2011 (8) TMI 1136 - HC - Income Tax

Exemption u/s 11 - Registration of Charitable Trust u/s 12A read with 12AA - Assessee a trust set up an engineering college for charitable purposes - Mere establishment of an engineering college does not constitute a charitable activity. Accordingly the application preferred by the respondent under sec. 12A was rejected by CIT(A) - HELD THAT - A careful reading of Section. 2(15) 12A and 12AA of the Act reveal that application for registration under sec. 12A has to be made before the expiry of one year from the date of creation of the trust or establishment of the institution whichever is later. The application has to be made by a person in receipt of income of the trust. Thus while dealing with the application for registration the CIT has to examine whether the application is made in accordance with s. 12A r/w r. 17A. He may also examine whether objects of the trust are charitable or not. Sec. 12AA nowhere provides that CIT while considering the application for registration is also required to examine whether the income derived by the trust is being spent for charitable purposes or the trust is earning profit. The language employed by the legislature in s. 12AA only requires that activities of the trust or institution must be genuine which should be in consonance with the object of the trust. At this stage the CIT is not required to examine the application of income. Admittedly the application submitted by the respondent was in consonance with the procedural requirement prescribed in this regard. From the trust deed which was filed before the CIT the objects of the trust could be ascertained. From perusal of cl. (3) of the trust deed we find that the objects of the trust are charitable in nature and are in tune with sec. 2(15) and therefore CIT rejecting the application under s. 12A was unjustified - Decision in favour of Assessee.

Summary

Issues:
- Registration of trust under s. 12A of the IT Act, 1961.

Analysis:
1. The case involved an appeal by the Revenue against the Tribunal's order rejecting the registration of a trust under the IT Act. The trust was created for charitable purposes, including education and medical relief. The CIT rejected the registration application stating that the trust's admission procedures were not clear, and establishing an engineering college alone did not constitute a charitable activity.

2. The Tribunal, however, held that various sections of the IT Act needed to be considered together, emphasizing the importance of charitable purposes for registration under s. 12A. It set aside the CIT's order and directed the trust's registration under s. 12A.

3. The substantial question of law framed by the Court questioned the Tribunal's decision to cancel the CIT's order. The Revenue contended that the Tribunal relied on additional evidence and erred in its decision, citing specific rules and cases to support its argument.

4. On the other hand, the respondent argued that the trust's activities were charitable, as per the trust deed filed with the CIT. The respondent highlighted that until registered under s. 12A, the trust could not benefit from certain sections of the IT Act.

5. The Court analyzed the relevant provisions of the IT Act, specifically s. 12A and s. 12AA, outlining the conditions and procedures for trust registration. It clarified that the CIT's role was to ensure the application's compliance with the law and the charitable nature of the trust's objects, not to assess income application at that stage.

6. The Court found that the trust's application was in line with procedural requirements, and its objects were charitable, as per the trust deed. Relying on previous decisions, the Court concluded that the CIT's rejection of the registration application was unjustified.

7. Consequently, the Court ruled in favor of the trust, dismissing the Revenue's appeal. The judgment emphasized the importance of complying with procedural requirements and ensuring the charitable nature of trust activities for registration under the IT Act.