2008 (5) TMI 350 - AT - Income Tax

Charitable Trust - refusal to grant certificate of registration u/s 12AA - deduction u/s 80G - date on which the registration shall be effective from - Whether the objects mentioned in trust deed 'to do milk business' falls under the definition of charitable purpose - Order of CIT(A) is against the principles of natural justice and is bad in law - application for condonation of delay - trust is claimed to be working for the help of weak and helpless cows - part of the land of the trust was sold to one Shri Madan Gopal, s/o Shri Niranjan Lal, r/o Gyan Gudri - Ld AR argued that the learned CIT has wrongly misconstrued this object and that in fact, it does not refer to any business activity but refers to proliferation of the cows and their service and in the process, if any profit is earned then that has to be used to fulfil the needs of the public. This also refers to charity and not income. HELD THAT - In our considered opinion the learned CIT has misread this object. From the perusal of the trust deed it becomes clear that it is a charitable trust which is created to pursue the objects mentioned therein. None of the objects is for earning profit which can remove the trust from the definition of charitable trust under s. 12AA. The issue regarding exemption allowed by the CIT at the stage of granting or refusing the registration under s. 12A r/w s. 12AA of the Act the law is almost settled. While refusing application under s. 12A the CIT has to examine only two aspects i.e. genuineness of the activities of the trust/institution, and object of the trust/institution. Once there is no dispute about the genuineness of the activities the learned CIT cannot take shelter of any other outer source for refusing registration under s. 12A. It was held in the case of U.P. Awas Evam Vikas Parishad vs. ITO 2005 (7) TMI 668 - ITAT LUCKNOW that while disposing application u/s. 12A, CIT has to examine only two aspects viz., the genuineness of the activities of the trust and 'object of the trust'. Once there is no dispute about genuineness of activities, CIT cannot take shelter of any other outer source for refusing registration under s. 12A . In our considered opinion no case of refusal of registration has been made out by the CIT; and in view of the facts of the case and the objects of the trust, the assessee is entitled to registration. The learned CIT is, therefore, directed to grant registration to the assessee trust as per law. Date on which the registration shall be effective from - Application delayed by six years - reasons have been mentioned to be wrong advice/ignorance of law - The application for condonation of delay is placed at the paper book wherein ignorance of income-tax provisions has been pleaded as reason for the delay. It has also been pleaded that no significant activities were done by the assessee trust. By following the recent Supreme Court decision in the Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh Ors. 1978 (12) TMI 45 - SUPREME COURT held that ignorance of law can be taken as a reasonable excuse. We therefore, condone the delay. From this application it is found that the delay in this case was caused due to a reasonable cause Therefore, learned CIT is directed to grant registration from the date of application for registration. In the result, appeal is allowed.

Summary

Issues Involved:
1. Rejection of application for registration under section 12AA of the IT Act.
2. Rejection of application for approval under section 80G of the IT Act.
3. Delay in filing the application for registration.

Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The assessee trust applied for registration under section 12AA on 23rd March 2005, which was received by the CIT on 6th April 2005. The trust was created on 24th February 1999 and registered under the Trust Act on the same date. The CIT required the trust to submit various documents, which were provided. However, the CIT rejected the application, citing that one of the trust's objects was "to do milk business," which did not fall under the definition of charitable purpose. Additionally, the CIT noted that a part of the trust's land was sold for purposes beyond the trust deed's scope. The Tribunal found that the CIT misread the trust deed and that the object in question referred to serving cows and using any incidental income to fulfill public needs, which did not imply a business activity. The Tribunal emphasized that the CIT's role at the registration stage is limited to verifying the genuineness of the trust's activities and its charitable objects, as per section 12AA. The Tribunal cited various judicial precedents to support its view, including the Allahabad High Court's decision in CIT vs. Red Rose School, which clarified that the CIT should not consider the application of income at the registration stage. Consequently, the Tribunal directed the CIT to grant registration to the trust.

2. Rejection of Application for Approval under Section 80G:
The CIT also rejected the trust's application for approval under section 80G, which provides tax deductions for donations to charitable institutions. The Tribunal did not separately address this issue in detail, as it was contingent on the trust's registration under section 12AA. Since the Tribunal directed the CIT to grant registration under section 12AA, it implied that the trust would also be eligible for approval under section 80G, provided it met the necessary criteria.

3. Delay in Filing the Application for Registration:
The trust's application for registration was delayed by six years. The CIT was not convinced by the reasons provided for the delay, which included wrong advice and ignorance of the law. The Tribunal referred to judicial precedents, including the Supreme Court's decision in Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh & Ors., which recognized ignorance of the law as a reasonable excuse. The Tribunal also cited the case of People Education & Economic Development Society (PEEDS) vs. ITO, where it was held that delay caused by pursuing a remedy under a wrong belief constituted reasonable cause for condonation. The Tribunal found that the delay in this case was due to a reasonable cause and condoned the delay, directing the CIT to grant registration from the date of the application.

Conclusion:
The Tribunal allowed the appeal, directing the CIT to grant registration to the assessee trust under section 12AA from the date of the application and impliedly approving the trust's eligibility for section 80G benefits. The Tribunal emphasized that the CIT's role at the registration stage is limited to verifying the genuineness of the trust's activities and its charitable objects, and not to consider the application of income or other extraneous factors.