2024 (7) TMI 133 - AT - Income Tax

Trust registration cancellation reversed after violations deemed administrative matters not requiring departmental approval under section 12AB

Myadam Kishan Rao Charitable Trust, Hyderabad Versus Commissioner of Income Tax (Exemptions), Hyderabad

Myadam Kishan Rao Charitable Trust, Hyderabad Versus Commissioner of Income Tax (Exemptions), Hyderabad - TMI Issues Involved:1. Delay in filing the appeal.2. Cancellation of registration under section 12AB(4) of the Income Tax Act, 1961.3. Non-intimation of change of Trustees to the Department.4. Unexplained security deposit received.5. Activity of construction and sale of flats and underreporting of sale consideration.6. Non-intimation of transfer of property and acquisition of property.7. Application of income for purposes other than charitable purposes.8. Violation of principles of natural justice.Detailed Analysis:Delay in Filing the Appeal:The appeal was time-barred by four days. After hearing both sides, the delay in filing the appeal was condoned, and the matter was heard on merits.Cancellation of Registration under Section 12AB(4):The appellant's charitable trust, registered under section 12A of the Income Tax Act, 1961, had its registration canceled by the Commissioner of Income Tax (Exemptions) [CIT(E)], Hyderabad, under section 12AB(4). The CIT(E) issued a show cause notice citing five violations and subsequently canceled the registration.Non-Intimation of Change of Trustees:The CIT(E) noted that the trust failed to intimate changes in the constitution of the trust, such as the appointment of new trustees following the demise of existing trustees. The tribunal found that the trust deed allowed for such changes without needing to inform the department, as these were administrative matters and not repugnant to sections 11, 12, and 13 of the Act.Unexplained Security Deposit Received:The CIT(E) pointed out an addition of Rs. 1 crore under section 68 for the AY 2017-18, which was claimed to be a security deposit for a Joint Development Agreement. The tribunal held that the addition was under dispute before appellate authorities and had not reached finality. Therefore, it could not be considered a specified violation under section 12AB(4).Activity of Construction and Sale of Flats:The CIT(E) alleged that the trust engaged in trade and commerce by entering into a Joint Development Agreement and selling flats, which was contrary to its charitable objects. The tribunal found that the trust had court permission to enter into the agreement and that the activity was incidental to its main object of constructing a hospital. The tribunal did not find this to be a violation under section 12AB(4).Non-Intimation of Transfer of Property and Acquisition of Property:The CIT(E) argued that the trust did not inform the department about the transfer of property via a Joint Development Agreement and subsequent acquisition of property by will. The tribunal held that the trust had court permission for these transactions and that such administrative decisions did not need to be reported to the department.Application of Income for Purposes Other Than Charitable Purposes:The CIT(E) contended that the trust applied its income for constructing a Gosala, which was not in line with its charitable objects. The tribunal found that the construction of the Gosala fell under the advancement of any other object of general public utility and was thus in accordance with the trust's objects.Violation of Principles of Natural Justice:The tribunal noted that the CIT(E) did not provide adequate reasons to prove that the trust had committed specified violations under section 12AB(4). The tribunal emphasized that unless the CIT(E) could prove one or more specified violations, the registration could not be canceled.Conclusion:The tribunal concluded that none of the reasons provided by the CIT(E) for canceling the trust's registration fell under the specified violations referred to in section 12AB(4). Therefore, the order of the CIT(E) canceling the registration was set aside, and the registration granted under section 12A(1)(ac) for the AYs 2022-23 to 2026-27 was restored. The appeal of the assessee was allowed.