2025 (3) TMI 351 - AT - Income Tax

Rejection/cancellation registration u/s 12AB - charitable purposes - as per revenue activities carried out by the trust are restricted to its own employees ex-employees and their family members which shows that it is not a public charitable trust and there is no dissolution clause in the trust deed the net asset of the trust in case of dissolution can be transferred to any other entity - As submitted CIT(E) failed to appreciate that the families and children of ex-employees are also Public which has been grossly undermined by the CIT(E) in rejecting the application HELD THAT - In the present case admittedly the trust deed of the Assessee contains the object of carrying out charitable activities to general public. Assessee has also incurred expenses for providing the education and health care facilities to the children and the family members of Radisson Group Employees who expired due to Covid-19 pandemic. In our opinion the family members of the deceased employees are part of public and there is no relationship of employee and employer between the Appellant and the family members of deceased employees. Even otherwise the ratio laid down in the case of Ahmedabad Rana Caste Association 1971 (9) TMI 8 - SUPREME COURT and Harilal Bhagwati 2000 (4) TMI 14 - GUJARAT HIGH COURT are applicable to the case in hand. Thus in our opinion the CIT(E) committed error in holding that the activities of the appellant are restricted only to family members of the ex- employees thus the Assessee is not a public charitable Trust . No dissolution clause in the trust deed of the Assessee - From the plain reading of the above Clauses though the trustees have power to transfer and hand over the trust to any other trust/society/Association/Institution is no mentioning regarding the dissolution of the trust and the fate of net asset of the trust in case of dissolution. It is true that the net asset of the trust can be transferred to any entity since as per the above Clause in the trust deed the trustees have absolute right to transfer and hand over the Trust to any other trust/society/association/institution on such terms and conditions as the Trustees shall in their absolute discretion think fit and proper. However after the amendment to provision of Section 115TD of the Act which has been inserted by Finance Act 2016 w.e.f. 01/06/2016 the relevance of having dissolution clause and the apprehension on the transfer of net asset to any other entity has been taken care by the said provisions of Section 115TD. Thus in our considered opinion the absence of dissolution clause and non- mentioning of fate of net asset in the trust deed cannot be a ground to deny the registration u/s 12AB of the Act. Thus the Ld. CIT(E) committed error in rejecting the registration u/s 12A and 80G of the Act. Assessee appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the rejection of the Assessee's application for registration under Section 12AB of the Income Tax Act, 1961, by the CIT Exemptions was justified.

2. Whether the activities of the trust, which are primarily for the benefit of employees, ex-employees, and their family members, qualify as public charitable activities under Section 2(15) of the Income Tax Act.

3. Whether the absence of a dissolution clause in the trust deed is a valid ground for denying registration under Section 12AB of the Income Tax Act.

ISSUE-WISE DETAILED ANALYSIS

1. Rejection of Registration under Section 12AB

- Relevant legal framework and precedents: Section 12AB of the Income Tax Act pertains to the registration of trusts for availing tax exemptions. The legal framework requires that the trust's activities must qualify as charitable under Section 2(15) of the Act.

- Court's interpretation and reasoning: The Tribunal examined whether the trust's activities were charitable and whether the CIT Exemptions erred in rejecting the application based on the nature of the beneficiaries and the absence of a dissolution clause.

- Key evidence and findings: The Tribunal noted that the trust's objectives included promoting education, healthcare, and other charitable activities, which align with the definition of charitable purposes under Section 2(15).

- Application of law to facts: The Tribunal found that the activities benefiting the families of deceased employees during the COVID-19 pandemic were charitable and served a section of the public, thus satisfying the requirements of Section 2(15).

- Treatment of competing arguments: The Tribunal addressed the Department's argument that the trust's activities were limited to employees and their families. It referenced the Supreme Court's decision in Ahmedabad Rana Caste Association, which held that benefiting a section of the public can qualify as a charitable purpose.

- Conclusions: The Tribunal concluded that the CIT Exemptions erred in rejecting the registration, as the trust's activities were charitable and served a section of the public.

2. Absence of Dissolution Clause in Trust Deed

- Relevant legal framework and precedents: The absence of a dissolution clause was considered a ground for rejection. However, the Tribunal referred to Section 115TD of the Income Tax Act, which addresses the transfer of net assets upon dissolution.

- Court's interpretation and reasoning: The Tribunal interpreted that the absence of a specific dissolution clause should not be a ground for rejection, as Section 115TD provides a framework for handling net assets upon dissolution.

- Key evidence and findings: The trust deed allowed trustees to transfer assets to other entities, which the Tribunal found sufficient under the current legal framework.

- Application of law to facts: The Tribunal applied Section 115TD to conclude that the absence of a dissolution clause did not justify denying registration.

- Treatment of competing arguments: The Tribunal countered the Department's argument by emphasizing the legal provisions that govern asset transfer upon dissolution.

- Conclusions: The Tribunal concluded that the absence of a dissolution clause was not a valid ground for rejecting the registration application.

SIGNIFICANT HOLDINGS

- Verbatim quotes of crucial legal reasoning: "The family members of the deceased employees are part of 'public' and there is no relationship of employee and employer between the Appellant and the family members of deceased employees."

- Core principles established: A trust can qualify as a public charitable trust if it benefits a section of the public, even if that section includes family members of employees, as long as there is no direct employer-employee relationship.

- Final determinations on each issue: The Tribunal allowed the appeals, directing the CIT Exemptions to grant registration under Section 12AB and Section 80G of the Income Tax Act, thereby recognizing the trust's activities as charitable.