2023 (9) TMI 1607 - AT - Income Tax

Refusal to grant/approval Registration of Trust u/s 12AB - objects for carrying on CSR activities and for Public Charitable purposes - HELD THAT - The decision of the Ld. CIT Exemption rejecting the grant/Approval of appellants application without pointing out any deficiency in objects or activities of the Trust in violation of provisions to proviso to section 2(15) of the Act, and discussion about the manner of activities being carried out by the company and whenever contributions made to the impugned Trust were claimed as Business expenditure or even otherwise was not eligible for deduction in respect of such contribution/s for CSR activities/Public Charitable purposes in spite of the facts that the Trust claimed to have submitted its duly audited Financial Statement for the year ended 31.03.2021 and 31.03.2022 and also details of such expenditure incurred upto 31.12.2022, duly supported by Bills/vouchers/supporting documents evidencing amount spent/incurred for such specified CSR activities / Public Charitable purposes. As seen that in the present cases the impugned orders of the the CIT (Exemptions) are non-speaking and without discussion in refusal to grant Registration u/s 12AB and approval u/s 80G of the Income Tax Act because, he has not addressed the objectives and activities of the Trust, in respect of the appellant, being ongoing entity for three financial years. CIT(E) order of rejection of the applications in arbitrary manner for the reason that he has not addressed the submission of appellant that the composition of the Trust is restrictive without considering clause ' 18' of the Trust Deed where the maximum numbers of the Trustees could be seven, and that there was no restrictive clause to limit the appointment of number of trustees, even the Directors of the company when there are no existing legal restrictive provisions that the directors of the company could not be the Trustees of Trust so formed. We consider it deem fit to remand back the matter to the file of the CIT exemption to adjudicate the issue of grant of registration under section 12AB and approval under section 80G. Appeals filed by the assessee are allowed for statistical purposes.

Summary

Issues Involved:

1. Refusal to grant registration of the Trust under section 12AB of the Income Tax Act.
2. Refusal to grant approval of the Trust under section 80G of the Income Tax Act.
3. Examination of the Trust's composition and its compliance with CSR activities under the Companies Act.

Detailed Analysis:

1. Refusal to Grant Registration under Section 12AB:

The primary issue is the refusal by the Commissioner of Income Tax (Exemptions) to grant registration under section 12AB of the Income Tax Act. The Trust, established by a company to carry out Corporate Social Responsibility (CSR) activities, argued that its objectives align with public charitable purposes as defined under the Companies Act. The appellant contended that the CIT(E) failed to appreciate the similarity between CSR activities and public charitable purposes. Despite the Trust submitting audited financial statements and supporting documents for expenditures, the CIT(E) rejected the application, citing that the Trust's activities were primarily to fulfill the company's CSR obligations rather than genuine charitable purposes. The Tribunal found that the CIT(E) did not adequately address whether the Trust's objectives and CSR activities were analogous to public charitable purposes, necessitating a remand for further examination.

2. Refusal to Grant Approval under Section 80G:

The second issue pertains to the denial of approval under section 80G, which allows donors to claim deductions for contributions made to the Trust. The Trust argued that the CIT(E) ignored substantial evidence showing that the expenditures were for public charitable purposes. The CIT(E) did not point out any deficiencies in the Trust's activities or its financial statements. The Tribunal noted that the CIT(E)'s order was non-speaking and lacked discussion on the objectives and activities of the Trust. Consequently, the matter was remanded for a fresh examination to ascertain whether the Trust meets the criteria for approval under section 80G.

3. Examination of Trust's Composition and Compliance with CSR Activities:

The CIT(E) raised concerns about the Trust's composition, noting that it was closely linked to the company, with directors of the company serving as trustees. The CIT(E) viewed this as a mechanism for the company to control the Trust's finances and fulfill its CSR obligations while seeking tax exemptions not ordinarily available for CSR expenditures. The Tribunal observed that the CIT(E) did not adequately consider clause 18 of the Trust Deed, which allows for a maximum of seven trustees, and did not impose restrictions on appointing directors as trustees. The Tribunal directed the CIT(E) to re-evaluate this aspect, considering the legal provisions and the Trust's compliance with CSR activities as per the amended law.

Conclusion:

The Tribunal remanded the matter to the CIT(E) for a fresh examination and adjudication of the Trust's applications for registration under section 12AB and approval under section 80G. The CIT(E) is instructed to consider the Trust's submissions, the legal provisions, and the material on record, providing the Trust an opportunity to be heard. The appeals were allowed for statistical purposes, pending the outcome of the remand.