2018 (2) TMI 42 - AT - Income Tax

Registration u/s 12A refused - proof of charitable activities - relinquished of function as the primary implementation of the agencies - Held that - In the instant case there is clause No.(v) in the trust deed which specifying that any donation received shall be spent/applied by the trust as per the objects of the trust donation trust corpus of the trust shall be applied in accordance with specific directions from the donor. Further in clause (vi) specifies that any donation or contribution received from Ludhiana Beverage Pvt. Ltd or from any other company in pursuance of their Corporate Social Responsibility shall be spent/applied by the trust as per directions of the donor. These clauses in the trust deed are clearly seems to keep the trust by the settler etc. Ludhiana Beverage Pvt. Ltd. in its own domain. The directions shall however fall within the purview of the objects of the trust. Further from the trust deed it reflects that settler and the trustees are almost family members having no participation of the public which also not sync with the Corporate Social Responsibility project and in addition to that except giving donation to the tune of 40, 000 and 30, 000/- to the Govt. Schools out of 11, 00, 000/- the applicant trust has not carried out any activities till passing of the impugned order even otherwise till disposal of this appeal. We are in agreement with the CIT(E) that activity so far clearly shows that the trust has relinquished its function as the primary implementation of the agencies and undertaking its own programmes to impact targeted beneficiaries by transferring its funds to other societies and it is also militates against the legal principal that the social enterprises cannot be a direct recipient of money from a corporate as it is a profit making company and it is also clear that the composition of the trust is restrictive in nature and to that extent not amenable to the public charity. Thus the Ld. CIT(A) has gone into the genuineness of the activities of the society and made necessary enquiries and after non-satisfying about the genuineness of the activities rightly passed an order refusing the registration to the applicant society. - Decided in favour of revenue

Summary

Issues Involved:
1. Rejection of application for registration under section 12A of the Income Tax Act, 1961.
2. Rejection of approval under section 80G of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Rejection of Application for Registration under Section 12A
The assessee filed an appeal against the order dated 28.09.2016 by the CIT (Exemption), Chandigarh, rejecting the application for registration under section 12A of the Income Tax Act, 1961. The CIT(E) observed that the trust seemed to be formed primarily to comply with Corporate Social Responsibility (CSR) requirements of Ludhiana Beverage Pvt. Ltd., which is closely linked to the trust. The major contributions to the trust were from Ludhiana Beverage Pvt. Ltd., and its Managing Director and close relatives were trustees, indicating a restrictive composition not amenable to public charity.

The CIT(E) noted that the trust had not undertaken any significant activities in sync with its stated charitable objects and had primarily transferred funds to other societies. The CIT(E) concluded that the trust appeared to be an instrument to carry out CSR functions of the settlor company, which does not ensure the benefit of the general public nor partakes the meaning of a public trust. Consequently, the application for registration under section 12A was rejected.

The assessee argued that the CIT(E) exceeded the scope of enquiry prescribed under section 12AA and did not provide a proper opportunity of being heard. The assessee maintained that the trust's activities were genuine and charitable, and the rejection was based on presumptions and surmises.

However, the tribunal upheld the CIT(E)'s decision, agreeing that the CIT(E) is empowered to examine the objects and genuineness of the trust's activities and that the restrictive clauses in the trust deed and the close association with Ludhiana Beverage Pvt. Ltd. justified the rejection. The tribunal found no infirmity, perversity, or illegality in the CIT(E)'s order and dismissed the appeal.

Issue 2: Rejection of Approval under Section 80G
The assessee also appealed against the rejection of approval under section 80G, which was contingent on the registration under section 12AA. Since the tribunal upheld the CIT(E)'s decision to reject the registration under section 12AA, the appeal for approval under section 80G was also dismissed.

Conclusion:
Both appeals filed by the assessee were dismissed. The tribunal found that the CIT(E) had rightly examined the genuineness of the trust's activities and the restrictive clauses in the trust deed, justifying the rejection of registration under section 12A. Consequently, the approval under section 80G was also rightly denied. The assessee was advised to apply afresh after removing the restrictive clauses and addressing the defects observed by the CIT(E).