2023 (3) TMI 429 - AT - Income Tax

Exemption u/s 11 - application for registration u/s 12AA denied - purpose of creation of Trust - Charitable activity u/s 2(15) - CIT(E) has alleged that applicant trust has created an arrangement whereby it is not only laundering its income but also diverting the same in the hands of the trustee/members - CIT(E) objection was that an arrangement was made by a group of persons who owns the land and had given this land on lease to their partnership firm which subsequently given to their trust at an exorbitant rent. As the trust has paid a huge rent, it becomes clear that these persons are diverting funds of the trust to a partnership firm which is nothing but an entity controlled by trustee/members of the appellant trust - HELD THAT - Merely questioning the purpose of creation of Trust without disputing the charitable nature of objects, genuineness of activities and the manner of carrying out the activities of the trust in consonance to its objectives renders the impugned order of the Ld. CIT(Exemption) perverse to the facts on record. Further, the only requirement for granting the registration is that the object of the society should be charitable in nature and its activities were genuine. On this issue, case of M/s Ananda Society and Educational Trust 2020 (2) TMI 1293 - SUPREME COURT has laid down the basic principles for allowing registration by observing that Section 12AA undoubtedly requires the Commissioner to satisfy himself about the objects of the trust or institution and genuineness of its activities and grant a registration only if he is so satisfied. The said section requires the Commissioner to be so satisfied in order to ensure that the object of the trust and its activities are charitable since the consequence of such registration is that the trust is entitled to claim benefits under sections 11 and 12 of the Act. If it appears that the objects of the trust and its activities are not genuine that is to say not charitable the Commissioner is entitled to refuse and in fact, bound to refuse such registration. Thus we hold that the appellant assessee s grievance is genuine and accordingly, we direct the CIT exemption to grant registration to the assessee trust from the date of application - Appeal of assessee allowed.

Issues Involved:
1. Rejection of application for registration under Section 12AA.
2. Examination of the charitable nature and genuineness of the trust's activities.
3. Allegations of income laundering and fund diversion by the trust.
4. Consideration of documentary evidence and legal principles.
5. Application of Supreme Court and High Court judgments.

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The appellant trust challenged the rejection of their application for registration under Section 12AA by the Commissioner of Income Tax (Exemptions), Chandigarh. The Commissioner rejected the application based on assumptions and apprehensions without appreciating the factual, legal, and statutory position for granting registration. The appellant argued that the Commissioner failed to appreciate that their activities included establishing and maintaining educational institutions, which fall under the definition of charitable purposes as per Section 2(15) of the Income Tax Act, 1961.

2. Examination of the Charitable Nature and Genuineness of the Trust's Activities:
The Commissioner did not dispute the charitable nature of the trust's objectives but raised concerns about an arrangement where the trust paid exorbitant rent for land leased from a partnership firm controlled by the trustees. This arrangement was perceived as diverting funds from the trust to the trustees, questioning the genuineness of the trust's activities. The appellant argued that the Commissioner should only examine the objects of the trust and not delve into other aspects, which are to be assessed by the Assessing Officer during the assessment proceedings on a year-to-year basis.

3. Allegations of Income Laundering and Fund Diversion:
The Commissioner alleged that the trust created an arrangement to launder income and divert funds to the trustees, indicating that the trust was not established for charitable purposes. The appellant countered this by stating that the Commissioner exceeded the mandate of law by making assumptions without considering the documentary evidence and legal principles. They emphasized that the objects of the trust were genuinely charitable and aligned with the provisions of Section 2(15) of the Income Tax Act, 1961.

4. Consideration of Documentary Evidence and Legal Principles:
The appellant provided documentary evidence to support their claim that the trust's activities were genuine and charitable. They cited the Supreme Court judgment in the case of M/s Anand Social and Educational Trust v/s CIT, which laid down the principles for allowing registration under Section 12AA. The appellant also referred to the grim situation due to the COVID-19 pandemic, which affected their ability to provide additional information promptly.

5. Application of Supreme Court and High Court Judgments:
The Tribunal considered the Supreme Court judgment in M/s Anand Social and Educational Trust v/s CIT, which emphasized that the Commissioner should satisfy himself about the objects and genuineness of the trust's activities while granting registration under Section 12AA. The Tribunal also referred to the jurisdictional High Court's judgment in CIT vs. Surya Education Charitable Trust, which highlighted that the Commissioner should not assume the role of the Assessing Officer while granting registration. The Tribunal found that the Commissioner's findings were contrary to the record and directed the Commissioner to grant registration to the appellant trust from the date of application.

Conclusion:
The Tribunal concluded that the appellant trust's grievance was genuine and directed the Commissioner of Income Tax (Exemptions) to grant registration under Section 12AA from the date of application. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 20.02.2023.

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