Absence of dissolution clause-Registration 12AA can not be denied to a charitable Trust for no specific clause in the Trust deed

Absence of dissolution clause-Registration 12AA can not be denied to a charitable Trust for no specific clause in the Trust deed prohibiting trustee on asset distribution among themselves

ABCAUS Case Law Citation:
ABCAUS 1133 (2017) (02) ITAT

Date/Month of Pronouncement: February, 2017

Important Case Laws Cited/relied upon:
Rama Rashmi Chhaganlal Waghwala Charitable Trust
Geeta Lalwani Foundation

The Grievance:
The assessee trust was aggrieved by the rejection of its application for registration u/s 12AA.

Brief Facts of the Case:
The appellant trust applied for registration u/s 12AA of the Income Tax Act, 1961 (“the Act”). Director of Income Tax-Exemption (DIT-E) directed the assessee to furnish certain detail/documents including the note on activities undertaken by it.

After considering the submission of the assessee, the DIT-E held that in order to be eligible for registration the assessee had to be validly constituted public charitable trust whereas that perusal of trust deed revealed that there was no dissolution-clause to the effect that trust was irrevocable. That in the absence of dissolution clause was against the provisions of Bombay Public Trust Act,1950.

The DIT-E was of the view that the clause 13(f) of the Trust Deed declaring the applicant trust to be irrevocable for all times was always qua the settler and the said clause could not be treated a substitute for provision imposing an embargo on the trustee on distribution of trust property among themselves in case of dissolution/ winding up of the Trust.

DIT-E opined that in the trust-deed there had to be a specific mention about the dissolution of the property on winding up of the trust. He made a reference to the provision of Bombay Public Trust Act and held that a trust was a perpetual entity. Accordingly, if the trustees were unable to carry out the objects of the trust it had to be dissolved or wound up, then on its winding up its corpus and property had to be transferred to another trust having similar objects with sanction of the charity commissioner, but no such clause was found to be in the trust deed. Thus the applicant assessee could not be said to having constituted as a valid public charitable trust. Therefore, DIT-E rejected the application filed by the assessee for registration u/s 12AA of the Act.

Observations made by the Tribunal:
The Tribunal observed that on an identical issue dealt by the Tribunal, it was held that that absesnce of dissolution deed could not be the basis for refusing registration to a trust.

Held:
Appeal of the assessee was allowed and DIT-E was directed to grant registration to the assessee.