2008 (11) TMI 286 - AT - Income Tax

Tribunal grants appeal, affirms trust creation authority, directs registration under Section 12AA

The Guru Harkishan Medical Trust (Tghmt). Versus Director Of Income-Tax (Exemptions).

The Tribunal allowed the appeal, holding that the Committee had the authority to create the trust and that the trust's activities were genuine. The ... Charitable Trust Issues Involved:1. Validity of the creation of the trust by the Committee.2. Genuineness of the charitable activities carried out by the trust.Issue-wise Detailed Analysis:1. Validity of the Creation of the Trust by the Committee:The primary issue was whether the Delhi Sikh Gurudwara Management Committee (hereinafter referred to as the Committee) had the authority to create a trust. The Director of IT (Exemptions) argued that the Committee lacked such authority under the Delhi Sikh Gurudwara Act, 1971. The Act's Section 24 outlines the powers and functions of the Committee, none of which explicitly authorize the creation of a trust. The Director also referred to the Committee's Regulations, which similarly did not provide for the creation of a trust.The assessee argued that under Section 7 of the Indian Trust Act, any person competent to contract could create a trust, and the Committee, being a statutory body, was competent to do so. They also cited Section 11 of the Indian Contract Act, 1971, which defines who is competent to contract, and concluded that the Committee met these criteria. The assessee further argued that the Committee's power to do 'all such things' incidental and conducive to the efficient management of its affairs (Section 24(iv)) included the creation of a trust.The Tribunal agreed with the assessee, holding that the Committee's broad powers under Section 24(iv) were sufficient to authorize the creation of a trust. The Tribunal noted that the trust was created to facilitate better administration and implementation of the Committee's charitable objectives, such as running a hospital. The Tribunal found that the Committee's actions were consistent with its statutory mandate and that the creation of the trust was valid.2. Genuineness of the Charitable Activities:The second issue was whether the trust had carried out any genuine charitable activities. The Director of IT (Exemptions) observed that the trust had entered into a collaboration agreement with Manipal Health Systems (P) Ltd. (MHS) to run the hospital, but found no evidence of any charitable activities being carried out by the trust itself. The Director concluded that the trust was merely earning rental income from the hospital property, which did not qualify as a charitable activity.The assessee contended that the trust was in its preoperative stage and was working towards making the hospital operational. They argued that the collaboration agreement with MHS included provisions for providing free and concessional treatment to 25% of patients, which was a charitable activity. The assessee also cited the decision of the Hon'ble Madras High Court in CIT vs. Sri Rao Bahadur ADK Dharmaraja Educational Charity Trust, where rental income used to fulfill the trust's objectives was deemed charitable.The Tribunal found that the trust's activities were consistent with its charitable objectives, even though it was in the preoperative stage. The Tribunal noted that the agreement with MHS ensured that a portion of the hospital's services would be provided free or at a concessional rate, which constituted a charitable activity. The Tribunal also referred to Section 12AA(3) of the IT Act, which allows for the cancellation of registration if a trust's activities are later found to be non-genuine. The Tribunal concluded that the trust's activities were genuine and directed the Director of IT (Exemptions) to grant registration to the assessee under Section 12AA of the IT Act.Conclusion:The Tribunal allowed the appeal, holding that the Committee was authorized to create the trust and that the trust's activities were genuine. The Director of IT (Exemptions) was directed to grant registration to the trust under Section 12AA of the IT Act.