Registration 12AA cannot be denied on the ground of dissolution clause not providing transfer of income and assets to another similar institution registered u/s 12AA
ABCAUS Case Law Citation:
ABCAUS 2056 (2017) (08) ITAT
Brief Facts of the Case:
The Assessee was an university which had come into existence by way of law enacted by State Assembly vide related University Act and the Act was published in The State Gazette. The Assessee university filed an application in Form 10A for registration u/s 12A of the Act and for its approval u/s 80G of the Income Tax Act, 1961 (Act).
The CIT(Exemptions) refused the grant of exemption on the ground that the dissolution clause of the university was not proper for the reason that in such event, the State Government had full discretion to decide how and to whom the accumulation of income/funds are to be distributed.
He held that registration u/s 12AA of the Act could not be granted with such dissolution clause. He further relied on the newly inserted section 115TD(1)(c) of the Act and held that dissolution clause in the assessee’s constitution was in contradiction to this section. He also relied on the decision of Jammu & Kashmir High Court for the proposition that “even on dissolution or winding up by not having any restriction on application of asset for charitable purpose, the objects of the assessee cannot be said to be charitable in nature”.
Contention of the appellant assessee:
It was submitted that the objects of the assessee university were charitable in nature and this fact was not disputed by the CIT(Exemptions). It was submitted that the requirements of registration under section 12AA of a charitable institution does not refer to a dissolution provision.
It was pointed out that the procedure required for registration is that the Principal Commissioner or Commissioner called for documents and information to examine the charitable nature of the objects and the genuineness of the activities of the trust or institution and after being satisfied about the objects of the trust or institution and genuineness of the activities pass orders in writing registering the trust or institution or otherwise. It was contended that the very ground on which the registration had been rejected in this case was wrong in law.
It was further submitted that consequent to the introduction of section 115TD(1)(a) of the Act, the interest of the revenue is protected as it is a charging provision which will be attracted when a trust or a society is converted to non charitable organisation or gets merged with a non charitable organisation or on transfer of assets of a charitable organisation on its dissolution to a non charitable organisation.
Observations made by the Tribunal:
The ITAT observed that the scope of this section had been examined by various court and it was held as follows:
Allahabad High Court
“2. A reading of the section shows that the registration under section 12A is a precondition for availing the benefit under sections 11 and 12 of the Act. Section 11 provides for exemption of income which is applied for charitable purposes. Section 12 is in the nature of an Explanation to section 11. Before a person can claim the benefits of section 11 or section 12, as the case may be, he must obtain registration under section 12A. The application for registration under section 12A has to be made in Form No. 10A prescribed by rule 17 A before expiry of one year from the date of the creation of the trust or the establishment of the institution, whichever is later. It has to be made by the person in receipt of the income of the trust.
3. It is evident that at this stage, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of section 12A read with rule 17 A and whether Form 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not At this stage, it is not proper to examine the application of income
Punjab & Haryana High Court
” Therefore, the provisions of Sections 11, 12 or Section 10(23C) of the Act, deal with the income of a Trust or of the Institution and the circumstances as to when such income is to be excluded for computing the total income, but the basis of such benefit is the registration under Section 12AA of the Act. Unless a Trust or Institution is registered under Section 12AA of the Act, such Trust or Institution shall not be entitled to exclude from its total income, deductions or contributions or from other sources. Therefore, the principles laid down for excluding the income from consideration under Section 10(22) now 10(23)(C) or Sections 11 and 12 are not applicable while considering the application for registration under Section 12AA of the Act. The application for registration is required to be made within one year of the creation of the Trust. Section 12AA of the Act, requires satisfaction in respect of the genuineness of the activities of the Trust, which includes the activities which the Trust is undertaking at present and also which it may contemplate to undertake. The insertion of sub-section (3) to Section 12AA of the Act, clarifies the said fact, when it empowers the Commissioner to cancel the registration if the activities of the Trust are not carried out in accordance with such objects.
