2019 (6) TMI 231 - HC - Income Tax

Exemption u/s 11 - Registration u/s 12AA denied - trust deed had not provided for dissolution clause for use of net assets of the trust for its objects in case of dissolution and bar on reversion of net assets to founder, members, directors etc.- the School is run by one family headed by father as 'Settlor'-cum-President and two sons as trustees - the assessee trust was not registered under the New Haryana Registration Regulation of Societies Registration Act, 2012 and the Right to Education Act, 2010 was not implemented by the School - HELD THAT - The Tribunal while dealing with objection (a) put by the CIT, had noticed that as per clause 14 of the Trust Deed, the mandate of the said clause was to transfer the remaining assets and liabilities of the assessee to a similar trust at the time of dissolution. There was no intention of giving benefit to a specific person out of whatever remains in the hands of the assessee Regarding objection (b), the Tribunal had recorded that even if a trust was run by only one family, there was no bar on such trust to be registered under Section 12AA of the Act. The CIT had only to see that the objects of the trust were charitable in nature and the activities of the same were genuine at the time of granting registration. Regarding the fact that the benefit directly or indirectly diverted to one family, can be taken care of by the Assessing Officer at the time of making the assessment and granting exemption under Section 11 of the Act. While dealing with objection (c), the Tribunal had observed that the assessee is a trust formed under the Indian Trust Act, 1882 and had been duly registered with the Sub Registrar, Bilaspur. There was no bar under the Act to give registration under Section 12AA of the Act to a trust and that no provision provided that only societies can be registered under Section 12AA of the Act. The Tribunal while meeting out objection (d) regarding Right to Education Act, 2010 (in short 2010 Act ) had concluded that the issue was covered in the case of Kids-R-Kids International Educational Social Welfare Trust 2018 (7) TMI 1516 - SC ORDER wherein it was held that the issue of school complying with the provisions of 2010 Act was not a relevant consideration to be taken care of by the CIT at the time of granting registration under Section 12AA of the Act. The Tribunal while holding that the CIT had not doubted about the charitable nature of the objects of the Trust as well as the genuineness of the activity, directed the CIT to grant registration to the assessee under Section 12AA of the Act. No error could be pointed out by learned counsel for the revenue in the findings recorded by the Tribunal warranting interference by this Court. - Decided against revenue

Summary

Issues:
Delay in filing appeal condonation, substantial questions of law regarding registration under Section 12AA of the Income Tax Act, 1961.

Analysis:
1. Delay Condonation: The High Court condoned the delay of 117 days in filing the appeal.

2. Substantial Questions of Law: The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal. The substantial questions of law raised included:
- Whether the ITAT was right in directing registration to be accorded without commenting on the genuineness of activities and their correlation with the objects of the assessee-society.
- Whether the ITAT was correct in holding that the CIT had not doubted the objects and genuineness of the activity of the trust.
- Whether compliance with the RTE Act is a relevant factor for the grant of registration.
- Whether the ITAT was right in ignoring the CIT's findings about the restrictive composition of the society and the lack of dissolution clause.

3. Facts and Tribunal's Decision: The assessee's application for registration under Section 12AA was rejected by the CIT citing various objections. The Tribunal allowed the appeal and directed the CIT to grant registration to the assessee. The Tribunal addressed each objection raised by the CIT, clarifying that the trust deed did provide for dissolution clause, the family-run trust could still be registered, registration under Section 12AA was not limited to societies, and compliance with the RTE Act was not a relevant consideration for registration. The Tribunal concluded that the CIT had not doubted the charitable nature of the trust's objects or the genuineness of its activities.

4. High Court's Decision: After hearing arguments, the High Court found no merit in the revenue's appeal. The Court upheld the Tribunal's decision, stating that no error was found in the Tribunal's findings. The appeal was dismissed, with the option for the revenue to take action for withdrawal/cancellation of registration if the activities of the assessee were found to be not genuine or not charitable.

This detailed analysis covers the delay condonation, substantial questions of law, facts of the case, the Tribunal's decision, and the High Court's final ruling, providing a comprehensive overview of the legal judgment.