Thursday, 28 August 2014

Whether registration to a Trust u/s 12AA can be refused merely because it earned some income from housing projects but applied the same towards charitable objectives - NO: HC

THE issue before the Bench is - Whether a trust can be denied registration u/s 12AA when it has earned income from housing projects, but applied them towards charitable objectives. And the verdict goes against the Revenue.
Facts of the case
The assessee applied for the registration u/s 12A. The assessee stated that they are in the process of obtaining permission from various government organisations to have a Heritage Park
constructed. To raise funds for the said project, they have also initiated a residential apartment project for which permission from the concerned authorities has been obtained. After considering all the documentation provided by the assessee, the Director of Income Tax (Exemptions) observed that Clause 10 of the Trust Deed which is neither part of the objects nor incidental to the objects, vests power in the trustees authorizing them to carry on activities for profit. It was observed that through subsequent amendment to the trust deed by delegating extraordinary power to trustees and also making more explicit intention to venture into such activities they have violated the objects clause. It was held that since the assessee was involved in the business of construction and marketing flats registration u/s 12AA cannot be granted.
On appeal, the Tribunal relied on several decisions and held that the true test of determining charitable objective of any trust is not to consider the source from where the income is earned, but to ascertain the application of such income. Since the income earned from housing project was utilized for charitable objects by the assessee, therefore, mere Clause 10 of the Trust Deed could not be a ground for rejection of the registration.
Having heard the parties, the High Court held that,
++ after going through the trust deed, the Commissioner in para No.10 of its order has categorically stated that there is no doubt that the objectives are charitable in nature and are covered under Section 2(15) of the Act. The tribunal also on going through the trust deed has categorically held that the trust is engaged in various charitable activities like feeding poor children in schools etc. and about 5,00,000 children are provided midday meals and food by the trust. They are also running Ayurveda Wellness Center and similar institutions affording treatment, cure, rest, recuperation and other medical relief to the public and therefore, there is no doubt that the trust is charitable in nature and covered by Section 2(15) of the Act and the activities of the trust are genuine. The trust is already engaged in various charitable activities for attainment of various objectives. There is no material on record to show that the income from business as provided in Clause 10 of the original deed dated 17.05.2004 would not be utilised by the trust for the purpose of achieving objectives of the trust. There is a concurrent finding of fact by two authorities, to the effect that the trust is engaged in various charitable activities in terms of the objectives of the trust. It is clear from the material on record that in terms of Clause 10 of the trust deed, when particulars were sought for, the assessee has specifically stated that they would take up Group Housing Scheme to earn profits which would be the source of income for carrying on the charitable activities. In the absence of any material on record, the finding recorded by the Commissioner, that because of such activities, the trust is not genuine and it is a camouflage to suppress its business activities and the said business is not incidental to any of its objectives is contrary to the material on record and cannot be accepted;

No comments:

Switzerland revokes unilateral MFN benefit under India-Switzerland Tax Treaty w.e.f. 1 January 2025

  This Tax Alert summarizes a recent Statement issued by Switzerland Competent Authority [1] (Swiss CA) on 11 December 2024 (2024 Statement...