2024 (7) TMI 496 - AT - Income Tax

Cancellation of registration granted u/s. 12AB(4) - assessee is engaged in the business of activity of investment in mutual funds - assessee contended that the trust deed providing accommodation to the settlor had become infructuous since the settlor passed away way back in the year 1965 and Investments in the mutual funds are made out of the accumulations and corpus donations and not out of any borrowed funds HELD THAT - The entire proceedings of the CIT(Exemption) are based on the covenants of the trust deed but not based on the actual activities carried out by the appellant trust. Mere fact that the trust deed contain a covenant that enables the settlor to utilize the premises for her use or family use, cannot empower the CIT to cancel the registration, as it does not lead to any conclusion that either the activities of the trust are not genuine or the activities are not being carried out in accordance with the objects of the trust. Similarly, the fact that huge investments are made in mutual funds, cannot also lead to the conclusion that the activities of the trust are not genuine. It is an admitted fact that the settlor died in the year 1965, therefore, the relevant clause had become infructuous and thus there is no question of violation of provisions of section 13(3). The investments in mutual funds are only in order to meet the statutory requirements of section 11(5) of the Act. The reasons assigned for cancellation of registration as enumerated above neither lead to conclusion that the activities of the trust are not genuine and are not carried out in accordance with the objects of the trust. As in the CIT Vs. Institute Management Committee of Industrial Training Institute 2017 (3) TMI 48 - BOMBAY HIGH COURT held that exercise of power u/s.12AA(3) can be done by the CIT(Exemption) only on being satisfied that one of the two conditions satisfied therein. Thus, we are of the opinion that the impugned order by the CIT(Exemption) cannot be sustained in the eyes of law. The same is therefore, set-side. The appeal filed by the assessee stands allowed.

Summary

Issues:
Appeal against cancellation of registration under sections 12AA and 12AB of the Income Tax Act, 1961.

Detailed Analysis:

1. The appellant trust filed an appeal against the order of the Commissioner of Income Tax, Exemption, Pune canceling the registration granted under section 12AB of the Act. The grounds of appeal included contentions regarding the charitable nature of the trust's activities, alleged violations of specific provisions, and misinterpretation of facts by the department.

2. The trust, established in 1961 for imparting education, faced initial rejections of registration applications under sections 12A and 12AA. However, after a successful appeal in 2009, registration under section 12AA was granted in 2020. Subsequently, violations were alleged by the CIT(Exemption), leading to a show cause notice for cancellation.

3. The alleged violations included provisions in the trust deed benefiting the settlor, engagement in mutual fund investments, and perceived inadequacy of charitable activities. The appellant contested these violations, citing the settlor's demise, statutory investment requirements, and genuine educational pursuits.

4. The key issue before the Tribunal was whether the cancellation of registration under section 12AA was justified. The Tribunal emphasized that cancellation could only occur if the trust's activities were not genuine or not in line with its objectives. It noted that the CIT's decision was based on trust deed clauses rather than actual activities, and investments in mutual funds did not inherently indicate non-charitable intentions.

5. Referring to a relevant High Court judgment, the Tribunal concluded that the CIT's grounds for cancellation did not meet the statutory conditions necessitating such action. As a result, the impugned order was set aside, and the appeal by the assessee was allowed.

6. The Tribunal's decision highlighted the importance of assessing a trust's actual activities rather than relying solely on the wording of the trust deed. It underscored the need for clear evidence of non-genuine or non-charitable activities to justify cancellation of registration under the Income Tax Act.