A division bench of the Bombay High Court in CIT (E) v. Tara Educational & Charitable Trust, held that registration under section 12AA of the Income Tax Act, 1961 cannot be denied to a trust merely on ground of absence of dissolution clause in the Trust deed.
In the instant case, Director of Income Tax (Exemption) denied registration under section 12AA to the Respondent-Trust by finding that the Trust Deed did not provide for a clause regarding dissolution of the trust. He took a stand that In absence of the clause for dissolution of the Trust, the Trust could not have been registered.
However, the ITAT quashed the order and directed the department to allow registration to the respondent.
Against the order, the department approached the High Court contending that the respondent-Trust has not given any valid reason for non-corporation of dissolution clause in the Trust Deed. It contended that in case the objects and activities of the Trust cannot be carried out, it has to be dissolved. Its corpus and properties remaining on the date of the dissolution have to be transferred to another Trust having similar objects.
A bench of Justices S V Gangapurwala and A M Badar observed that the authority is required to consider the genuineness of the activities of the Trust and the section does not lay down that unless and until the clause of dissolution of the Trust is incorporated in the Trust Deed, the Trust cannot be registered.
Upholding the order, the bench said that “the statute takes care of the apprehension as is shown by the Director of Income Tax (Exemptions). The authority has observed that in case the objects / activities of the Trust cannot be carried out and it has to be dissolved, the corpus and properties remain on the date of the dissolution transferred. The absence of the clause of dissolution in the Trust Deed would be in no manner an impediment in the operation of the statute. Section 55 of the Maharashtra Public Trust Act takes care of such contingency.”
Read the full text of the Judgment below.
