Investments In Mutual Funds Not A Basis To Conclude Activities Of Trust Are Not Genuine: Pune ITAT Restores Registration U/S 12A
On finding that entire proceeding was based on the covenants of the trust deed but not on the actual activities carried out by the appellant trust, the Pune ITAT set aside the order passed by CIT(E) cancelling the registration granted u/s 12AB(4) of the Income Tax Act, 1961.The Bench comprising Partha Sarathi Chaudhury (Judicial Member) and Inturi Rama Rao (Accountant Member) observed...
On finding that entire proceeding was based on the covenants of the trust deed but not on the actual activities carried out by the appellant trust, the Pune ITAT set aside the order passed by CIT(E) cancelling the registration granted u/s 12AB(4) of the Income Tax Act, 1961.
The Bench comprising Partha Sarathi Chaudhury (Judicial Member) and Inturi Rama Rao (Accountant Member) observed that, “Mere fact that the trust deed contains a covenant that enables the settlor to utilize the premises for her use or family use, cannot empower the CIT to cancel the registration, as it does not lead to any conclusion that either the activities of the trust are not genuine or the activities are not being carried out in accordance with the objects of the trust. Similarly, the fact that huge investments are made in mutual funds, cannot also lead to the conclusion that the activities of the trust are not genuine.” (Para 8)
The Bench further added that, “It is an admitted fact that the settlor died in the year 1965, therefore, the relevant clause had become infructuous and thus there is no question of violation of provisions of section 13(3). The investments in mutual funds are only in order to meet the statutory requirements of section 11(5) of the Act. The reasons assigned for cancellation of registration as enumerated above neither lead to conclusion that the activities of the trust are not genuine and are not carried out in accordance with the objects of the trust.” (Para 8)
As per the brief facts of the case, the Assessee's trust had applied for grant of registration u/s.12A which remained undisposed of. Then the appellant trust filed another application u/s.12AA which came to be rejected. The assessee filed an appeal before tribunal which was allowed. On pursuant to the order of this Tribunal, the appellant trust was granted registration u/s.12AA. Subsequently, to the grant of registration u/s.12A, the CIT(E) noticed occurrence of certain violations attracting the cancellation of registration. Therefore, he issued a show cause notice to the assessee for cancellation of registration through e-portal.
The assessee submitted that the question of utilising the trust property for the benefit of the settlor does not arise as the settlor had passed away in the year 1965. The clauses in trust deed providing for accommodation to the settlor of the trust had become infructuous since the settlor had expired in the year 1965 itself. Therefore, there was no scope for the violation of provisions of section 13(3). The assessee further submitted that the investment in the mutual funds are only made in order to meet statutory requirement of section 11(5). The CIT(E) rejected all the contentions.
The Coram noted that the entire proceedings of the CIT(E) are based on the covenants of the trust deed but not based on the actual activities carried out by the appellant trust.
The Bench observed that the provisions of section 12AA(3) empower the CIT to cancel the registration granted u/s.12A only on the existence of one of the two conditions in the said section, i.e., (1) the activities of the trust are not genuine; and (2) the activities of the trust are not being carried out in accordance with the objects of the trust.
Referring to the case CIT Vs. Institute Management Committee of Industrial Training Institute (2017) 393 ITR 161 (Bom.), the Bench highlighted the meaning of section 12AA(3) that “it is self-evident that the power can only be exercised to cancel the registration only for the two breaches which are mentioned therein. This is not so in the present facts. Thus, no fault can be found with the impugned order setting aside the order of the Commissioner of Income-Tax, cancelling the registration granted to the respondent-assessee.”
Therefore, on finding the CIT(E) order unsustainable under the eye of law, the ITAT allowed the assessee's appeal.
Counsel for Appellant/ Taxpayer: Percy Pardiwala
Counsel for Respondent/ Department: Ajay kumar Kesari
Case Title: Mr. & Mrs. S.M. Batha Education Trust verses CIT(Exemption)
Case Number: ITA No.239/PUN/2023