Trust's Registration Rejection Upheld Under Income Tax Act - Appeals Dismissed

The tribunal upheld the rejection of the application for registration under section 12A of the Income Tax Act, 1961, and the approval under section 80G. The rejection was based on the trust's close association with a company, its lack of significant charitable activities, and the restrictive composition of the trust. The tribunal found no fault in the CIT(E)'s decision and dismissed the appeals, advising the assessee to reapply without the identified deficiencies.

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Issues Involved:
1. Rejection of application for registration under section 12A of the Income Tax Act, 1961.
2. Rejection of approval under section 80G of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Rejection of Application for Registration under Section 12A
The assessee filed an appeal against the order dated 28.09.2016 by the CIT (Exemption), Chandigarh, rejecting the application for registration under section 12A of the Income Tax Act, 1961. The CIT(E) observed that the trust seemed to be formed primarily to comply with Corporate Social Responsibility (CSR) requirements of Ludhiana Beverage Pvt. Ltd., which is closely linked to the trust. The major contributions to the trust were from Ludhiana Beverage Pvt. Ltd., and its Managing Director and close relatives were trustees, indicating a restrictive composition not amenable to public charity.

The CIT(E) noted that the trust had not undertaken any significant activities in sync with its stated charitable objects and had primarily transferred funds to other societies. The CIT(E) concluded that the trust appeared to be an instrument to carry out CSR functions of the settlor company, which does not ensure the benefit of the general public nor partakes the meaning of a public trust. Consequently, the application for registration under section 12A was rejected.

The assessee argued that the CIT(E) exceeded the scope of enquiry prescribed under section 12AA and did not provide a proper opportunity of being heard. The assessee maintained that the trust's activities were genuine and charitable, and the rejection was based on presumptions and surmises.

However, the tribunal upheld the CIT(E)'s decision, agreeing that the CIT(E) is empowered to examine the objects and genuineness of the trust's activities and that the restrictive clauses in the trust deed and the close association with Ludhiana Beverage Pvt. Ltd. justified the rejection. The tribunal found no infirmity, perversity, or illegality in the CIT(E)'s order and dismissed the appeal.

Issue 2: Rejection of Approval under Section 80G
The assessee also appealed against the rejection of approval under section 80G, which was contingent on the registration under section 12AA. Since the tribunal upheld the CIT(E)'s decision to reject the registration under section 12AA, the appeal for approval under section 80G was also dismissed.

Conclusion:
Both appeals filed by the assessee were dismissed. The tribunal found that the CIT(E) had rightly examined the genuineness of the trust's activities and the restrictive clauses in the trust deed, justifying the rejection of registration under section 12A. Consequently, the approval under section 80G was also rightly denied. The assessee was advised to apply afresh after removing the restrictive clauses and addressing the defects observed by the CIT(E).

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