2018 (10) TMI 787 - AT - Income Tax

Non fulfillment of conditions for grant of registration u/s 12AA and exemption u/s 80G - restriction of appointment of NRI as trustee - trustees are the non-resident and therefore, under the provisions of Indian Trust Act, 1882 they cannot be held to be a valid trustee; and when the trust and its structure itself is not proper, therefore, the condition precedent for grant of registration is not fulfilled - Charitable activities - Held that - Section 10 of the Indian Trust Act provides for who can be the trustees and here is no specific bar under Section 10 of the Trust Act for an appointment of NRI as trustee of an Indian Trust. Section 73 deals with the appointment of a new trustee on death, or is absent from India for the period of more than 6 months or domiciled outside India, etc. This section merely provides that a new trustee may be unfit to be appointed in case the said person is domiciled abroad for a period of six months continuously; or leaves India for the purpose of residing abroad, etc. In such a case, it is considered that there is a personal incapacity to act in a Trust by such person.Section 73 per se cannot invalidate a Trust, but rather provides bar for appointment of non-resident as a trustee. Thus provisions of Section 60 and 73 of the Indian Trust Act, 1882 as relied upon by the ld. CIT(E) to hold that assessee Trust is not a valid Trust, and therefore, cannot be granted registration u/s.12AA cannot be held to be a valid reason. As pointed out by the learned counsel before the ld. CIT (E) in the application filed in Form 10A , assessee-applicant Trust has already given the list of the trustees and one of the trustee was citizen of India and domiciled in India, and therefore, it cannot be held that simply because other four trustees were non-resident and the assessee trust is not a valid trust. We accordingly, hold that assessee is a valid trust under the Indian Trust Act, 1882. Coming to the objects as given in the Trust Deed , prima facie, it appears that all the objects are ostensibly for the charitable purposes. CIT(E) has not examined the objects and the genuineness of the activities of the assessee trust which is required to be examined while considering the registration u/s 12AA, and therefore, in all fitness of mater, we deem it proper that this matter of registration should be restored back to the file of the ld. CIT(E) who shall examine the objects of the Trust as well as genuineness of its activities. Consequently, the application for exemption u/s.80G should also be examined in that light. - Appeal of the assessee is treated as allowed for statistical purpose.

Summary

Issues Involved:
1. Rejection of application for registration under Section 12AA and exemption under Section 80G of the Income Tax Act.
2. Whether the trust is valid under the Indian Trust Act, 1882, given that the trustees are Non-Resident Indians (NRIs).
3. Examination of the charitable nature of the trust’s objects and the genuineness of its activities.

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA and Exemption under Section 80G:
The assessee, a trust formed on 8th March 2013, applied for registration under Section 12AA and exemption under Section 80G of the Income Tax Act. The Commissioner of Income Tax (Exemptions) [CIT(E)] rejected the application on the grounds that all trustees were NRIs, which, according to CIT(E), violated the Indian Trust Act, 1882. The CIT(E) reasoned that a non-resident cannot be a trustee of an Indian resident trust unless domiciled in India, citing Explanation-1 to Section 60 and Section 73 of the Indian Trust Act.

2. Validity of the Trust under the Indian Trust Act, 1882:
The CIT(E) argued that the trust could not be valid as all trustees were NRIs. However, the tribunal examined Section 10 of the Indian Trust Act, which states that every person capable of holding property may be a trustee. There is no specific bar under Section 10 against NRIs being trustees. Section 73 addresses the appointment of a new trustee if a trustee is absent for six months or domiciled abroad, but does not invalidate the trust itself. Section 60, which gives the beneficiary the right to proper trustees, does not impinge on the validity of the trust if a trustee is not a ‘proper person’. The tribunal noted that the trust had already substituted one of the trustees with an Indian resident before filing for registration, thus complying with the requirements.

3. Examination of Charitable Nature and Genuineness of Activities:
The tribunal found that the CIT(E) did not examine the objects and genuineness of the trust’s activities, which is a requirement for registration under Section 12AA. The tribunal noted that the trust’s objects, as stated in the deed, appeared charitable. The tribunal directed the CIT(E) to examine the objects and activities of the trust to determine if they are genuinely charitable and benefit the public at large. If found so, the registration under Section 12AA and exemption under Section 80G should be granted.

Conclusion:
The tribunal held that the trust is valid under the Indian Trust Act, 1882, and directed the CIT(E) to re-examine the trust’s objects and activities. The appeal was allowed for statistical purposes, with the direction to grant registration and exemption if the trust’s activities are found to be genuinely charitable.