2004 (2) TMI 302 - AT - Income Tax

Application for grant registration u/s 12A(a) - Charitable Or Religious Trust - HELD THAT - In the present case, it is not in dispute that the application had been furnished in the prescribed Form No. 10A within the time allowed u/s 12A of the Income-tax Act, 1961 read with rule 17A of the Income-tax Rules, 1962. It is also not in dispute that the documents evidencing the creation of the trust was filed along with Form No. 10A. The ld. CIT has also not doubted the objects of the trust and also has not stated that the trust was not created for public charity and its income had not been utilized for that purpose or the property held by it was used for the benefit of the trustees or their families but the only objection of the ld. Commissioner was that in the event of vacancy, the trustees shall co-opt another person out of the family members of that person to fill up the vacancy. That reason cannot be a valid ground for refusing registration to a trust which is created having the main object of charitable purpose. In view of clear provisions of law referred, we are of the considered view that registration u/s 12A of the Income-tax Act, 1961 cannot be refused to trust on the basis that there is a clause in the Trust Deed that in the event of a vacancy in the Board of Trustees, another family member of the trustee can be co-opted from the very family of the outgoing trustee. While taking such a view, we are fortified by the judgment of Hon'ble Allahabad High Court in the case of Fifth Generation Education Society 1990 (5) TMI 38 - ALLAHABAD HIGH COURT , wherein it has been held that the CIT was required to see as to whether the objects of the trust were charitable or not. He was further required to see as to whether the application was made in accordance with the requirements of section 12A of the Income-tax Act, 1961 read with rule 17 of the Income-tax Rules, 1962. Furthermore, it has been held in the said case that the CIT was not required to examine the application of income. Thus, we are of the view that the ld. CIT was not justified in refusing registration to the assessee merely on the basis that in case of a vacancy in the Board of Trustees, the remaining trustees are to co-opt another person from the very family of the outgoing trustee and as such the trust appears more in the nature of a family affair/settlement than a charitable trust. We accordingly reverse his order and direct him to grant registration u/s 12A of the Income-tax Act, 1961. In the result, the appeal is allowed.

Summary

Issues Involved:
1. Refusal to grant registration to the trust u/s 12AA of the Income-tax Act, 1961.
2. Compliance with the requirements u/s 12A of the Income-tax Act, 1961.

Summary:

Issue 1: Refusal to grant registration to the trust u/s 12AA of the Income-tax Act, 1961

The Commissioner of Income-tax (CIT) refused to grant registration to the trust u/s 12AA of the Income-tax Act, 1961, on the grounds that the trust deed indicated all trustees were closely related and belonged to one family. The CIT held that the trust appeared more as a family affair/settlement than a public charitable trust. The assessee contended that the trust's objects were for public charitable purposes and no part of the trust's property or income was applied for the personal benefit of the trustees. The Tribunal noted that the CIT did not provide any material evidence showing that the trust's income was not utilized for public charity or that the trust's objects had changed due to the family nature of the trustees.

Issue 2: Compliance with the requirements u/s 12A of the Income-tax Act, 1961

The Tribunal examined whether the trust complied with the requirements u/s 12A of the Income-tax Act, 1961, and u/r 17A of the Income-tax Rules, 1962. It was established that the application for registration was made in the prescribed Form No. 10A within the allowed time, and the necessary documents were submitted. The Tribunal emphasized that the CIT's role was to verify if the trust's objects were charitable and if the application met the requirements of section 12A. The Tribunal found that the CIT had not doubted the charitable nature of the trust's objects or the utilization of its income for public charity.

Conclusion:

The Tribunal concluded that the CIT was not justified in refusing registration based on the family nature of the trustees. The Tribunal directed the CIT to grant registration u/s 12A of the Income-tax Act, 1961, as the trust fulfilled the necessary conditions and its objects were charitable. The appeal was allowed.