2017 (2) TMI 697 - AT - Income Tax

Trust's Charitable Status Upheld Under Section 12AA

M/s Ashutosh Charitable Trust of Educational & Medical Sciences Versus The CIT (Exemptions), Chandigarh

M/s Ashutosh Charitable Trust of Educational & Medical Sciences Versus The CIT (Exemptions), Chandigarh - TMI Issues Involved:1. Whether the CIT(E) erred in refusing registration under Section 12AA of the Income Tax Act to the appellant trust.2. Whether the trust's activities and financial transactions were genuine and in line with its charitable objectives.Issue-wise Detailed Analysis:1. Refusal of Registration under Section 12AA:The appellant trust challenged the order dated 31.05.2016 by the CIT(Exemptions) Chandigarh, which refused to grant registration under Section 12AA of the Income Tax Act. The CIT(E) based the refusal on several grounds, including the non-reflection of a Rs. 11 lakh declaration in the bank accounts, the trust's predominant focus on purchasing land, and the lack of returns filed for the period ending 31.03.2016. The CIT(E) also noted that the trust had taken overdraft (OD) limits by pledging FDRs of another trust, and there were discrepancies in the corpus fund donations, including missing PAN numbers and addresses of donors.2. Examination of Trust's Activities and Financial Transactions:The CIT(E) scrutinized the trust's activities and financial transactions, noting that the trust's primary aim was to start educational institutions and a hospital. The CIT(E) observed that the trust's activities, such as purchasing large tracts of land, did not align with its charitable objectives. The balance sheet showed substantial corpus funds, but the CIT(E) questioned the genuineness of these funds due to missing confirmations and PAN numbers.Appellant's Arguments:The appellant argued that the trust deed clearly showed the settler's donation of Rs. 11 lakh, which was reflected in the bank account. The appellant emphasized that the trust's main objectives were charitable, including running educational institutions and hospitals. The purchase of land was seen as a necessary step to achieve these objectives. The appellant also highlighted that the CIT(E) should only examine the trust's aims and objects at the registration stage, not its activities, which were still in the nascent stage.Judicial Precedents Cited:The appellant cited several judicial precedents to support their case. The Punjab & Haryana High Court in CIT Vs B.K.K. Memorial Trust held that the trust's activities need not be fully operational at the registration stage. The court emphasized that the CIT should only examine the genuineness of the trust's objects, not its income application. Similar views were echoed in CIT Vs Surya Educational & Charitable Trust and Hardayal Charitable & Educational Trust Vs CIT, where it was held that the registration under Section 12AA should not be refused based on the trust's initial activities.Tribunal's Findings:The Tribunal found that the trust's aims and objectives were charitable in nature, focusing on running educational institutions and hospitals. The Tribunal noted that the CIT(E) incorrectly stated that the Rs. 11 lakh was not reflected in the bank account. The Tribunal also observed that purchasing land was a legitimate step towards achieving the trust's objectives. The Tribunal emphasized that at the registration stage, the CIT(E) should only examine the genuineness of the trust's objects, not its activities or financial transactions.Conclusion:The Tribunal concluded that the appellant trust was entitled to registration under Section 12AA of the Income Tax Act. The Tribunal set aside the CIT(E)'s order and directed the CIT(E) to grant registration to the appellant trust within one month from the date of the order. The appeal of the assessee was allowed.Order Pronounced:The order was pronounced in the Open Court, allowing the appeal of the assessee.