Violation of Section 13 not a Ground for refusing Registration under Section 12AA: ITAT [Read Order]

ITAT - Trust - Taxscan

The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) in Mujumdar Art Foundation vs. C.I.T. Exemptions held that registration of Trust under Section 12AA cannot be denied on the ground of violation of Section 13.

The assessee is a trust which came into existence via a trust deed. The Trust applied for registration under Section 12AA of the Income Tax Act, 1961. M/s. Gokul Finance Pvt. Ltd., a specified person under section 13(1)(c) of the Act, donated an amount of Rs.1 Crore to the Trust. Before getting registered under section 12AA, the Trust transferred the amount from Receipt and Payment account to Balance Sheet as corpus donation. The Trust later returned Rs.90 Lacs to M/s Gokul Leasing and Finance Pvt. Ltd. Concluding that the trust has violated its declared objectives and that the trust falls within the ambit of Section 13 of the Act, the Commissioner of Income Tax (Exemptions) refused the registration of the Trust. The Commissioner of Income Tax (Appeals) also affirmed the decision of the CIT(E). The assesse appealed before the Income Tax Appellate Tribunal.

The Counsel for the assessee argued that from the total amount donated by M/s. Gokul Finance Pvt Ltd., Rs.90 Lacs were a loan extended to the Trust and only the remaining amount formed the donation. The counsel further submitted that the assessee was entitled to take loan and the transaction was genuine and as per the declared objectives of the Trust. He contended that the CIT(E) had rejected the application without producing any evidence on record to show that activities of the Trust were not genuine. The Departmental Representative (D.R) reiterated the findings of the CIT(E) & CIT(A).

The bench comprising of Judicial Member A.T. Varkey and Accountant Member A. L. Saini observed that for granting registration under section 12AA, the CIT(E)’s jurisdiction is only to verify the objectives of the institution and its genuineness of the activities. It further noted that violation of Section 13 cannot be a ground for refusing registration under Section 12AA as such violation would only be relevant while considering whether to grant or deny benefits under section 11 and 12 of the Act. The bench relied on the decision of Kerala High Court in the case of Shee Anjaneya Medical Trust, wherein it was held that at the time of registration of the Trust what is to be looked into is whether the Trust is a genuine one and whether it is a sham institution floated only to avail the benefits of exemption under the Act.

“We note that the question whether the activities of the trust which was formed with the specific intention to carry on certain charitable activities, are actually charitable in nature or not, would not arise for consideration at the stage of grant of registration to the trust u/s 12AA of the Act. Going by the specific words in section 12AA of the Act, what is germane to the issue is only as to the genuineness of the Trust and its activities. We note that there is no such finding in the impugned order of the ld. CIT(Exemption) that activities of the trust were not genuine. Going by the provisions of section 12A and 12AA of the Act, we hold that the grounds raised by the ld. CIT(E) (Registering Authority), explained in para 4 of our order, for rejecting of registration to the assessee trust cannot be sustained and ld. CIT(Exemption) ought to have examined whether activities of the trust are charitable in nature or not.” said the bench.

The Court directed the CIT(E) to examine the genuineness of the Trust and its activities, objectives and adjudicate the issue in accordance with the law. The appeal was allowed for statistical purpose.

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