2017 (8) TMI 1315 - HC - Income Tax

Registration u/s 12A rejected - Held that - At the time of registration the authority is required to look whether it is registered under the state Act or under any other Act. There is no distinction between private trust and public trust. The contention which has been raised by counsel for the appellant regarding the expenses diversion or control by the private people will come only when the assessment has taken place. For the purpose of trust registered and the income used is for the charitable purpose or not and whether income from public trust if it is going for any private use will negative the very object of the Trust Act which is the main intention of the legislation is not to be considered at this stage. In that view of the matter we see no reason for interfere with the finding of the tribunal. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Legality and propriety of granting registration to a private trust under Section 12A.
2. Applicability of the Rajasthan Public Trust Act, 1959 to private trusts governed by the Indian Trust Act, 1882.
3. Justification of allowing Gujara Bhatta as an application of income of the trust.

Issue-wise Analysis:

1. Legality and Propriety of Granting Registration to a Private Trust under Section 12A:
The appellants challenged the tribunal's decision that reversed the Commissioner of Income Tax's order rejecting the registration under Section 12A. The court examined whether granting registration to a private trust under Section 12A was legal and proper, especially when Sections 2(15), 11, 12, and 13 of the Income Tax Act restrict the use and application of voluntary contributions/income for the benefit of private persons under Section 13(3).

The court noted that the tribunal had considered various precedents and guidelines, such as the case of Ganeshram Rami Devi Charitable Trust vs. CIT, which emphasized that the control and management of trust property by private individuals do not affect the nature of the trust for the purposes of the Income Tax Act. The primary criterion is whether the trust's activities benefit the public at large. The tribunal concluded that the trust in question was a public trust and not a private trust, as its activities enured to the benefit of the public.

2. Applicability of the Rajasthan Public Trust Act, 1959 to Private Trusts Governed by the Indian Trust Act, 1882:
The court addressed whether the Rajasthan Public Trust Act, 1959 could be applied to private trusts, especially when they are covered by the Indian Trust Act, 1882. The appellant argued that every public trust registered under the Rajasthan Public Trust Act is deemed to be a society, and the benefits under Section 12A should not be granted.

The tribunal had noted that the applicability of Section 13 of the Income Tax Act is to be examined by the Assessing Officer at the time of assessment and not at the stage of granting registration under Section 12AA. The court upheld this view, stating that the authority at the time of registration is only required to look at whether the trust is registered under the state Act or any other Act, without distinguishing between private and public trusts.

3. Justification of Allowing Gujara Bhatta as an Application of Income of the Trust:
The court examined whether the tribunal was justified in allowing Gujara Bhatta as an application of income of the trust, despite it not being fixed by the State Government as per Section 65 of the Rajasthan Public Trust Act, 1959 read with Rule 38 of the Rajasthan Public Trust Rules, 1962.

The tribunal had observed that at the stage of granting registration under Section 12AA, the Commissioner is to satisfy himself about the genuineness of the trust's activities and its objects. The applicability of Section 13 is to be looked into by the Assessing Officer during the assessment. The tribunal found that the Commissioner had not provided any positive evidence that the trust's activities were not genuine or that the funds were not applied for its objects. The court agreed with the tribunal's view, emphasizing that the registration stage is not the appropriate time to consider the application of income.

Conclusion:
The court found no reason to interfere with the tribunal's findings. It concluded that the tribunal's decision to grant registration under Section 12A was just and proper. The issues were answered in favor of the assessee, and the appeals were dismissed.