2023 (3) TMI 429 - AT - Income Tax

Tribunal Orders Grant of Section 12AA Registration to Trust, Overturning Commissioner's Assumptive Rejection.

B.M.L. Welfare Trust Versus Commissioner of Income Tax (Exemptions), Chandigarh

B.M.L. Welfare Trust Versus Commissioner of Income Tax (Exemptions), Chandigarh - [2024] 109 ITR (Trib) 678 (ITAT [Amrit]) Issues Involved:1. Rejection of application for registration under Section 12AA.2. Examination of the charitable nature and genuineness of the trust's activities.3. Allegations of income laundering and fund diversion by the trust.4. Consideration of documentary evidence and legal principles.5. Application of Supreme Court and High Court judgments.Issue-wise Detailed Analysis:1. Rejection of Application for Registration under Section 12AA:The appellant trust challenged the rejection of their application for registration under Section 12AA by the Commissioner of Income Tax (Exemptions), Chandigarh. The Commissioner rejected the application based on assumptions and apprehensions without appreciating the factual, legal, and statutory position for granting registration. The appellant argued that the Commissioner failed to appreciate that their activities included establishing and maintaining educational institutions, which fall under the definition of charitable purposes as per Section 2(15) of the Income Tax Act, 1961.2. Examination of the Charitable Nature and Genuineness of the Trust's Activities:The Commissioner did not dispute the charitable nature of the trust's objectives but raised concerns about an arrangement where the trust paid exorbitant rent for land leased from a partnership firm controlled by the trustees. This arrangement was perceived as diverting funds from the trust to the trustees, questioning the genuineness of the trust's activities. The appellant argued that the Commissioner should only examine the objects of the trust and not delve into other aspects, which are to be assessed by the Assessing Officer during the assessment proceedings on a year-to-year basis.3. Allegations of Income Laundering and Fund Diversion:The Commissioner alleged that the trust created an arrangement to launder income and divert funds to the trustees, indicating that the trust was not established for charitable purposes. The appellant countered this by stating that the Commissioner exceeded the mandate of law by making assumptions without considering the documentary evidence and legal principles. They emphasized that the objects of the trust were genuinely charitable and aligned with the provisions of Section 2(15) of the Income Tax Act, 1961.4. Consideration of Documentary Evidence and Legal Principles:The appellant provided documentary evidence to support their claim that the trust's activities were genuine and charitable. They cited the Supreme Court judgment in the case of M/s Anand Social and Educational Trust v/s CIT, which laid down the principles for allowing registration under Section 12AA. The appellant also referred to the grim situation due to the COVID-19 pandemic, which affected their ability to provide additional information promptly.5. Application of Supreme Court and High Court Judgments:The Tribunal considered the Supreme Court judgment in M/s Anand Social and Educational Trust v/s CIT, which emphasized that the Commissioner should satisfy himself about the objects and genuineness of the trust's activities while granting registration under Section 12AA. The Tribunal also referred to the jurisdictional High Court's judgment in CIT vs. Surya Education Charitable Trust, which highlighted that the Commissioner should not assume the role of the Assessing Officer while granting registration. The Tribunal found that the Commissioner's findings were contrary to the record and directed the Commissioner to grant registration to the appellant trust from the date of application.Conclusion:The Tribunal concluded that the appellant trust's grievance was genuine and directed the Commissioner of Income Tax (Exemptions) to grant registration under Section 12AA from the date of application. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 20.02.2023.