ITAT overturns registration cancellation under section 12AB(4) for trust with deceased settlor and legitimate mutual fund investments

The ITAT Pune allowed the appeal against cancellation of registration u/s 12AB(4). The CIT(Exemption) cancelled registration based on trust deed covenants allowing settlor accommodation and mutual fund investments. The tribunal held that proceedings should be based on actual activities, not deed provisions. Since the settlor died in 1965, the accommodation clause became infructuous. Mutual fund investments were made from corpus donations to meet section 11(5) requirements, not indicating non-genuine activities. The cancellation order was set aside as it failed to establish that trust activities were not genuine or violated trust objects.

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Issues:
Appeal against cancellation of registration under sections 12AA and 12AB of the Income Tax Act, 1961.

Detailed Analysis:

1. The appellant trust filed an appeal against the order of the Commissioner of Income Tax, Exemption, Pune canceling the registration granted under section 12AB of the Act. The grounds of appeal included contentions regarding the charitable nature of the trust's activities, alleged violations of specific provisions, and misinterpretation of facts by the department.

2. The trust, established in 1961 for imparting education, faced initial rejections of registration applications under sections 12A and 12AA. However, after a successful appeal in 2009, registration under section 12AA was granted in 2020. Subsequently, violations were alleged by the CIT(Exemption), leading to a show cause notice for cancellation.

3. The alleged violations included provisions in the trust deed benefiting the settlor, engagement in mutual fund investments, and perceived inadequacy of charitable activities. The appellant contested these violations, citing the settlor's demise, statutory investment requirements, and genuine educational pursuits.

4. The key issue before the Tribunal was whether the cancellation of registration under section 12AA was justified. The Tribunal emphasized that cancellation could only occur if the trust's activities were not genuine or not in line with its objectives. It noted that the CIT's decision was based on trust deed clauses rather than actual activities, and investments in mutual funds did not inherently indicate non-charitable intentions.

5. Referring to a relevant High Court judgment, the Tribunal concluded that the CIT's grounds for cancellation did not meet the statutory conditions necessitating such action. As a result, the impugned order was set aside, and the appeal by the assessee was allowed.

6. The Tribunal's decision highlighted the importance of assessing a trust's actual activities rather than relying solely on the wording of the trust deed. It underscored the need for clear evidence of non-genuine or non-charitable activities to justify cancellation of registration under the Income Tax Act.

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