2018 (6) TMI 550 - AT - Income Tax

Registration u/s 12AA denied - trust run by one family - charitable object - set up a school in pursuance of its main object of educational activity - Held that - There was not bar under the Act for registration u/s 12AA even if the trust is run by only one family and perform charitable activity - thus there exists no material no record to suggest that the activities of the assessee trust are not genuine - it is admitted fact, that the assessee society is running a school which falls within the purview of scope of education, which has been declared as charitable purpose as per provisions of section 2(15) - since assessee trust has just started its activity and it is at inception stage and at this stage, it is the objects of the society that are to be seen - hence the order of the CIT (E) is hereby set aside and he is directed to grant registration to the Society - Decided in favor of assessee.

Summary

Issues Involved:
1. Rejection of application for registration under section 12AA of the Income-tax Act, 1961.
2. Examination of the charitable nature and activities of the trust.
3. Appropriateness of the trust’s application under section 12AA versus section 10(23C).

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The assessee trust filed an application seeking registration under section 12AA of the Income-tax Act, 1961, with the objective of providing education, medical, and other facilities to the public on a non-profit basis. The Commissioner of Income Tax (Exemptions) [CIT(E)] rejected the application, observing that the trust had not carried out activities related to its other stated objects apart from running a school. The CIT(E) noted that the trust was controlled by two permanent trustees (husband and wife), which indicated strict control over the trust's operations. The CIT(E) also pointed out the lack of evidence for subsidized education or adherence to norms under the Right to Education Act, raising concerns about the trust's charitable nature and the potential for profit-making activities.

2. Examination of the Charitable Nature and Activities of the Trust:
The assessee argued that the trust's activities fell within the definition of "charitable purposes" under section 2(15) of the Act. The trust deed included strict conditions to prevent trustees from taking personal benefits, and the trust had started establishing a school. The trust had leased personal land for the school at a nominal rent and formed a managing committee with five members. The trust had also obtained various statutory approvals and started construction, with primary education commencing by April 2016. The assessee emphasized that the trust's surplus would be applied to its objectives, and in case of dissolution, assets would be transferred to a similar trust. The CIT(E) did not point out any violations of these conditions by the trust.

3. Appropriateness of the Trust’s Application under Section 12AA versus Section 10(23C):
The assessee contended that the trust had the option to seek registration under section 12AA or claim exemption under section 10(23C). The trust chose section 12AA to cover all its charitable activities, not just education. The assessee cited various case laws and a CBDT circular to argue that the trust's family-run nature did not disqualify it from registration, as long as its activities were genuine and charitable. The trust was in its inception stage, and its activities, such as running a school, were genuine and aligned with its objectives. The CBDT circular clarified that extraordinary powers of managing trustees did not justify denial of exemption unless the trust's activities were not solely for educational purposes or profit-driven.

Conclusion:
The Tribunal found that the trust's objectives included educational activities, which were charitable under section 2(15) of the Act. The CIT(E) did not provide evidence of the trust's activities being non-genuine or profit-oriented. The Tribunal noted that the trust was at its inception stage, and its activities could be examined in detail once fully operational. The Tribunal set aside the CIT(E)'s order and directed the CIT(E) to grant registration to the trust under section 12AA of the Act. The appeal of the assessee was allowed.