2021 (5) TMI 726 - AT - Income Tax

Registration of the Trust u/s 12AA denied - Rejecting their application in form no. 10A for the approval u/s. 12AA - HELD THAT - The Clause (a) of rule 17A of Income Tax Rules requires that the application of registration under section 12A of a charitable or religious trust or institution would be accompanied by the following documents namely where the trust is created or the institution is established under an instrument the instrument in original and where the trust is created or the institution is established otherwise than under an instrument the document evidencing the creation of the trust or the establishment of the institution. Thus rule 17A nowhere envisages the existence of a trust deed or its registration. The factum of existence of trust can also be established by producing documents evidencing the creation of the trust. Section 12AA lays down the procedure for granting Registration. Rule 17(A)(a) show that when the trust is not created under an instrument it is impossible to produce any constitutive document hence the rule requires production of evidential documents i.e. the document evidencing the creation of trust. We observe that specific evidential documents furnished by the assessee in the paper book as referred above in this order has not been verified and examined by the ld. CIT(Exemption) in the context of evidential documents. In view of the above facts and circumstances we would deem it proper to set aside the impugned order to the file of the ld. CIT(Exemption) for deciding afresh after considering the specific documents placed - Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Rejection of application for approval under section 12AA of the Income Tax Act, 1961.
2. Requirement of documentary evidence for the genuineness of the trust's creation and activities.
3. Compliance with Rule 17A of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Rejection of Application for Approval under Section 12AA:

The solitary ground of appeal is directed against the decision of the CIT (Exemption) in rejecting the application in Form No. 10A for approval under section 12AA of the Income Tax Act, 1961. The assessee filed the application on 27th December 2017, accompanied by a registration certificate issued by the Charity Commissioner. The CIT (Exemption) requested various details and documents to verify the genuineness of the trust's creation and activities. The CIT (Exemption) rejected the application, stating that the assessee failed to provide sufficient documentary evidence to establish the genuineness of its creation and activities.

2. Requirement of Documentary Evidence for Genuineness:

The CIT (Exemption) emphasized that the assessee did not provide adequate documentary evidence to verify the trust's creation and activities. The CIT (Exemption) referred to Section 12AA and Rule 17A, which require the submission of documents evidencing the creation of the trust. The CIT (Exemption) found the documents submitted by the assessee, such as the copy of rules and regulations, ATM card, and annual audit reports, insufficient to establish the trust's creation. The CIT (Exemption) stressed that without registration with a competent authority, there is no legal obligation for the trust to file annual audited accounts or provide details of trustees, making it difficult to verify the trust's activities and existence.

3. Compliance with Rule 17A of the Income Tax Rules, 1962:

The CIT (Exemption) noted that the assessee association was not registered with any competent authority, such as the Charity Commissioner or Registrar of Societies. The CIT (Exemption) argued that Rule 17A requires the production of evidential documents to establish the creation of the trust. The CIT (Exemption) concluded that the documents submitted by the assessee did not satisfy the requirements of Rule 17A, as they did not provide sufficient evidence of the trust's creation.

Appellate Tribunal's Decision:

During the appellate proceedings, the assessee's counsel argued that the CIT (Exemption) erred in rejecting the application without considering the specific nature of the assessee's activities as a cloth merchant association. The counsel referenced a decision by the Gujarat High Court, which ruled in favor of an association with similar circumstances, stating that it is not necessary for the applicant to be a registered trust. The Tribunal reviewed the documents submitted by the assessee and found that the CIT (Exemption) did not provide specific reasons for rejecting these documents.

The Tribunal observed that Rule 17A does not mandate the existence of a trust deed or its registration but requires documents evidencing the creation of the trust. The Tribunal noted that the CIT (Exemption) did not verify and examine the specific evidential documents submitted by the assessee. Consequently, the Tribunal set aside the CIT (Exemption)'s order and remanded the case for fresh adjudication, instructing the CIT (Exemption) to consider the specific documents and the observations of the Gujarat High Court.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, directing the CIT (Exemption) to re-examine the case and consider the specific documents submitted by the assessee. The Tribunal emphasized the need for the CIT (Exemption) to verify the evidential documents in the context of Rule 17A and the observations of the Gujarat High Court. The order was pronounced in the open court on 04-05-2021.

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