introduced in 2016, which addresses asset transfer upon Trust dissolution. Considering the previous judgment and the new provision, the Court dismissed the appeal, ruling in favor of the assessee and against the Revenue.

Overall, the High Court upheld the ITAT's decision to grant registration to the Trust despite the absence of dissolution provisions, emphasizing the genuine charitable activities of the Trust and the enabling nature of registration under Section 12A for exemption, subject to meeting statutory requirements.