2015 (10) TMI 2104 - AT - Income Tax

Registration u/s 12AA denied - charitable activity - construction of Dharmshala - as per the provisions of the trust deed only persons belonging to the Agarwal Community/Caste could become members of the Trust - Held that - Following the ratio of the judgment of the Hon ble Apex Court in Ahmedabad Rana Caste Association Vs. CIT (1971 (9) TMI 8 - SUPREME Courta), the registration u/s 12AA cannot be rightly refused. In this case, the Hon ble Apex Court has held that the object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. Similarly in the case of CIT Vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (1990 (8) TMI 132 - ALLAHABAD High Court) that to make a purpose charitable, it is not necessary that it should be beneficial to the poor only and what is required is benefit to a section of the public as distinguished from specified individuals. Trust created for giving medical aid, social welfare, uplifting of poor members of the community and for giving financial and other help on the occasion of the marriage of the members of this community is for religious and charitable purposes. Respectfully following these two judgments and on the facts and circumstances of the case, we hold that the assessee trust is entitled to grant of registration u/s 12AA of the Act. - Decided in favour of assessee.

Summary

Issues:
- Refusal to grant registration u/s 12AA of the Income Tax Act, 1961 based on lack of charitable activities and restriction to a specific community.

Analysis:
1. Refusal of Registration based on Lack of Charitable Activities:
- The assessee trust applied for registration u/s 12AA but was denied by the CIT(Exemptions) due to the absence of charitable activities during the relevant year.
- The CIT relied on judgments from Delhi and Kerala High Courts to support the refusal.
- In the appeal, the assessee argued that purchasing land for constructing a Dharmshala qualifies as a charitable activity.
- The ITAT noted that at the time of registration, the trust had purchased land for the Dharmshala, which was reflected in the balance sheet, indicating a charitable purpose.
- Citing the Allahabad High Court decision, it was emphasized that registration should focus on the genuineness of objects, not ongoing activities.

2. Refusal of Registration based on Community Restriction:
- Another ground for refusal was that the trust catered only to the Agarwal Community/Caste.
- The ITAT referred to the Supreme Court and Allahabad High Court judgments to establish that benefiting a specific section of the public qualifies as a charitable purpose.
- It was concluded that the trust's purpose to benefit a section of the public aligned with charitable objectives, as highlighted in the case laws.
- The ITAT found the judgments cited by the CIT(Exemptions) inapplicable to the current case.

3. Decision and Conclusion:
- The ITAT allowed the appeal of the assessee and directed the CIT(Exemption) to grant registration u/s 12AA of the Act.
- The judgment emphasized that registration under section 12AA should focus on the genuineness of objects rather than ongoing activities, especially in the initial stages of a trust's establishment.
- It clarified that serving a specific community can still qualify as a charitable purpose, as long as it benefits a section of the public.

This comprehensive analysis highlights the key issues of refusal to grant registration under section 12AA, the arguments presented by both parties, the legal precedents considered, and the final decision of the ITAT in favor of the assessee.