2017 (9) TMI 721 - AT - Income Tax

Tax tribunal overrules Commissioner, reinstates trust's registration, citing genuine activities and alignment with objectives

Krishna Charity Trust, Akling Charity Trust, Lakshmi Trust, Kishore Kanti Khandelwal Charity Trust, Harsh Vardhan Charity Trust, Udaipur Charity Trust, Ashoke Kumar Memorial Trust, Nawal Kishore Kejriwal Charity Trust, National Agricultural & Scientific Research Foundation, Alwar Charity Trust Versus Commission of Income Tax (Exemptions)

Krishna Charity Trust, Akling Charity Trust, Lakshmi Trust, Kishore Kanti Khandelwal Charity Trust, Harsh Vardhan Charity Trust, Udaipur Charity Trust, ... Issues Involved:1. Cancellation of registration under Section 12A with retrospective effect.2. Allegations of non-genuine charitable activities and non-compliance with trust objectives.3. The legality of retrospective cancellation of registration.4. Evaluation of the trust's activities and their alignment with the objectives.5. The impact of corpus donations on the application of income.6. Jurisdiction and authority of the Commissioner of Income Tax (Exemptions) in cancelling the registration.Detailed Analysis:1. Cancellation of Registration Under Section 12A with Retrospective Effect:The primary issue raised by the assessee was the cancellation of its registration under Section 12A of the Income Tax Act, 1961, with retrospective effect from April 1, 2005. The Commissioner of Income Tax (Exemptions) [CIT(Ex)] had cancelled the registration based on findings that the trust was not engaged in genuine charitable activities and was rotating donations among group trusts to claim tax exemptions.2. Allegations of Non-Genuine Charitable Activities and Non-Compliance with Trust Objectives:The CIT(Ex) held that the assessee trust was not performing genuine charitable activities, was not complying with its stated objectives, and was involved in rotating donations among group trusts. These findings were based on a survey operation and subsequent assessment proceedings, which revealed that the trust's income was mainly derived from investments and was being applied through donations to other group trusts.3. The Legality of Retrospective Cancellation of Registration:The assessee argued that the CIT(Ex) did not have the authority to cancel the registration with retrospective effect from April 1, 2005, as the power to cancel registrations under Section 12A was only granted with effect from June 1, 2010, as per Circular No. 1/2011. The tribunal agreed with this contention, citing that the CIT(Ex) had exceeded his jurisdiction by cancelling the registration from an earlier date.4. Evaluation of the Trust's Activities and Their Alignment with the Objectives:The tribunal examined whether the trust's activities were aligned with its objectives and whether they were genuine. It was noted that the trust had been making corpus donations to other trusts, which was not prohibited under the Act prior to the amendment effective from April 1, 2018. The tribunal found no evidence to suggest that the trust's activities were not in accordance with its objectives or that the donations were not genuine.5. The Impact of Corpus Donations on the Application of Income:The tribunal observed that corpus donations made out of current year’s income were considered an application of income under the law prior to April 1, 2018. The amendment introduced by the Finance Bill, 2017, which stated that corpus donations would not be treated as an application of income, was not applicable to the assessment years in question. Therefore, the trust's practice of making corpus donations was in compliance with the law at the time.6. Jurisdiction and Authority of the Commissioner of Income Tax (Exemptions) in Cancelling the Registration:The tribunal emphasized that the CIT(Ex) had the authority to cancel the registration only from the assessment year 2011-12 onwards. The retrospective cancellation from April 1, 2005, was beyond the CIT(Ex)'s jurisdiction. Additionally, the tribunal highlighted that the CIT(Ex) failed to provide concrete evidence that the trust's activities were not genuine or that the donations were being misused.Conclusion:The tribunal concluded that the CIT(Ex) had exceeded his jurisdiction by cancelling the registration with retrospective effect and that there was no substantial evidence to prove that the trust's activities were not genuine or in alignment with its objectives. The appeals by the assessee were allowed, and the order of the CIT(Ex) was reversed. The tribunal also noted that the trust's activities had been accepted by the Revenue in subsequent years, further supporting the assessee's case.