2014 (8) TMI 207 - HC - Income Tax

Entitlement for registration u/s 12AA Small amount spent for charitable purposes - Held that - The Original Authority has not doubted the bona fides of the Trust or the activity of the Trust, but on the ground that the Trust had spent low quantum towards charitable activity, the Authority had declined registration of the Trust relying upon Director of Income Tax Exemptions, Chennai. V. M/s.Seervi Samaj Tambaram Trust 2014 (2) TMI 32 - MADRAS HIGH COURT - CIT cannot reject the application for registration merely on the ground that on the date of the application the assessee trust had not commenced its activities - It is not denied by the assessee that on the date of the application under Section 12AA, it was yet to commence its operation - The genuineness of the objects of the trust were not questioned by the Commissioner - the interpretation given by the Original Authority declining to register the Trust has no legal basis that the Tribunal is correct in allowing the appeal filed by the assessee - Decided against Revenue.

Issues Involved:
1. Whether the assessee Trust is entitled to registration under Section 12AA of the Income Tax Act.
2. The applicability of Rule 17A and Rule 17B of the Income Tax Rules in the context of registration under Section 12AA.
3. The validity of the Director of Income Tax (Exemptions) rejecting the registration based on the Trust's activities and financial disclosures.

Detailed Analysis:

1. Entitlement to Registration under Section 12AA:
The primary issue revolves around whether the assessee Trust qualifies for registration under Section 12AA of the Income Tax Act. The Tribunal found that the Director of Income Tax (Exemptions) failed to demonstrate how the Trust's objects were not charitable or its activities were not genuine. The Tribunal emphasized that the non-filing of audited accounts for three years, as required in Form 10B, does not disqualify the Trust from registration. The Tribunal's decision to allow the appeal was based on the absence of any adverse findings regarding the Trust's charitable nature or the genuineness of its activities.

2. Applicability of Rule 17A and Rule 17B:
The High Court clarified the requirements under Rule 17A of the Income Tax Rules, which mandates the submission of certified documents evidencing the creation of the Trust and copies of accounts for the previous years. The Court noted that Rule 17B, which was incorrectly cited as Section 17B by the original Authority, pertains to institutions already registered under Section 12AA. The Court highlighted that the Trust had submitted the necessary documents in Form 10A, and hence, Rule 17B was not applicable to the present case.

3. Validity of Rejection Based on Trust's Activities and Financial Disclosures:
The Director of Income Tax (Exemptions) rejected the registration on grounds that the Trust had not undertaken significant activities and had only made small donations. The High Court found this reasoning flawed, stating that the Trust's activities should be assessed based on its financial capacity and philanthropic intent rather than the quantum of expenditure. The Court emphasized that the Trust's bona fides should not be doubted merely due to limited financial activities. The Court referenced a previous judgment (T.C.(A)No.579 of 2013) to support the view that the commencement of activities is not a prerequisite for registration under Section 12AA. The Court concluded that the Original Authority's interpretation lacked legal basis, and the Tribunal was correct in setting aside the rejection order.

Conclusion:
The High Court upheld the Tribunal's decision to grant registration to the assessee Trust under Section 12AA, confirming that the Trust met the requirements under Rule 17A and that the Director of Income Tax (Exemptions) had no valid grounds to deny registration based on the Trust's limited activities and financial disclosures. The appeal by the Revenue was dismissed, and the question of law was answered against the Revenue.

← Previous Next →