2017 (11) TMI 1128 - AT - Income Tax

Grant of registration under section 12AA(1)(b)(ii) rejected - diversion of general funds towards corpus - income derived by trust is being misused or that there is some apprehension that the same would not be used in proper manner - assessee-trust has not got its account audited and that it has not filed its return of income for the preceding years - Held that - We find no action has been taken by the Revenue despite knowing the fact, if any, that the assessee-trust had surplus income before allowing the exemption under sections 11 and 12 of the Income-tax Act. We find the hon ble Punjab and Haryana High Court in the case of Shri Sai Darbar Charitable Trust (Dharamshala)(2017 (4) TMI 123 - PUNJAB AND HARYANA HIGH COURT) has held that non-filing of returns by a trust in earlier years cannot be a ground for denying registration and the activities of the assessee-trust cannot be said to be non genuine. Since the activities of the assessee-trust are admittedly for imparting education, therefore, it cannot be said that non-filing of returns for the preceding years on not getting the accounts audited disentitles the assessee from being granted registration. Assessee trust is running like a private limited entity - all the trustees are family members - Held that - We find the Ahmedabad Bench of the Tribunal in the case of Jupiter Medical Research Centre Trust (2009 (8) TMI 1150 - ITAT AHMEDABAD) following the decision of case of Deoki Nandan v. Murlidhar 1956 (10) TMI 35 - SUPREME COURT OF INDIA has held that merely because all trustees are family members, it does not mean that the trust is not a public trust and therefore registration granted under section 12AA cannot be withdrawn. The objection of the learned Commissioner of Income-tax that the society is a private limited concern and therefore there can be misuse of power by the president and the society is susceptible to use for purpose other than charitable ones has no basis. Activities of the societies are profit motive and non-charitable in nature - Held that - we find it is an admitted fact that the society is imparting education. While imparting education, the assessee-trust is charging fees from the students. The issue has already been decided by the hon ble Supreme Court in the case of Queen s Educational Society (2015 (3) TMI 619 - SUPREME COURT). It has been held therein that where a surplus was made by educational institution which was ploughed back for educational purposes, the said institution was held to be existed solely for educational purpose and not for purpose of profit. So far as the objection of the learned Commissioner of Income- tax that the confirmations filed for corpus donations cannot be said to be directions from the donors as envisaged under section 11(1)(d) is concerned, the same in our opinion can be taken care of by the Assessing Officer at the time of assessment and this cannot be a ground for denying the registration under section 12AA of the Income-tax Act. The various other objections by the learned Commissioner of Income-tax for denying grant of registration under section 12AA in our opinion are not justified at this stage - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-filing of income tax returns by the assessee trust for preceding years.
2. Non-auditing of accounts for financial years 2005-06 to 2007-08.
3. The trust being family-controlled and likened to a private limited company.
4. Lack of specific directions from donors for corpus donations.
5. Non-transparent transactions in land purchases.
6. Non-reflection of membership fees in accounts.
7. Charging of high fees, indicating profit motive.
8. Collection of money for achieving aims and objectives.

Detailed Analysis:

1. Non-filing of Income Tax Returns:
The Commissioner of Income-tax (CIT) rejected the registration application under section 12AA, citing non-filing of income tax returns for preceding years. The Tribunal referenced the Punjab and Haryana High Court decision in CIT (Exemptions) v. Shri Shirdi Sai Darbar Charitable Trust (Dharamshala), which held that non-filing of returns does not imply non-genuine activities. The Tribunal concluded that the activities of the assessee-trust are genuine and non-filing of returns should not bar registration.

2. Non-auditing of Accounts:
The CIT also noted that the assessee's accounts were not audited for financial years 2005-06 to 2007-08. The Tribunal found that despite this, no action was taken by the Revenue, and the trust's activities were primarily for imparting education. Citing the same Punjab and Haryana High Court decision, the Tribunal ruled that non-auditing of accounts does not disqualify the trust from registration under section 12AA.

3. Family-Controlled Trust:
The CIT argued that the trust operated like a private limited company, controlled by family members, which could lead to misuse of power. The Tribunal referred to the Jupiter Medical Research Centre Trust v. DIT (Exemption) decision, which stated that family control does not disqualify a trust from being public. The Tribunal found no evidence of misuse of power and ruled that family control does not affect the trust's eligibility for registration.

4. Lack of Specific Directions for Corpus Donations:
The CIT contended that corpus donations lacked specific directions from donors. The Tribunal noted that this issue could be addressed during assessment and should not be a ground for denying registration. The Tribunal emphasized that the CIT should focus on whether the trust's objects are charitable in nature.

5. Non-transparent Land Transactions:
The CIT highlighted non-transparent transactions in land purchases from the vice-president of the society. The Tribunal found no substantial evidence to prove that these transactions affected the charitable nature of the trust and ruled this objection insufficient for denying registration.

6. Non-reflection of Membership Fees:
The CIT noted that membership fees were not reflected in the accounts. The Tribunal did not find this objection significant enough to deny registration, as it did not impact the charitable nature of the trust's activities.

7. Charging High Fees:
The CIT argued that high fees charged by the trust indicated a profit motive. The Tribunal referred to the Queen’s Educational Society v. CIT decision, where the Supreme Court held that surpluses ploughed back into educational purposes do not imply a profit motive. The Tribunal ruled that charging fees does not negate the trust's charitable nature.

8. Collection of Money for Aims and Objectives:
The CIT noted that the trust's memorandum indicated the collection of money for its aims and objectives. The Tribunal found this to be a standard clause in trust deeds and ruled it insufficient to deny registration.

Conclusion:
The Tribunal set aside the CIT's order and directed the CIT to grant registration under section 12AA of the Income-tax Act to the assessee-applicant. The grounds raised by the assessee were allowed, leading to the appeal being successful.

Result:
The appeal filed by the assessee was allowed, and the order was pronounced in the open court on August 16, 2017.