2022 (12) TMI 737 - AT - Income Tax

Exemption u/s 11 - rejection of application for registration u/s. 12AA - Charitable activity u/s 2(15) - whether the purpose of Trust or Institution involves the carrying on of any activity of profit? - as in the present case of the assessee Trust where the objects of the Trust comprise of relief of the poor, education or medical relief, etc.- HELD THAT - From conjoint reading of the Trust Deed, it is axiomatic that primary purpose/objects of the assessee enumerated in the Trust Deed are charitable in nature - The other clauses of the Trust Deed had to be necessarily read in the context of the aforesaid clauses. Even otherwise, the activities of the assessee as set out in the Trust Deed are covered within the ambit of charitable purpose being primarily for medical help and relief to poor besides imparting value addition to general public through spiritual teaching and education from madrasa and masjids. The aforesaid activities in consonant to objectives of the trust has not been disproved by the Ld. CIT(Exemption). Therefore, the issue with regard to the activity of the assessee being not that of commercial or business in nature, the issue of cash transaction cannot be gone into at the time of consideration of the application under section 12AA of the Act. Thus we hold that the order of the CIT(E) is perverse to the facts on record. We further hold that there was no material on record to hold that objects of the trust were either not charitable in nature or its activities were not genuine. Therefore, CIT(Exemption), Chandigarh is directed to grant the registration u/s. 12AA of the Act to the appellant trust from the date of application. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Rejection of the application for registration under section 12A of the Income Tax Act, 1961.
2. Alleged lack of opportunity for the appellant to be heard.
3. Charitable purpose and genuineness of the activities of the trust.
4. CIT(E)'s observations regarding the trust's activities and financial transactions.
5. Legal precedents and interpretation of section 12AA of the Income Tax Act, 1961.

Detailed Analysis:

1. Rejection of the Application for Registration under Section 12A:
The appellant trust challenged the rejection of its application for registration under section 12A of the Income Tax Act, 1961, by the CIT(Exemption), Chandigarh. The CIT(E) rejected the application on the grounds that the trust's activities did not qualify as charitable purposes under section 2(15) of the Act. The CIT(E) observed that the trust's primary intent seemed to be the expansion of religious structures rather than charitable activities, with only a meager portion of expenses directed towards charitable purposes.

2. Alleged Lack of Opportunity for the Appellant to be Heard:
The appellant argued that the CIT(E) did not provide a proper and reasonable opportunity to be heard before refusing the registration. The appellant contended that the order passed was bad in law and liable to be canceled due to the lack of due process.

3. Charitable Purpose and Genuineness of the Activities of the Trust:
The appellant trust asserted that its primary objective was charitable, focusing on relief to the poor, education, medical relief, and advancement of general public utility. The trust provided details of its activities, including financial assistance for medical relief, donations to various mosques, and construction of religious and public utility structures. The appellant argued that the CIT(E) failed to appreciate the charitable nature and genuineness of these activities.

4. CIT(E)'s Observations Regarding the Trust's Activities and Financial Transactions:
The CIT(E) raised concerns about large-scale cash transactions during the period of demonetization, questioning the trust's charitable intent. The CIT(E) also noted that the trust's activities seemed focused on asset expansion rather than public benefit. The CIT(E) emphasized the need for clear ownership and management of the properties involved, especially given the special provisions governing land rights in Jammu and Kashmir.

5. Legal Precedents and Interpretation of Section 12AA:
The appellant relied on legal precedents, including judgments from the Punjab and Haryana High Court and the Supreme Court, to support its case. The appellant argued that the CIT(E) should focus on the objects and genuineness of the trust's activities rather than the mode of financial transactions or asset ownership issues. The appellant cited cases such as "CIT(E), Chandigarh vs. Shirdi Sai Darbar Charitable Trust" and "Ananda Social & Educational Trust v. CIT" to argue that the trust's activities were genuine and charitable.

Conclusion:
The Tribunal examined the facts and legal arguments presented by both sides. It noted that the CIT(E) had not disputed the charitable nature of the trust's objects or the genuineness of its activities. The Tribunal found that the CIT(E)'s concerns about cash transactions and asset ownership did not negate the charitable purpose of the trust. Citing relevant legal precedents, the Tribunal concluded that the trust's activities fell under the category of "charitable purpose" as defined in section 2(15) of the Income Tax Act. Consequently, the Tribunal directed the CIT(E) to grant registration under section 12AA to the appellant trust from the date of the application.

Order:
The appeal filed by the assessee was allowed, and the CIT(E) was directed to grant the registration under section 12AA of the Income Tax Act, 1961, to the appellant trust. The order was pronounced in the open court on 20.10.2022.