2018 (4) TMI 317 - AT - Income Tax

Rejection of registration u/s 12AA - proof of charitable activities - business activity - Held that - Inter-Connected Stock Exchange Investors Protection Fund (2013 (10) TMI 1134 - ITAT MUMBAI) in which it has been specifically held that the where main object of the assessee Trust was to protect investor by way of creating a fund and fund created by the assessee was a public charitable fund having been set up to advance an object of general public utility, the assessee was entitled to grant registration u/s 12AA of the Act. See MCX Stock Exchange Investor Protection Fund Currency Derivatives Segment Trust Vs. DIT 2014 (1) TMI 1839 - ITAT MUMBAI The applicant fund is a public charitable fund, set up to advance an object of 6552/13NCDEX 3 general public utility, and has been wrongly denied registration as one by the Revenue and is not liable to be considered as business activity which nowhere fall within the perview of the provision u/s 2(15) of the Act. The claim of the assessee is not liable to be declined on the ground of the registration u/s 10(23EC) of the Act. At the time of registration of the Trust, the claim of the assessee is not liable to be declined in view of the provision of Section 13 of the Act. We are of the view that the claim of the assessee for the registration u/s 12A of the Act has wrongly been rejected by the Director of Income-tax (Exemption). - Decided in favour of assessee.

Issues Involved:
1. Rejection of application for registration under Section 12AA of the Income Tax Act, 1961.
2. Determination of whether the trust's objectives are charitable under Section 2(15) of the Act.
3. Evaluation of whether the trust's activities benefit the general public or specific individuals.
4. Alleged violation of provisions under Section 13(3) of the Act due to payments made to trustees.
5. Assessment of the genuineness of the trust's activities.
6. Eligibility for exemption under Section 10(23EC) of the Act.

Issue-Wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The appellant's application for registration under Section 12AA was rejected by the Director of Income Tax (Exemption) on 30.09.2014. The appellant challenged this order, arguing that the rejection ignored the merits of the case and was based on incorrect interpretations of the law.

2. Determination of Whether the Trust's Objectives are Charitable Under Section 2(15):
The Director of Income Tax (Exemption) concluded that the trust's objectives were not charitable but had shades of business ethics aimed at creating goodwill. The tribunal referred to the case of Inter-Connected Stock Exchange Investors Protection Fund (ISE IPF) Vs. DCIT (Exemp) (2013) 38 taxmann.com 329 (Mum), where it was held that a trust established to protect investors by creating a fund was a public charitable fund. Thus, the tribunal found that the objectives of the appellant trust were charitable and fell within the scope of Section 2(15).

3. Evaluation of Whether the Trust's Activities Benefit the General Public or Specific Individuals:
The Director of Income Tax (Exemption) argued that the trust's activities were not for the general public but for specific individuals investing through the stock exchange. The tribunal referenced ITA No.7922/M/2012 MCX Stock Exchange Investor Protection Fund Currency Derivatives Segment Trust Vs. DIT (Exemption) Mumbai, which concluded that the trust was a public charitable fund set up to advance an object of general public utility. Therefore, the tribunal found that the trust's activities did benefit the general public.

4. Alleged Violation of Provisions Under Section 13(3):
The Director of Income Tax (Exemption) claimed that the trust violated Section 13(3) by making payments to trustees, which were not disclosed in the audit. The appellant argued that these payments were sitting fees, not salaries or allowances. The tribunal noted that at the stage of registration, the focus should be on the objectives of the trust, not on the compliance with Section 13(3). The tribunal cited the cases of Kul Foundation Vs. Commissioner of Income-Tax-1, Pune (2015) 54 taxmann.com 143 (Pune Tribunal) and Ashoka Education Foundation Vs. Commissioner of Income Tax -1, Nasik (2015) 53 taxmann.com 436 (Pune Tribunal), which supported this view.

5. Assessment of the Genuineness of the Trust's Activities:
The Director of Income Tax (Exemption) questioned the genuineness of the trust's activities without providing specific reasons. The tribunal found no basis for this conclusion and emphasized that the trust's activities should be evaluated based on its objectives and compliance with legal requirements.

6. Eligibility for Exemption Under Section 10(23EC):
The Director of Income Tax (Exemption) argued that the trust should seek exemption under Section 10(23EC) instead of Section 12AA. The tribunal referred to the case of NCDEX Investor (Client) Protection Fund Trust, which determined that eligibility for exemption under Section 10(23EC) does not preclude registration under Section 12AA. Therefore, the tribunal found that the appellant's claim for registration under Section 12AA was valid.

Conclusion:
The tribunal set aside the order of the Director of Income Tax (Exemption) and directed the DCIT (Exemption) to reconsider the application for registration under Section 12AA in accordance with the tribunal's observations and applicable law. The appeal filed by the appellant was allowed.

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