Registration once granted to Trust under Income Tax Act based on genuineness of activities and the same cannot be cancelled based on same provisions: Jharkhand HC

The Jharkhand High Court has held that the registration once granted to trust under the Income Tax Act,1961 based on genuineness of activities and the same cannot be cancelled based on same provisions.

Sri Ramjanki Tapovan Mandir, the Appellant challenged the order dated 30.10.2019 passed by the Income Tax Appellate Tribunal, Ranchi Bench, Ranchi (ITAT), which upheld the order passed by Respondent-Commissioner of Income Tax (Exemption), Ranchi dated 04.09.2018 cancelled registration of the Appellant under Section 12AA of the Income Tax Act, 1961 (‘IT Act’).

The Appellant is a Hindu Religious Trust registered under the provisions of the Bihar Hindu Religious Trust Act, of 1950. The Trust was created for the purposes of maintaining the deity Sri Ramjanki and managing the property of the deity, which is popularly known as ‘Sri Ramjanki Tapovan Mandir’.

The original Trust Deed of the Appellant-Trust was created on 25.02.1948 and the same was re-constituted on 12.05.1987 by cancelling the earlier Trust Deed. After examining the Trust Deed and the object and purposes of the Trust, a Registration Certificate granting registration to the Trust under section 12AA of the Income Tax Act was issued on 07.05.2012 and the income of the Trust was exempted from levy of Income Tax. The CIT (Exemptions) cancelled the registration as the Trust Deed dated 20.09.2005 was contrary to the wishes of the founder of the Trust and the earlier instruments of the Trust.

The HC viewed a Trust Deed as an understanding between the author of the Trust and its trustee, and, the Income Tax Department is not authorized to comment on the execution of the Trust Deed. The CIT (Exemptions) travelled beyond the scope of inquiry as contemplated under section 12AA(3) for declaring that the activities of the Trust are not genuine.

The HC Bench consisting of Justice Aparesh Kumar Singh and Justice Deepak Roshan held “that once registration has been granted under section 12AA after satisfying the genuineness of the activities of the Trust, the same cannot be cancelled based on the same set of provisions of the Trust.”

It was observed by the HC that the instructions issued by CBDT bearing Instruction state that the investment of net consideration received on the transfer of a capital asset in fixed deposit with a Bank for a period of six months or above would be regarded as utilization of the net consideration for acquiring another capital asset within the meaning of Section 11(1A) of the Income Tax Act.

The appellant-Trust has deposited the sale proceeds in fixed deposit with the Bank for a period of more than six months and the finding of ITAT in the impugned order that the Appellant failed to utilize the sale proceeds for the objectives of the Trust is perverse.

The HC allowed the appeal and set aside the order dated 30.10.2019 passed by ITAT.  Further quashed and set aside the order dated 04.09.2018 passed by CIT (Exemptions) under section 12AA(3) of the Income Tax Act cancelling the registration of the Appellant-Trust under section 12A/12AA of the Income Tax Act.

Mr Sumeet Gadodia, Mrs Shilpi Sandil Gadodia, and Mrs Akansha Mittal appeared for the appellant and Mr Ratnesh Nandan Sahay appeared for the respondent.

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