2014 (1) TMI 933 - AT - Income Tax

Income Tax Tribunal Overturns Registration Rejection, Emphasizes Fair Assessment

The Tribunal found the rejection of registration under section 12A and approval under section 80G to be unjustified and lacking proper basis. The Director ... Rejection of Application u/s 12A of the Act – Rejection of Apporval u/s 80G of the Act – Held that:- At the time of granting registration under section 12A of the Act, commencement of activity is not a relevant consideration if the trust is a new one - the assessee trust was created by trust deed dated 11th September, 2007 and it applied for registration on 26.2.2008 - it cannot be expected that the trust could have commenced activity within such a short time - at the time of grant of registration the registering authority has only to consider whether the objects of the trust are charitable or not. Relying upon CIT-1 vs. Kutchi Dasa Oswal Moto Pariwar Ambama Trust [2012 (12) TMI 876 - GUJARAT HIGH COURT] - the conclusion of the DIT(E) to the effect that since the assessee has not commenced its activities, registration under section 12A will not be granted is not the correct view - So far as the conclusion of the DIT(E) that the assessee is having mixed objects hence, registration cannot be granted - such conclusion is also not correct as there is no such restriction under the relevant provisions of the Act which could suggest that a trust having religious activity is not eligible for exemption - The DIT(E) was not justified in rejecting the application for grant of registration under section 12A of the Act and as well as the application seeking approval under section 80G of the Act – the Order passed by the DIT(E) set aside and the matter remitted back for considering the entire issue of grant of registration under section 12A of the Act afresh – Decided in favour of Assessee. Issues:1. Rejection of registration under section 12A and approval under section 80G by the Director of Income Tax (Exemptions), Hyderabad.2. Consideration of commencement of activity, specificity of objects, mixed charitable and religious objects, and business activities in determining registration eligibility.Issue 1: Rejection of Registration under Section 12A and Approval under Section 80G:The appeal was against the Order rejecting the assessee's application for registration under section 12A and approval under section 80G of the Act. The rejection was based on the grounds that the trust had not commenced any activity as per the trust deed, and the specific objects mentioned in the trust deed were not considered charitable. The rejection was also influenced by the presence of mixed charitable and religious objects in the trust deed, as well as the provision allowing trustees to engage in business activities.Analysis: The rejection was challenged on the basis that commencement of activity should not be a decisive factor for registration under section 12A. Legal precedents from the Hon'ble Karnataka High Court and Hon'ble Gujarat High Court were cited to support this argument. The contention was that the presence of mixed charitable and religious objects should not automatically disqualify a trust from registration. The Hon'ble Madras High Court's decision was referenced to emphasize that a trust of a religious nature can still be eligible for registration under section 12A. The objections raised regarding the specificity of objects and business activities were deemed vague and lacking a proper basis. It was argued that the Director of Income Tax (Exemptions) did not provide adequate opportunity for the assessee to address these concerns, leading to a mechanical rejection without due consideration.Issue 2: Consideration of Commencement of Activity, Specificity of Objects, Mixed Charitable and Religious Objects, and Business Activities:The Director of Income Tax (Exemptions) rejected the application primarily due to the trust not commencing activities, lack of specificity in objects, presence of mixed charitable and religious objects, and provision for business activities. The rejection was based on the belief that these factors hindered the trust's eligibility for registration under section 12A.Analysis: The Tribunal disagreed with the Director's reasoning, stating that the commencement of activity should not be a prerequisite for registration, especially for a new trust. Legal authorities were cited to support the view that the presence of mixed charitable and religious objects should not automatically disqualify a trust. The Tribunal found the objections regarding specificity of objects and business activities to be unsubstantiated and lacking a proper basis. It was noted that the Director did not provide sufficient opportunity for the assessee to address these concerns, leading to an unjustified rejection. As a result, the Tribunal set aside the Director's Order and remitted the matter for reconsideration, emphasizing the need for a fair hearing and proper consideration of all relevant factors.In conclusion, the Tribunal found the rejection of the registration under section 12A and approval under section 80G to be unjustified and lacking proper basis. The Tribunal emphasized the importance of a fair hearing and thorough consideration of all relevant aspects before making a decision on registration eligibility. The appeal of the assessee was allowed for statistical purposes, and the matter was remitted back for reconsideration in light of the Tribunal's observations.