2015 (5) TMI 87 - HC - Income Tax

Necessity of dissolution clause in the deed of the charitable trust - Commissioner refusing to grant registration certificate under Section 12 AA as trust deed do not provide any dissolution clause and / or any provision for distribution of the properties in the event of closure / dissolution of the trust - it is the case on behalf of assessee trusts that the Trust are in existence / prior to 1965 and in fact was regularly filing his return of income since, many year even claiming exemption u/s 12 AA - Held that - From the orders passed by the Commissioner refusing to grant registration certificate under Section 12 AA and even from the order passed by the learned Tribunal, it appears that none of the authorities belows have considered the material and relevant aspect with respect to the satisfaction of the Commissioner with respect to genuineness of the trust. In a given case even in absence of any provision in the trust with respect to dissolution clause if on facts the trust is found to be genuine and / or genuineness of the trust is established, the trust may be entitled to registration under Section 12 AA of the Act, however subject to fulfillment of conditions under Section 12 AA of the Act i.e. when the Commissioner is satisfied about the genuineness of the activities of the trust or the institution. As observed herein above, both the Commissioner as well as learned Tribunal have not addressed themselves on the aforesaid relevant aspect, we are of the opinion that matters are required to be remitted back to the file of the Commissioner and remanded to the learned Commissioner to consider the issue /grant of registration certificate under Section 12 AA afresh in accordance with law and on merits and to consider the genuineness of the trust / institution / genuineness of the activities of the trust after giving an opportunity to the trust to make submissions and / or produce on record any material in respect of their case that there is no reason to doubt the genuineness of the activities of the trust. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Whether the Income Tax Appellate Tribunal erred in setting aside the order of the Commissioner of Income Tax regarding the necessity of a dissolution clause in the deed of a charitable trust for registration under Section 12AA of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Common Substantial Question of Law:
The primary issue in this group of appeals is whether the Income Tax Appellate Tribunal (ITAT) erred in setting aside the order of the Commissioner of Income Tax (CIT) that held a dissolution clause is necessary in the deed of a charitable trust for registration under Section 12AA of the Income Tax Act.

2. Background and Appeals:
The appeals involve the Revenue's dissatisfaction with the ITAT's decisions directing the CIT, Jamnagar, to grant registration under Section 12AA of the Income Tax Act to the respective assessee trusts. The CIT had initially rejected the registration applications due to the absence of a dissolution clause in the trust deeds, which led to doubts about the genuineness of the trusts.

3. CIT's Rejection of Registration:
The CIT, Jamnagar, observed that the trust deeds lacked a dissolution clause and provisions regarding the disposition of trust property upon dissolution. This absence led the CIT to question the genuineness of the trusts and subsequently reject their registration under Section 12AA of the Act.

4. ITAT's Decision:
The ITAT allowed the appeals of the assessee trusts, directing the CIT to grant registration under Section 12AA. The ITAT relied on a previous decision by the Coordinate Bench in the case of Chargam Dasha Porwad Mahamandal vs. DIT (Exemption), which had a similar context.

5. Revenue's Argument:
The Revenue argued that the CIT was justified in doubting the genuineness of the trusts due to the absence of a dissolution clause. The Revenue contended that the ITAT erred in relying on the Chargam Dasha Porwad Mahamandal case, as it involved a trust deed that did contain a dissolution clause. The Revenue emphasized that the CIT's subjective satisfaction regarding the genuineness of the trust's activities is crucial for granting registration under Section 12AA.

6. Assessee's Argument:
The assessee trusts argued that they had been in existence for many years, filing returns and claiming exemptions under Section 12AA without any objections from the Assessing Officer (AO). They contended that the CIT's doubts about their genuineness were unfounded and that the absence of a dissolution clause should not be the sole reason for denying registration.

7. Court's Observations:
The Court noted that the CIT refused registration solely based on the absence of a dissolution clause, which led to doubts about the trusts' bona fides. The Court highlighted that the ITAT's reliance on the Chargam Dasha Porwad Mahamandal case was misplaced, as that case involved a trust deed with a dissolution clause.

8. Remand for Fresh Consideration:
The Court decided to remand the matters to the CIT for fresh consideration. The CIT was directed to evaluate the applications for registration under Section 12AA afresh, taking into account the genuineness of the trusts and their activities. The Court emphasized that the CIT should consider additional evidence and material provided by the assessee trusts to establish their genuineness.

9. Conclusion:
The Court quashed the ITAT's orders and the CIT's initial rejection of registration. The matters were remitted to the CIT for a fresh evaluation of the applications for registration under Section 12AA, with instructions to consider the genuineness of the trusts and their activities. The CIT was given a timeframe of three months to complete this exercise, allowing the assessee trusts to submit additional material within one month.

In conclusion, the appeals were allowed to the extent of remanding the matters to the CIT for fresh consideration, with no order as to costs.