CIT(E) Can’t Cancel Registration of Trust Just Because Trust Deed Allowed Settlor to Use Premises for Her Lifetime | ITAT

Case Details: Mr. & Mrs. S.M. Batha Education Trust vs. CIT(E) - [2024] 164 taxmann.com 266 (Pune-Trib.)

Judiciary and Counsel Details

• Inturi Rama Rao, Accountant Member & Partha Sarathi Chaudhury, Judicial Member
• Percy Pardiwala, Vishnu Bhutada & Smt. Arati Sathe for the Appellant.
• Ajay Kumar Kesari for the Respondent.

Facts of the Case

The assessee-trust was granted registration under section 12AA. Subsequently, the CIT(E) found that the trust deed provided that the settlor shall be entitled to reside and use a portion of the property for herself, her family, and guests during her lifetime.

Noticing such violations, a show cause notice was issued to assessee. In response, the assessee contended that the settlor’s benefit did not arise as the settlor had passed away in 1965, and there was no violation of provisions of section 13(3) of the Act. Rejecting all the contentions of the assessee, the CIT(E) passed an order to cancel the registration.

Aggrieved by the order, an appeal was filed to the Pune Tribunal.

ITAT Held

The Tribunal held that the solitary issue that arises for consideration is whether or not the CIT(E) was justified in cancelling the registration granted under section 12AA. The provisions of section 12AA(3) empower the CIT(E) to cancel the registration granted under section 12AA only on the existence of one of the two conditions in the said section, i.e.,

1. the activities of the trust are not genuine, and
2. the activities of the trust are not being carried out in accordance with the objects of the trust.

A mere reading of the impugned order revealed that the entire proceedings of the CIT(E) were based on the covenants of the trust deed rather than on the actual activities carried out by the trust. The mere fact that the trust deed contained a covenant that enabled the settlor to utilise the premises for her use or family use cannot empower the CIT(E) to cancel the registration, as it did not lead to any conclusion that either the activities of the trust were not genuine or the activities were not being carried out in accordance with the objects of the trust.

Accordingly, the order was set aside.

List of Cases Reviewed

• CIT v. Institute Management Committee of Industrial Training Institute [2017] 393 ITR 161 (Bom.) (para 9) followed.

List of Cases Referred to

• CIT v. Institute Management Committee of Industrial Training Institute [2017] 393 ITR 161 (Bom.) (para 8).