2004 (5) TMI 251 - AT - Income Tax

Summary

Issues Involved:
1. Refusal of registration under sections 12A/12AA of the IT Act, 1961.
2. Amendments to the trust deed and their validity.
3. Sale of trust property below market price.
4. Assessment of the trust as a private religious trust.
5. Timeliness and jurisdiction of the application for registration.
6. Maintenance of proper account books and audit reports.

Detailed Analysis:

1. Refusal of Registration under Sections 12A/12AA of the IT Act, 1961:
The assessee-trust applied for registration under section 12A(a) of the IT Act on 18th June, 2002, seeking registration effective from 26th September, 1956. The CIT refused this application on several grounds. The Tribunal noted that the CIT should have primarily focused on whether the trust's objectives were charitable or not. The Tribunal concluded that the CIT was not justified in rejecting the application based on the grounds provided.

2. Amendments to the Trust Deed and Their Validity:
The CIT rejected the application partly because the trust deed was amended on 30th October, 1989, deviating from the original deed dated 26th September, 1956. The Tribunal found that the trustees were empowered to make amendments within the framework of public policy and in the interest of the trust by majority, as per clause No. 5 of the original deed. The Tribunal held that the amendments were valid and did not justify the rejection of the application.

3. Sale of Trust Property Below Market Price:
The CIT observed that the trust sold property below market price to trustees and their relatives. The Tribunal agreed with the assessee's contention that the property with a tenant had no potential to fetch the market value. The sale was authorized by the trust resolution, and the proceeds were used to construct a new property, which was beneficial for the trust. The Tribunal found no substance in this ground for rejecting the registration.

4. Assessment of the Trust as a Private Religious Trust:
The CIT noted that the trust was assessed as a private religious trust for the assessment years 1984-85 and 1985-86, which was not questioned by the assessee in appeal. The Tribunal found that the trust was registered as a public trust with the Registrar of Public Trusts, Barnagar, and the computation filed with the returns did not suggest it was a private trust. Therefore, the Tribunal disagreed with the CIT's assessment.

5. Timeliness and Jurisdiction of the Application for Registration:
The CIT rejected the application for registration effective from 26th September, 1956, because the application was not made within one year from the prescribed date of 1st July, 1973. The Tribunal found that the application for registration was indeed filed on 14th December, 1998, with the CIT, Bhopal, through the Asstt. CIT (Inv.), Ujjain. The Tribunal condoned the delay and directed the CIT to grant registration effective from the first day of the financial year in which the application was made.

6. Maintenance of Proper Account Books and Audit Reports:
The CIT also observed that the trust did not maintain proper account books and audit reports. The Tribunal referred to the judgment of the Allahabad High Court in the case of Fifth Generation Education Society vs. CIT, which held that at the stage of registration under section 12A, the CIT should only inquire into whether the objects of the trust are charitable. The Tribunal concluded that the CIT was not justified in rejecting the application based on the maintenance of account books and audit reports.

Conclusion:
The Tribunal set aside the order of the CIT and directed the CIT to grant registration to the assessee-trust effective from the first day of the financial year in which the application was made, condoning the delay. The appeal was partly allowed.