2014 (8) TMI 492 - HC - Income Tax

Registration u/s 12A Promotion of education among poor Held that - The authority has got power to subsequently satisfy itself about the activities of such trust or institutions as to whether it is genuine or not and whether the trust is being conducted in accordance with the objects of the trust and the authority has got the power to pass an order cancelling the registration of the trust or the institution - the provision enables the authority to monitor the activities of the charitable trust and if it finds that its activities are not in the best interest of the trust and to sub serve the interest of the trust, then it is open to the authority to cancel the registration of the trust or the institution - There was no reason as to why the Commissioner had rejected the registration of the Trust when there is ample power under law to rectify any error to cancel the registration of the trust or institution if there is breach of the objects of the trust in the discharge of its charitable objects as propounded in the trust deed Decided against Revenue.

Summary

Issues:
1. Registration under Section 12A of the Income Tax Act for a Trust formed to promote education and charitable activities.
2. Rejection of registration by the Commissioner of Income Tax.
3. Appeal by the Trust before the Appellate Tribunal citing charitable objectives.
4. Tribunal's decision to allow the appeal for registration under Section 12A.
5. Appeal by the Revenue against the Tribunal's decision.

Analysis:
1. The case involves an appeal against the rejection of registration under Section 12A of the Income Tax Act by the Commissioner of Income Tax for a Trust formed to promote education and charitable activities. The Trust, formed to benefit economically backward individuals, applied for registration within three months of its formation, emphasizing its charitable objectives of running schools, colleges, and hospitals for the poor.

2. The Commissioner rejected the application citing lack of charitable activities by the Trust and reliance on the charitable work of an individual associated with the Trust's formation. The Revenue contended that the Trust did not demonstrate independent charitable activities, leading to the rejection of registration.

3. The Tribunal, however, considered the charitable nature of the Trust's objectives, following a precedent where immediate charitable activities were not expected from a newly formed trust. The Tribunal allowed the Trust's appeal for registration under Section 12A, prompting the Revenue to appeal against this decision.

4. The High Court reviewed the case, emphasizing the power under Section 12AA(3) to cancel registration if the Trust's activities are not genuine or aligned with its charitable objectives. The Court noted that the Commissioner's rejection based on lack of immediate charitable activities was not sufficient grounds to deny registration, as the Trust's charitable intentions were evident from its objectives.

5. Ultimately, the Court dismissed the Revenue's appeal, stating no substantial question of law arose. The Court highlighted the importance of monitoring charitable trusts to ensure funds are used for intended charitable purposes, urging authorities to scrutinize trust activities to prevent misuse for personal interests. The judgment emphasized the need for proper verification and action against any violation of charitable trust objectives.