2017 (2) TMI 697 - AT - Income Tax

Grant of registration 12AA denied - Held that - Since the assessee was in process of acquiring land for achieving the aims and objects of the assessee trust therefore there is nothing wrong in acquiring land by the assessee. Preparation of the balance sheet for part period is no ground to reject application for registration under section 12AA of the Act because assessee field application for registration on 23.11.2015 and as such it is difficult to prepare the balance sheet of the assessee ending 31.03.2016. The assessee also explained that M/s Vishav Manav Roohani Kendra have been allowed registration under section 12AA of the Act who have helped the assessee in its formation. Some advances have been given by different persons which have been used for purchase of land in favour of the assessee. Therefore it is not a case that advance was given by the assessee trust and the land have been purchased in the name of third person. Moreover these are not relevant criteria to be considered at the time of grant of registration because aims objectives and activities of the assessee in reference to objects shall have to be considered. Application of income for charitable purposes can be examined at the stage of assessment when trust would file the return of income. Considering the fact that there is no denying the fact that assessee s main aims and objects are charitable in nature i.e. running educational and medical institutions we are of the view assessee would be entitled for registration under section 12AA of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the CIT(E) erred in refusing registration under Section 12AA of the Income Tax Act to the appellant trust.
2. Whether the trust's activities and financial transactions were genuine and in line with its charitable objectives.

Issue-wise Detailed Analysis:

1. Refusal of Registration under Section 12AA:

The appellant trust challenged the order dated 31.05.2016 by the CIT(Exemptions) Chandigarh, which refused to grant registration under Section 12AA of the Income Tax Act. The CIT(E) based the refusal on several grounds, including the non-reflection of a ?11 lakh declaration in the bank accounts, the trust's predominant focus on purchasing land, and the lack of returns filed for the period ending 31.03.2016. The CIT(E) also noted that the trust had taken overdraft (OD) limits by pledging FDRs of another trust, and there were discrepancies in the corpus fund donations, including missing PAN numbers and addresses of donors.

2. Examination of Trust's Activities and Financial Transactions:

The CIT(E) scrutinized the trust's activities and financial transactions, noting that the trust's primary aim was to start educational institutions and a hospital. The CIT(E) observed that the trust's activities, such as purchasing large tracts of land, did not align with its charitable objectives. The balance sheet showed substantial corpus funds, but the CIT(E) questioned the genuineness of these funds due to missing confirmations and PAN numbers.

Appellant's Arguments:

The appellant argued that the trust deed clearly showed the settler's donation of ?11 lakh, which was reflected in the bank account. The appellant emphasized that the trust's main objectives were charitable, including running educational institutions and hospitals. The purchase of land was seen as a necessary step to achieve these objectives. The appellant also highlighted that the CIT(E) should only examine the trust's aims and objects at the registration stage, not its activities, which were still in the nascent stage.

Judicial Precedents Cited:

The appellant cited several judicial precedents to support their case. The Punjab & Haryana High Court in CIT Vs B.K.K. Memorial Trust held that the trust's activities need not be fully operational at the registration stage. The court emphasized that the CIT should only examine the genuineness of the trust's objects, not its income application. Similar views were echoed in CIT Vs Surya Educational & Charitable Trust and Hardayal Charitable & Educational Trust Vs CIT, where it was held that the registration under Section 12AA should not be refused based on the trust's initial activities.

Tribunal's Findings:

The Tribunal found that the trust's aims and objectives were charitable in nature, focusing on running educational institutions and hospitals. The Tribunal noted that the CIT(E) incorrectly stated that the ?11 lakh was not reflected in the bank account. The Tribunal also observed that purchasing land was a legitimate step towards achieving the trust's objectives. The Tribunal emphasized that at the registration stage, the CIT(E) should only examine the genuineness of the trust's objects, not its activities or financial transactions.

Conclusion:

The Tribunal concluded that the appellant trust was entitled to registration under Section 12AA of the Income Tax Act. The Tribunal set aside the CIT(E)'s order and directed the CIT(E) to grant registration to the appellant trust within one month from the date of the order. The appeal of the assessee was allowed.

Order Pronounced:

The order was pronounced in the Open Court, allowing the appeal of the assessee.