2020 (12) TMI 43 - AT - Income Tax

Registration u/s 12AA rejected - non disclosing correct income in audited Income Expenditure Account and in the return of income could not qualify the assessee trust as genuine and its conduct / activities could not be treated as genuine - HELD THAT - A perusal of the impugned order passed by the Ld.CIT(Exemptions), Pune shows that there was no doubt raised by him about the charitable nature of the objects of the assessee trust but raised doubts about the genuineness of the activities of the trust on the ground that the funds raised by the assessee trust for the purpose of acquiring fixed assets were not offered to tax and the said income was not reflected in the Income Expenditure Account of the assessee trust. As rightly contended by assessee by relying on the decision in the case of ITO (Exemptions) Vs. Serum Institute of India 2018 (2) TMI 103 - ITAT PUNE the said receipts representing contribution towards corpus funds were capital in nature and the same therefore, were not chargeable to tax. Similarly, the said receipts of capital in nature representing corpus funds were directly taken to the Balance Sheet by the assessee trust and there was no question of reflection of the same in its Income Expenditure Account. At the time of hearing before the Tribunal, the Ld. DR contended that no evidence was filed by the assessee to show that the said receipts were in the nature of corpus donations. However, as pointed out by the assessee from the submissions made before the Ld.CIT(Exemptions), details of corpus donations were furnished by the assessee before the Ld.CIT(Exemptions), Pune and even the utilization of the same for purchase of assets was also duly established. Keeping in view all these facts of the case, we are of the view that there was no justifiable reason for the Ld.CIT(Exemptions), Pune to doubt the genuineness of the activities of the trust and to deny it registration u/s 12AA of the Act. We therefore, set aside the impugned order passed by the Ld.CIT(Exemptions), Pune rejecting the application of the assessee for grant of registration u/s 12AA - Decided in favour of assessee.

Summary

Issues:
1. Rejection of application for registration u/s 12AA of the Income-tax Act, 1961 by Ld.CIT(Exemptions), Pune.
2. Genuine nature of activities of the trust in relation to funds raised for acquiring fixed assets.
3. Consideration of corpus funds received by the assessee trust and their taxability.

Analysis:
1. The appeal was filed against the rejection of the application for registration u/s 12AA of the Act by the Ld.CIT(Exemptions), Pune. The Tribunal previously set aside the rejection order, emphasizing the limited scope of inquiry for granting registration u/s 12AA. The Ld.CIT(Exemptions), Pune reconsidered the application but rejected it again, questioning the genuineness of the trust's activities due to the non-disclosure of income. The Tribunal found no reason to doubt the trust's genuineness and directed the registration to be granted.

2. The Ld. Counsel argued that the corpus funds received by the trust were capital in nature and not chargeable to tax, hence not reflected in the Income & Expenditure Account. The Ld. DR disputed this, citing lack of evidence and non-declaration of the amount. The Tribunal noted that the funds, being corpus donations, were capital in nature and not taxable. The trust had furnished details of corpus donations and their utilization, establishing the genuineness of activities. The Tribunal concluded that there was no justification for doubting the trust's activities and ordered the registration to be granted.

3. The Tribunal considered the nature of corpus funds received by the trust and their taxability. It was established that the funds were capital in nature and were not required to be reflected in the Income & Expenditure Account. The trust provided evidence of corpus donations and their utilization, confirming the genuineness of its activities. Consequently, the rejection of the registration application was set aside, and the registration u/s 12AA was directed to be granted to the trust.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the rejection of the registration application and directing the grant of registration u/s 12AA of the Act.