2014 (7) TMI 869 - AT - Income Tax

Rejection of application u/s 12AA Dissolution clause not included in Trust deed - Held that - The scope of enquiry contemplated u/s 12AA of the Act thus is limited to the extent of Commissioner getting himself satisfied about object of the Trust and the genuineness of its activities so as to grant or refuse the registration u/s 12A of the Act DIT(E) has not recorded any adverse comment or dis-satisfaction about the object of the Trust or genuineness of the Trust activities refusal to grant the registration u/s 12A of the Act was on the ground that its Trust Deed does not contain dissolution clause - DIT (Exemptions) has clearly gone beyond the scope of enquiry contemplated u/s 12A of the Act and has refused to grant the registration u/s 12A of the Act to the assessee Trust on a totally irrelevant ground without pointing out as to how he was not satisfied either about the object of the Trust or the genuineness of its activities order of the DIT(E) set aside Decided in favour of Assessee.

Summary

Issues:
- Rejection of application for registration u/s 12A of the Income Tax Act, 1961 due to absence of a dissolution clause in the Trust Deed.

Analysis:
1. Issue of Dissolution Clause:
The appeal was filed against the rejection of the application for registration u/s 12A of the Income Tax Act, 1961 by the Director of Income Tax (Exemptions) based on the absence of a dissolution clause in the Trust Deed. The appellant, a Public Charitable Trust, submitted that as it was registered u/s 18 of the Bombay Public Trusts Act, 1950, a dissolution clause was not required. The Director did not accept this explanation, emphasizing the necessity of a dissolution clause for a public trust under the Bombay Public Trusts Act, 1950. The Director's decision was based on the belief that a trust for public charitable or religious purposes must have a permanent character, and in case of dissolution, its assets should be transferred to another trust with similar objectives. The absence of such a clause led to the rejection of the registration application.

2. Scope of Enquiry under Section 12AA:
The Tribunal analyzed the grounds on which the registration application was rejected and found that the Director had exceeded the scope of enquiry prescribed under Section 12AA of the Act. The Tribunal noted that the Director did not question the object of the Trust or the genuineness of its activities, which are the primary factors for registration under Section 12A. Instead, the rejection was solely based on the absence of a dissolution clause in the Trust Deed. The Tribunal concluded that the Director's decision was irrelevant to the registration process and did not align with the specified criteria for granting or refusing registration under Section 12A. As a result, the Tribunal set aside the Director's order and directed the registration u/s 12A of the Act to be granted to the appellant Trust.

3. Conclusion:
The Tribunal allowed the appeal, emphasizing that the absence of a dissolution clause in the Trust Deed should not be a sole reason for rejecting the registration application under Section 12A. The Tribunal clarified that the Director's decision was not in line with the statutory provisions governing the registration process and the criteria set out for assessing the genuineness of a Trust's activities. The judgment highlighted the importance of adhering to the specific requirements outlined in the law while considering applications for registration under the Income Tax Act, 1961.