Objects of a newly formed trust and not its activities to be examined for granting registration under sec. 12A

Where trust had approached authority for registration under section 12A within a span of eight months of its formation, only objects of trust for which it was formed would have to be examined for one to be satisfied about its genuineness and not its activities

HIGH COURT OF KARNATAKA

Director of Income-tax (Exemptions)

v.

Meenakshi Amma Endowment Trust

MRS. MANJULA CHELLUR AND Aravind Kumar, JJ.

IT Appeal No. 152 of 2010

NOVEMBER  10, 2010 

Section 12A of the Income-tax Act, 1961 - Charitable or religious trust - Registration of [Scope of enquiry] - Whether where trust had approached authority for registration under section 12A within a span of eight months of its formation, objects of trust for which it was formed would have to be examined for one to be satisfied about its genuineness and activities of trust could not be criterion since it was yet to be commence its activities - Held, yes [Para 6] [In favour of assessee]

FACTS

■		The assessee-trust filed an application for registration under section 12A.
■		The Director (Exemption) refused to grant registration on the ground that there was no activity which could be termed as charitable as per the details furnished by the assessee.
■		The Tribunal held that depending upon the facts and circumstances, the concerned authority has to look to the objects and also the activities of the trust in order to consider the application for registration under section 12A and, accordingly, directed the DIT (Exemptions) to grant recognition to the trust if other conditions were satisfied.
■		On appeal:

HELD

■		The trust was formed on 23-1-2008, and within a period of nine months they had filed an application under section 12A for issuance of the registration claiming exemption. The fact that the corpus of the trust is nothing but the contribution of Rs. 1,000 by each of the trustees as corpus fund goes to show that the trustees were contributing the funds by themselves in a humble way and were intending to commence charitable activities. It is not even the case of the revenue that by the time the application of the assessee came to be considered by them, the assessee had collected lots of donations for the activities of the trust. When the trust itself was formed in January, 2008, with the money available with the trust, one cannot expect them to do activity of charity immediately and because of that situation the authority cannot come to a conclusion that the trust was not intending to do any activity of charity. In such a situation the objects of the trust have to be taken into consideration by the authority and the objects of the trust could be read from the trust deed itself. [Para 5]
■		A trust could be formed today and within a week registration under section 12A could be sought as there is no prohibition under the Act seeking such registration. The activities of the trust have to be considered if such registration is sought much later than the formation of the trust or after expiry of the earlier registration granted in favour of the trust. Therefore, in a case of this nature where the trust has approached the authority for registration under section 12A within a span of eight months of its formation, the abovementioned criteria, namely, the objects of the trust for which it was formed will have to be examined to be satisfied about its genuineness and the activities of the trust cannot be the criterion, since it is yet to commence its activities. [Para 6]
■		The conclusion arrived at by the Tribunal was just and no substantial question was found that could be gone into in the present appeal. [Para 7]

CASES REFERRED TO

Sanjeevamma Hanumanthe Gowda Charitable Trust v. DIT  (Exemptions) [2006] 285 ITR 327/155 Taxman 466 (Kar.) (para 4).

K.V. Aravind and M.V. Sesachala for the Appellant.

JUDGMENT

Mrs. Manjula Chellur, J. - Heard learned counsel on admission of the appeal.

2. In this case, the admitted facts are that the respondent-assessee trust established a trust by way of trust deed dated January 23, 2008. The assessee sought for registration under section 12A an October 31, 2008. The assessee was called upon to furnish certain details and after seeking certain time ultimately on December 9, 2008, details were furnished. Further details also came to be given on January 8, 2009. On March 16, 2009, a show-cause notice was issued calling upon the assessee to furnish audited accounts as also material indicating the actual activities conducted by the trust.

3. Apparently such details came to be furnished by September 25, 2009, and also on March 30, 2009, wherein the assessee fairly indicated that they had not yet commenced any activities of the trust. Not being satisfied with this reply the Director of IT (Exemptions) refused to grant registration and, consequently, recognition under section 80G was also refused by orders dated April 13, 2009. Aggrieved by the same the assessee approached the Tribunal challenging the order of the Director of IT (Exemptions).

4. The Tribunal taking into consideration the law laid down by the Division Bench of this court in Sanjeevamma Hanumanthe Gowda Charitable Trust v. DIT  (Exemptions) [2006] 285 ITR 327/155 Taxman 466 (Kar.) held that depending upon the facts and circumstances, the concerned authority has to look to the objects and also the activities of the trust in order to consider the application for registration under section 12A of the Act and accordingly allowed the appeal by order dated November 20, 2009, and directed the Director of Income-tax (Exemptions) to grant recognition to the trust if other conditions are satisfied.

5. On a perusal of the records we note that the trust was formed on January 23, 2008, and within a period of nine months they had filed an application under section 12A for issuance of the registration claiming exemption. The fact that the corpus of the trust is nothing but the contribution of Rs. 1,000 by each of the trustees as corpus fund goes to show that the trustees were contributing the funds by themselves in a humble way and were intending to commence charitable activities. It is not even the case of the Revenue that by the time the application of the assessee came to be considered by them, the assessee had collected lots of donations for the activities of the trust. On the other hand, the grievance of the concerned authorities seems to be that there was no activity which could be termed as charitable as per the details furnished by the assessee, therefore, such registration could not be granted. When the trust itself was formed in January, 2008, with the money available with the trust, one cannot expect them to do activity of charity immediately and because of that situation the authority cannot come to a conclusion that the trust was not intending to do any activity of charity. In such a situation the objects of the trust have to be taken into consideration by the authority and the objects of the trust could be read from the trust deed itself. In the subsequent returns filed by the trust, if the Revenue comes across that factually the trust has not conducted any charitable activities, it is always open to the authorities concerned to withdraw the registration already granted or cancel the said registration under section 12AA(3) of the Act.

6. A trust could be formed today and within a week registration under section 12A could be sought as there is no prohibition under the Act seeking such registration. The activities of the trust have to be considered if such registration is sought much later than the formation of the trust or after expiry of the earlier registration granted in favour of the trust. Therefore, in a case of this nature where the trust has approached the authority for registration under section 12A within a span of eight months of its formation, the abovementioned criteria, namely, the objects of the trust for which it was formed will have to be examined to be satisfied about its genuineness and the activities of the trust cannot be the criterion, since it is yet to commence its activities.

7. The conclusion arrived at by the Tribunal is just and we do not find any substantial question that could be gone into in the present appeal. Therefore, the appeal is dismissed at the admission stage itself.

Refer:[2013] 40 taxmann.com 30 (Karnataka)