2010 (11) TMI 853 - HC - Income Tax

Newly formed trust eligible for registration under section 12A based on deed and objects, not past activity

Director of Income-tax (Exemptions) Versus Meenakshi Amma Endowment Trust

HC upheld grant of registration under section 12A in favor of the applicant trust, holding that when a trust seeks registration shortly after formation ... Application for registration u/s 12A - Tribunal allowed registration concluding the concerned authority has to look to the objects and also the activities of the trust in order to consider the application for registration under section 12A - Held that:- When the trust itself was formed in January, 2008, with the money available with the trust, one cannot expect them to do activity of charity immediately and because of that situation the authority cannot come to a conclusion that the trust was not intending to do any activity of charity. In such a situation the objects of the trust have to be taken into consideration by the authority and the objects of the trust could be read from the trust deed itself. In the subsequent returns filed by the trust, if the Revenue comes across that factually the trust has not conducted any charitable activities, it is always open to the authorities concerned to withdraw the registration already granted or cancel the said registration under section 12AA(3) of the Act. A trust could be formed today and within a week registration under section 12A could be sought as there is no prohibition under the Act seeking such registration. The activities of the trust have to be considered if such registration is sought much later than the formation of the trust or after expiry of the earlier registration granted in favour of the trust. Therefore, in a case of this nature where the trust has approached the authority for registration under section 12A within a span of eight months of its formation, the abovementioned criteria, namely, the objects of the trust for which it was formed will have to be examined to be satisfied about its genuineness and the activities of the trust cannot be the criterion, since it is yet to commence its activities. - Decided in favour of assessee. Issues:1. Registration under section 12A of the Income Tax Act.2. Refusal of recognition under section 80G.3. Appeal challenging the order of the Director of IT (Exemptions).4. Consideration of trust activities for registration.5. Examination of trust formation and activities timeline.6. Criteria for examining trust genuineness and activities for registration.Analysis:The case involves the respondent-assessee trust seeking registration under section 12A of the Income Tax Act. The trust was established through a trust deed dated January 23, 2008, and applied for registration on October 31, 2008. After providing necessary details, a show-cause notice was issued on March 16, 2009, seeking audited accounts and details of trust activities. Despite indicating that no activities had commenced, the Director of IT (Exemptions) refused registration and recognition under section 80G on April 13, 2009. The assessee appealed to the Tribunal challenging this decision.The Tribunal, considering relevant legal precedents, emphasized that the authority must assess the trust's objects and activities to grant registration under section 12A. By order dated November 20, 2009, the Tribunal directed the Director of Income-tax (Exemptions) to grant recognition if all conditions were met. Upon review, it was noted that the trust had applied for registration within nine months of formation, with a nominal corpus fund contributed by trustees to initiate charitable activities. The Revenue's concern was the lack of charitable activities, but the court highlighted that immediate charity work was not mandatory upon trust formation.The court stressed that trust registration can be sought soon after formation, and the focus should be on the trust's objectives rather than immediate activities. In cases where registration is sought promptly after formation, the trust's objects must be evaluated to ensure genuineness, especially when activities are yet to commence. The Tribunal's decision was upheld, dismissing the appeal at the admission stage due to the lack of substantial legal questions. The judgment underscores the importance of assessing trust formation, objectives, and activities timeline for registration under section 12A of the Act.