CIT(E) can’t Question Purpose of Creation of Trust without Disputing its Objects & Activities: ITAT

Case Details: B.M.L. Welfare Trust v. Commissioner of Income-tax (Exemptions) - [2023] 151 taxmann.com 76 (Amritsar-Trib.)

Judiciary and Counsel Details

• • Justice M. Venugopal, Judicial Member & Naresh Salecha, Technical Member
  • Ricab Chand, Adv. for the Appellant.
  • Piyush Singh, Adv. for the Respondent.

Facts of the Case

Assessee-trust filed an application for registration under section 12AA. The Commissioner (Exemption) observed that the assessee had created an arrangement with land owners wherein land was given on lease to the assessee, by a pass-through entity, at an exorbitant amount of rent resulting in the laundering of its income and also diversion of the same in the hands of trustee/members.

Thus, Commissioner (Exemptions) rejected the assessee’s application for registration under section 12AA holding that the assessee was not only established for charity but was misused as an instrument in the hands of trustees/members and involved in non-genuine activities. The matter reached before the Amritsar Tribunal.

ITAT Held

The Tribunal held that the department had not disputed that the assessee-trust was a charitable trust as the Commissioner (Exemptions) never objected to the charitable nature of objectives and genuineness of the trust’s activities while denying the registration under section 12AA.

Merely questioning the purpose of the creation of trust without disputing the charitable nature of objects, genuineness of activities, and the manner of carrying out the activities of the trust in consonance with its objectives renders the impugned order of the Commissioner (Exemptions) perverse to the facts on record.

Further, the only requirement for granting the registration is that the society’s object should be charitable and its activities be genuine. Basic principles for allowing registration by observing that section 12AA undoubtedly requires the Commissioner to satisfy himself about the objects of the trust or institution and the genuineness of its activities and grant a registration only if he is so satisfied.

The said section requires the Commissioner to be so satisfied in order to ensure that the object of the trust and its activities are charitable since the consequence of such registration is that the trust is entitled to claim benefits under sections 11 and 12.

In other words, if it appears that the objects of the trust and its activities are not genuine, that is to say, not charitable, the Commissioner is entitled to refuse and, in fact, bound to refuse such registration. Thus, the Commissioner (Exemptions) was directed to grant registration to the assessee-trust from the date of application

List of Cases Reviewed

• • Ananda Social & Educational Trust v. CIT [2020] 114 taxmann.com 693/272 Taxman 7/426 ITR 340 (SC) (para 6) followed.

List of Cases Referred to

• • Ananda Social & Educational Trust v. CIT [2020] 114 taxmann.com 693/272 Taxman 7/426 ITR 340 (SC) (para 4)
  • Sh. Swami Shankarnath Parvat Charitable and Welfare Trust v. CIT (Exemption) [IT Appeal No. 602 (Asr.) of 2018, dated 21-9-2021] (para 7).