2021 (2) TMI 727 - AT - Income Tax

Exemption u/s 11 - rejecting the registration u/s 12AA(1)(b)(ii) to the appellant Trust - genuineness of activities is not established - no clause in the trust deed / memorandum of association that the beneficiaries are the class / section of public and not the specific individuals - assessee argued no opportunity of being heard given - AR contended that in the event of winding up of the activities of the trust, the properties of the trust can be donated to other trust as per clause 26 of the memorandum of association - HELD THAT - No specific clause in the trust deed /memorandum of association that the properties of the trust shall be transferred to another trust having similar objectives in the event of winding up of its activities - On perusal of the objects of the trust, it is transpired that the activities of the trust are for the purpose of the education which comes within the definition of charitable activity as provided under section 2(15) of the Act. Furthermore, the activities /objects of the society have nowhere been doubted by the ld. CIT (Exemptions) which are appearing in clause 3 of the trust deed. We also find that there was specific clause in the Memorandum of Association specifying that in the event of winding up of the activities of the trust, the properties held by the trust shall be transferred to other trust having similar objects.What is transpired that necessary clauses are very much appearing in the memorandum of association as highlighted by the ld. CIT (Exemptions) in his order. Thus, it can be inferred that all the compliances as required by the ld. CIT (Exemptions) have been duly complied by the assessee. Whether the ld. CIT (Exemptions) has verified the clauses as discussed above - From the finding of the ld. CIT (Exemptions), it is transpired that he has not verified the above clauses. Assessee has made the reply to the queries referred by the ld. CIT (Exemptions) vide letter dated 03.04.2019 which is placed on record. It is also important to note that the ld. CIT (Exemptions) in his order has also made reference to such letter of the assessee dated 03.04.2019 which can be verified from the order of the ld. CIT (Exemptions). Thus, it cannot be said that the assessee failed to furnish the details as desired by the assessee during the proceedings before him. Accordingly, we are of the view that inaction by the Revenue on the details furnished by the assessee should not cause any prejudice to the assessee. Hon ble Bombay High Court in the case of CIT (Exemptions) Vs. Setco Foundation 2019 (2) TMI 532 - BOMBAY HIGH COURT has held that it is not necessary to have the winding up clause in the trust deed. The issue to be considered for registration is the object of the Trust and genuineness of its activities. The impugned order also makes reference to Section 55 of the Bombay Public Trust Act 1950 which provides for the contingency of absence of dissolution clause in the trust deed. The finding of the ld. CIT (Exemptions) is contrary to the facts available on record. Accordingly, it is inferred that the assessee has complied the conditions imposed under the provisions of section 12AA of the Act for granting the registration. Accordingly, in view of the above and after considering the facts in totality, we set aside the issue to the file of the ld. CIT (Exemptions) with the direction to grant registration to the assessee under section 12AA of the Act as per the provisions of law. Hence, the grounds of appeal of the assessee are allowed for the statistical purposes.

Summary

Issues:
1. Rejection of registration under section 12AA(1)(b)(ii) by the Commissioner of Income Tax (Exemptions).
2. Grounds of appeal raised by the assessee.
3. Compliance with requirements for registration under section 12AA.
4. Discrepancies in the submission of activities by the assessee.
5. Verification of clauses by the Commissioner of Income Tax (Exemptions).
6. Interpretation of clauses regarding beneficiaries and winding up in the trust deed.
7. Legal precedent regarding the necessity of a winding-up clause in the trust deed.

Analysis:

1. The appeal was filed against the rejection of registration under section 12AA(1)(b)(ii) by the Commissioner of Income Tax (Exemptions), Pune. The rejection was based on the grounds that the activities of the assessee were not deemed charitable.

2. The assessee raised two grounds of appeal: firstly, the Commissioner erred in rejecting the registration without providing an opportunity to be heard, and secondly, the Commissioner erred in holding that the genuineness of activities was not established.

3. The trust, registered under the Bombay Public Trust Act, filed for registration under section 12AA(1)(b)(ii) of the Income Tax Act. The Commissioner raised queries regarding the trust deed, specifically related to clauses about beneficiaries and winding up, which were not fully complied with by the assessee.

4. The discrepancies in the submission of activities by the assessee were highlighted, as the nature of educational activities differed in various submissions. The need for verification of these details was emphasized.

5. The verification of clauses in the trust deed, particularly related to beneficiaries and winding up, was a crucial aspect. The Commissioner's failure to verify these clauses was noted, but the assessee's responses to queries were considered satisfactory.

6. The interpretation of clauses in the trust deed regarding beneficiaries and winding up was analyzed. It was found that the trust's activities aligned with charitable purposes, and the clauses in the trust deed adequately addressed the concerns raised by the Commissioner.

7. A legal precedent was cited regarding the necessity of a winding-up clause in the trust deed. The High Court's judgment emphasized that the absence of a dissolution clause would not bar registration under section 12AA, focusing on the trust's objectives and activities.

In conclusion, the Appellate Tribunal set aside the issue to the Commissioner of Income Tax (Exemptions) with a direction to grant registration to the assessee under section 12AA of the Act, as the conditions for registration were deemed to have been met. The appeal was allowed for statistical purposes.