2013 (10) TMI 1175 - HC - Income Tax

Rejection of registration u/s 12AA of Trust on the ground of suspicion regarding genuineness of its activities Held that - The object of Section 12AA of the Act is to examine the genuineness of the objects of the Trust and though while examining genuineness, the income as well as resources of the Trust may be taken into consideration but any suspicion as to these facts cannot be the sole criteria for rejecting an application under Section 12A of the Act Decided against the Revenue. Trustee, a life long membership is inferred as not charitable trust Held that - There appears to be a misconception amongst officers exercising power under Section 12AA of the Act that if a trustee is a life long member of a Trust, it automatically raises an inference that the Trust is not charitable. The fact that a trustee is a life member, may be relevant but cannot by itself lead to a finding that the Trust is not charitable Decided against the Revenue.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal setting aside Commissioner of Income Tax's order and directing registration of respondent as charitable Trust.

Analysis:
The revenue challenged the order of the Income Tax Appellate Tribunal, which set aside the Commissioner of Income Tax's order and directed the registration of the respondent as a charitable Trust. The revenue contended that as the members of the respondent-Trust were life-long members and money was paid to individual trustees, the Tribunal erred in reversing the Commissioner's order. Reference was made to Section 13 of the Income Tax Act, stating that money paid to individual trustees should be excluded from the total income of a Trust. The respondent's counsel argued that the issue at the registration stage is the charitable nature of the Trust, while the use of income should be considered during assessment. A Division Bench judgment was cited to support this argument.

The High Court heard arguments from both parties and examined the impugned order, the Commissioner's order, and relevant legal provisions. It was observed that the purpose of Section 12AA of the Act is to assess the genuineness of a Trust's objectives. While income and resources can be considered, mere suspicion is insufficient to reject an application under Section 12AA. The misconception that a trustee being a life member automatically makes a Trust non-charitable was addressed. Being a life member may be relevant, but it alone does not determine the charitable nature of a Trust.

Consequently, the High Court found no legal infirmity in the Tribunal's order and affirmed it, dismissing the revenue's appeal. The judgment emphasized that suspicion alone cannot be the basis for rejecting a Trust's application under Section 12AA and clarified that life membership of a trustee does not automatically render a Trust non-charitable.