2002 (3) TMI 218 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of Application for Registration u/s 12A
2. Authority of DI to Examine the Will
3. Validity of Trust Formation and Compliance with Will
4. Scope of Inquiry u/s 12AA

Summary:

1. Rejection of Application for Registration u/s 12A:
The appeal was directed against the order of the Director of Income-tax (Exemptions) (DI) rejecting the application for registration u/s 12A of the I.T. Act, 1961 by the appellant trust. The DI's main contention was that the executrixes did not have the mandate under the Will to set up a new trust, thus rendering the trust non-existent in law and ineligible for registration.

2. Authority of DI to Examine the Will:
The DI examined the Will and Trust Deed and raised a query about whether the trust formation was permitted by the Will. The DI concluded that the executrixes could only gift/donate the residual estate but could not create a trust out of it. The Tribunal held that the DI was within his authority to examine the contents of the Will to ensure the genuineness of the trust and its activities.

3. Validity of Trust Formation and Compliance with Will:
The DI opined that the directions in the Will were binding and that the executrixes did not have the mandate to settle the property on the trust created with the residuary estate. The Tribunal disagreed, stating that it was better left to the executrixes to decide whether to donate the funds or achieve the same object through a trust. The Tribunal emphasized that the creation of the trust did not violate the mandate of the Will.

4. Scope of Inquiry u/s 12AA:
The Tribunal noted that the scope of inquiry u/s 12AA is to satisfy the authority about the objects of the trust and the genuineness of its activities. The Tribunal observed that the DI took a narrow and hypertechnical view and that the registration under section 12A was only a preliminary step. The Tribunal held that the DI's action in refusing to register the trust was not in order and directed the grant of registration.

Conclusion:
The Tribunal allowed the appeal, directing the grant of registration u/s 12A, and noted that no other relief or direction was sought by the appellant.