2014 (11) TMI 355 - HC - Income Tax

Entitlement for registration u/s 12AA - Held that - The reasons given by the Original Authority to decline registration is trivial and does not sub-serve the cause of a charitable trust, which seeks registration u/s 12AA - There is no doubt that the Trust got registered the property, which was gifted to it, on 04.02.2010 itself - no fault could be attributed to the trust, when the donor does not physically handed over the possession of the property - the Department was not correct in coming to the conclusion that the genuineness of the trust is in doubt - the donee cannot make conditions or call upon the donor that he should deliver possession immediately - The delay in handing over possession cannot be attributed to the fault of the trust and as a consequence the interference drawn by the Original Authority that there is an error in maintaining the accounts appears to be hyper-technical - The Tribunal was correct in rectifying the error and allowing the appeal as such no substantial question of law arises for consideration Decided against revenue.

Summary

Issues:
1. Registration under Section 12AA of the Income Tax Act.

Analysis:
The case involved an appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the registration of a trust under Section 12AA of the Income Tax Act. The trust, formed in 2010, applied for registration in 2013. The trust received a land gift in 2010, but physical possession was taken in 2011. The Original Authority rejected the application citing lack of diligence in taking over the property and insufficient evidence of charitable activities. The Tribunal, however, allowed the appeal directing registration. The Revenue challenged this decision in the High Court.

The High Court found the reasons for rejection by the Original Authority trivial and not in line with the purpose of a charitable trust seeking registration under Section 12AA. The Court noted that the trust had registered the gifted property promptly in their books, and the delay in taking physical possession was not the fault of the trust. The Court emphasized that a donee cannot dictate the terms of a donation. The trust was in its early stages and had clear charitable objectives. The Department's doubts about the trust's genuineness were unfounded. The Court held that the Original Authority's reasoning was misconceived, and the Tribunal was right in rectifying the error and granting registration. The Court clarified that while the Department can scrutinize trust activities, in this case, there was no basis to deny registration under Section 12AA.

Ultimately, the High Court upheld the Tribunal's decision, stating that no error or substantial question of law arose in the appeal. The Tax Case (Appeal) was dismissed, with no costs awarded.