2014 (11) TMI 446 - HC - Income Tax

Nature of Trust Charitable or not Held that - The Tribunal has rightly relied upon Hardayal Charitable & Educational Trust Versus Commissioner of Income Tax-II, Agra 2013 (3) TMI 377 - ALLAHABAD HIGH COURT wherein it has been held that the is that at the time of registration u/s 12AA of the Income Tax Act, which is necessary for claiming exemption u/s 11 and 12 of the Act, the CIT is not required to look into the activities, where such activities have not or are in the process of its initiation - Where a trust, set up to achieve its objects of establishing educational institution, is in the process of establishing such institutions, and receives donations, the registration u/s 12AA cannot be refused, on the ground that the Trust has not yet commenced the charitable or religious activity - Any enquiry of the nature would amount to putting the cart before the horse - At this stage only the genuineness of the objects has to be tested and not the activities, which have not commenced - The enquiry of the Commissioner of Income Tax at such preliminary stage should be restricted to genuineness of the objects and not the activities unless such activities have commenced - The Trust or society cannot claim exemption, unless it is registered u/s 12AA of the Act and thus at that such initial stage the test of the genuineness of the activity cannot be a ground on which the registration may be refused the objects as provided in the object clause of the trust are charitable objects and are supported by other ancillary objects to which a detailed reference is not necessary the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Appeal by the Revenue under Section 260-A of the Income Tax Act, 1961 based on an order of the Income Tax Appellate Tribunal dated 30 May 2014.
2. Rejection of application for registration under Section 12AA and approval under Section 80G(5)(vi) of the Act by the Commissioner of Income Tax, Varanasi.
3. Interpretation of the provisions of Section 12AA of the Income Tax Act regarding registration of trusts for claiming exemptions under Sections 11 and 12.
4. Dispute over the charitable nature of the trust's objects as per the Trust deed dated 1 April 2013.

Analysis:

1. The appeal by the Revenue under Section 260-A of the Income Tax Act, 1961 was based on the order of the Income Tax Appellate Tribunal dated 30 May 2014. The questions of law raised in support of the appeal included whether the Tribunal's observation regarding the charitable nature of the trust was contrary to law and against the material on record. The Commissioner of Income Tax, Varanasi, had rejected the application for registration under Section 12AA and approval under Section 80G(5)(vi) of the Act. The Tribunal reversed the Commissioner's view, relying on its own decision in a similar case and a judgment of the Division Bench of the Court in another case.

2. The Commissioner had rejected the registration application on the grounds that the trust had not provided sufficient material regarding its activities since inception, and merely expressing an intention to conduct charitable activities was not enough. The Tribunal's decision was based on a different interpretation of the law, considering the preponderance of judicial opinion from various High Courts. The Tribunal's view aligned with the judgment of the Division Bench of the Court, emphasizing that at the registration stage, only the genuineness of the objects needed to be tested, not the activities that had not yet commenced.

3. The judgment in Hardayal Charitable Trust case was cited to support the interpretation of Section 12AA, stating that the Commissioner of Income Tax should focus on the genuineness of the trust's objects during registration, especially when the activities are in the process of initiation. This approach was deemed necessary to prevent premature scrutiny of activities that had not yet begun. The Tribunal's decision was found consistent with this legal principle and did not necessitate a different view by the Court.

4. The Revenue contended that the Commissioner had not specifically admitted the charitable nature of the trust's objects in the order dated 23.12.2013. However, a perusal of the Trust deed dated 1 April 2013 revealed clear charitable objects aimed at the welfare and betterment of beneficiaries. The Court found these objects to be genuinely charitable, supported by ancillary objectives. Therefore, the Tribunal's view on the charitable nature of the trust's objects was upheld, and the appeal by the Revenue was dismissed without costs.