Trust registration cannot be rejected based on actual activities when objects are charitable under section 12AA

ITAT Raipur allowed the appeal challenging rejection of registration under section 12AA. CIT(E) had rejected the application stating the trust was not engaged in charitable activities but in advancement of general public utility exceeding the 20% limit, treating Dharmashala operations as trade/commerce. ITAT held that following SC decision in Ananda case, trust objects rather than actual activities should be examined for registration purposes. Since the trust was formed with charitable objects eligible for approval and department had previously granted registration, the rejection was erroneous application of law. Registration was directed to be granted.

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Issues:
The issues in this case involve the rejection of the application for registration of the Appellant under section 12AA of the Income Tax Act, 1961, and the contention regarding the nature of activities conducted by the assessee trust.

Issue 1: Registration under Section 12AA:
The appeal was filed against the CIT(E)'s rejection of the application for registration of the Appellant trust under Section 12AA of the Income Tax Act, 1961. The CIT(E) contended that the trust was not engaged in charitable activities within the allowed limit of 20%. The Assessee argued that the trust was formed for charitable purposes without any profit motive. The rejection was based on the perception that the trust's activities were in the nature of trade, commerce, or business, which the Assessee disputed. The Assessee relied on the judgment in the case of Ananda Social & Educational Trust v. CIT to support their argument that the focus should be on the objects of the trust rather than its activities.

Issue 2: Nature of Activities:
The second issue revolved around the nature of activities conducted by the trust. The Assessee primarily generated income from interest on FDR, with a significant portion of the surplus coming from this source. The CIT(E) raised concerns about the lack of a dissolution clause in the trust deed, which the Assessee addressed by submitting an undertaking. The Assessee argued that running a Dharmashala charging nominal fees should not be considered a commercial activity. Additionally, the Assessee highlighted a subsequent successful application for registration under Section 12AA in 2020, which contradicted the earlier rejection, indicating an inconsistency in the department's stance.

Judgment:
The Tribunal, considering the principles outlined in the Ananda case, held that the rejection of the registration application by the CIT(E) was erroneous. The Tribunal emphasized that the focus should be on the charitable objects of the trust rather than its specific activities when granting registration under Section 12AA. Given that the trust was formed with charitable objectives and was subsequently granted registration under Section 12AA in a later application, the Tribunal quashed the earlier rejection and directed the grant of registration to the Assessee.

This judgment highlights the importance of aligning registration decisions with the charitable objectives of trusts, emphasizing that activities should not be the sole determining factor.

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