11. Therefore, the object of Section 12AA of the Act, is to examine the genuineness of the objects of the Trust, but not the income of the Trust for charitable or religious purposes. The stage for application of income is yet to arrive i.e. when such Trust or Institution files its return. Therefore, we find that the judgments referred to by the learned counsel for the appellant are not applicable to the facts of the present case arising out of the question of registration of the Trust and not of assessment.”
Karnataka High Court
“The registration of institution relates to the objects so that the activities be charitable, which should be considered as genuine trust. If the activities of the institution are taxable for any reason the matter to be considered at the time of assessment. The source of income cannot be questioned at the time of granting the registration under Section 12AA of the Act”
The Tribunal noted that the propositions of law laid down in the above case laws demonstrated that the CIT(Exemptions) could refuse the registration of a trust of institution u/s 12AA of the Act only when he should be satisfied that the objects of the trust or institution are not charitable in nature or he finds that the activities of the trust of institution are not genuine.
The ITAT opined that registration cannot be denied on the ground that there is no clause prescribing that as dissolution of the institution, the income and assets of the assessee shall be transferred to another similar institution which is registered under section 12AA of the Act.
The ITAT also examined the decisions of various Tribunals as relied by the assessee as under:
ITAT Mumbai
“ 4. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the application filed by the assessee U/S 12A of the Act has been rejected by the Id. DIT (Exemptions) mainly on the ground that the relevant Trust Deed does not contain the so-called “dissolution clause”. As per the provisions of section 11 & 12 of the Act, income derived from property held for charitable or religious purposes and income of Trusts or Institutions from contributions are exempt from tax provided such Trusts or Institutions are registered U/S 12A of the Act. The procedure for registration u/s 12A is prescribed in section 12AA of the Act which provides that the Commissioner, on the receipt of an application for registration of a Trust or Institution made U/S 12A, shall call for such information from the Trust/Institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the Trust/Institution and may also make such inquiries as deemed necessary on this behalf. It further provides that after satisfying himself about the objects of the Trust/Institution and the genuineness of its activities, the Commissioner shall pass an order in writing registering the Trust/Institution U/S 12A and if he is not so satisfied, he shall pass an order in writing refusing to register the Trust/Institution. The scope of enquiry contemplated U/S 12AA of the Act thus is limited to the extent of Commissioner getting himself satisfied about object of the Trust and the genuineness of its activities so as to grant or refuse the registration U/S 12A of the Act. A perusal of the impugned order of the Id. DIT (Exemptions), however, shows that he has not recorded any adverse comment or dis-satisfaction about the object of the 4 ITA 1247/M/13 Trust or genuineness of the Trust activities. He has refused to grant the registration U/S 12A of the Act on the ground that its Trust Deed does not contain “dissolution clause”. In our opinion, the Id. DIT (Exemptions) thus has clearly gone beyond the scope of enquiry contemplated U/S 12A of the Act and has refused to grant the registration u/s 12A of the Act to the assessee Trust on a totally irrelevant ground without pointing out as to how he was not satisfied either about the object of the Trust or the genuineness of its” activities. We therefore set aside the impugned order of the Id. DIT (Exemptions) and direct that the registration U/S 12A of the Act as applied by the assessee Trust be granted.”
ITAT Kolkata
“Regarding the dissolution clause noting is brought on record even before us that the Bombay Public Trusts Act, 1950 mandates for incorporation of mandatory clause of dissolution of any irrevocable trust. Therefore, in our opinion, the decision of the DIT(E) rejecting the registration u/s 12A is required to be reversed. Accordingly, grounds raised by the assessee are allowed.”
The ITAT also concurred with the arguments of the assessee that section 115TD(1)(a) of the Act protects the interest of the revenue and the findings of the ld. CIT(Exemptions) on this issue was not correct.
Held:
The ITAT held that the order of CIT(Exemptions) was an error in rejecting the application of the assessee for registration u/s 12AA of the Act. Accordingly CIT(E) was directed to grant registration to the assessee u/s 12AA and approval u/s 80G of the Act.
Download Full Judgment
