2014 (4) TMI 700 - AT - Income Tax

Tribunal directs reevaluation of trust for registration under section 12A, emphasizes fair hearing and comprehensive assessment.

The Tribunal set aside the DIT(E)'s order rejecting the application for registration under section 12A, directing a reevaluation of the trust's objectives ... Rejection for registration u/s 12A of the Act – Genuineness of the activities - Held that:- Nowhere the DIT(E) has either discussed the objects of the trust and the purpose for which the trust or the institution has been established - Simply noting the fact that the trust has received loan from the trustees that itself does not lead to any inference that the activities of the trust itself is not genuine - Provisions of section 12AA are amply clear which provides that the Commissioner of Director of Income can call such information to satisfy about the genuineness of the objects and also about the genuineness of the activities of the trust and then only he can either grant or refuse the registration - The law mandates that he has to examine the objects and also the genuineness of the activities – thus, the matter is required to be remitted back to the DIT(E) for fresh examination of the issue of registration u/s 12A of the Act –Decided in favour of Assessee. Issues:Challenge to rejection of application for registration under section 12A based on loan received and creditworthiness of lenders.Analysis:The appeal was filed challenging the order rejecting the application for registration under section 12A due to concerns regarding the loan received and the creditworthiness of the lenders. The assessee, established in June 2010 for charitable purposes, applied for registration under section 12A. The application included details of liabilities and loans received, triggering scrutiny by the Director of Income Tax (Exemption) [DIT(E)]. The DIT(E) raised issues regarding a trustee's liabilities, loans from various individuals, and their creditworthiness, leading to the rejection of registration.The counsel for the assessee argued that the DIT(E) failed to assess the trust's objectives and genuineness, emphasizing that such assessments should occur during assessment proceedings, not registration. The Departmental Representative supported the DIT(E)'s decision, asserting the authority to scrutinize the loan's genuineness. The Tribunal noted the absence of discussion on the trust's objectives and establishment purpose in the DIT(E)'s order. Mere receipt of loans does not invalidate a trust's activities, as trusts can receive loans for their objectives, like constructing buildings. Section 12AA mandates assessing the trust's objectives and activities' genuineness before granting or denying registration.Consequently, the Tribunal set aside the DIT(E)'s order, directing a reevaluation of the registration application. The DIT(E) was instructed to review the trust's objectives, activity genuineness, and provide the assessee with a fair hearing before issuing a new order in compliance with the law. The appeal was allowed for statistical purposes, emphasizing the importance of a comprehensive evaluation of trust activities and objectives for registration under section 12A.