2015 (7) TMI 954 - HC - Income Tax

Claim of registration under Section 12A - whether Tribunal erred in allowing the appeal by ignoring the clauses found in the Memorandum of Association, which permitted the assessee to utilize the funds for religious purposes and carry on commercial activity by constructing and letting out community hall? - Held that - It is settled law that in the first year when the trust is sought to be registered, it could not have carried on any activity, thus the question of verifying the genuineness of such activities cannot be considered. The refusal to register the Trust on such ground by the DIT (Exemptions) could not thus be justified. The Tribunal has relied on case of Sanjeevamma Hanumanthe Gowda Charitable Trust vs - Director of Income Tax (Exemptions) 2006 (3) TMI 91 - KARNATAKA High Court wherein held that for arriving at the satisfaction for genuineness of the Society or Trust, the Commissioner has to look at the objects of the Trust and it is not authorized to go into the nature of the activity by which the income is derived by the Trust. In the present case, the question is with regard to the registration of the Trust in question wherein the objects have been clearly specified. The question of assessing the activities of the Trust would arise only after the Trust is registered and carries on the activities. At the time of initial registration, the same cannot be a question to be considered. In our view, the Tribunal has rightly allowed the appeal and directed the DIT (Exemptions) to register the Society as a religious Trust under Section 12A of the Act. - Decided in favour of the assessee

Summary

Issues:
1. Registration of a society as a religious trust under Section 12A of the Income Tax Act, 1961.
2. Rejection of registration application by the Director of Income Tax (Exemptions) based on the specificity of objects and genuineness of activities.
3. Appeal before the Income Tax Appellate Tribunal and subsequent directions for registration.
4. Challenge by the revenue regarding the Tribunal's decision.
5. Interpretation of clauses in the Memorandum of Association permitting utilization of funds for religious purposes and commercial activities.
6. Verification of genuineness of trust activities at the time of registration.
7. Legal precedent regarding the assessment of trust objects for registration.

Detailed Analysis:
1. The respondent applied for registration as a religious trust under Section 12A, which was initially rejected by the Director of Income Tax (Exemptions) citing lack of specificity in objects and difficulty in verifying genuineness of activities.
2. The Income Tax Appellate Tribunal allowed the appeal, stating that registration, not exemption, was sought, and the trust's objects were specific, not vague, directing registration.
3. The revenue challenged this decision, questioning the Tribunal's interpretation of charitable nature of some objects despite clauses allowing funds for religious purposes and commercial activities.
4. The appellant argued that the Tribunal erred by disregarding clauses in the Memorandum of Association permitting fund usage for religious and commercial purposes.
5. The court noted that at the registration stage, before activities or income, verifying genuineness is premature, citing a precedent emphasizing assessment based on trust objects, not income-generating activities.
6. Emphasizing that trust activities are assessed post-registration, the court upheld the Tribunal's decision, stating that initial registration should focus on specified objects, not activities, and directed registration as a religious trust under Section 12A.
7. Consequently, the appeal was dismissed, the question of law decided in favor of the assessee, and no costs were awarded.

This judgment clarifies the importance of focusing on trust objects during registration, deferring activity assessment until post-registration, and upholding specificity in objects for religious trust registration under Section 12A of the Income Tax Act, 1961.