ITAT AMRITSAR BENCH

Dream Land Educational Trust

v.

Commissioner of Income-tax, J&K, Jammu

JOGINDER PALL, ACCOUNTANT MEMBER

AND A.D. JAIN, JUDICIAL MEMBER

IT APPEAL NO. 481 (ASR.) OF 2005

APRIL 5, 2007

Section 12AA, read with section 12A, of the Income-tax Act, 1961 - Charitable or religious trust - Registration procedure - Whether for grant of registration under section 12AA, only relevant consideration is satisfaction of Commissioner regarding objects of trust and genuineness of its activities - Held, yes

Facts

A partnership firm consisting of two partners was running an educational institution. The said firm was dissolved vide a dissolution deed. The assessee-trust took over the properties/assets and liabilities from the erstwhile firm on its dissolution. Two of the trustees of the assessee-trust were erstwhile partners of the dissolved firm. The assessee-trust applied for registration under section 12A(a). The Commissioner, however, denied the registration on various grounds.

On appeal :

Held

Section 12AA prescribes the procedure for registration of a trust. As per this section, the Commissioner, on receipt of an application for registration, shall call for such documents or information for the trust as he thinks necessary in order to satisfy himself about the genuineness of the trust and may also make such enquiry as he may deem necessary in this behalf; and that after satisfying himself about the objects of the trust and the genuineness of its activities, he shall pass an order in writing, registering the trust. Therefore, in accordance with section 12AA, the Commissioner was required to satisfy himself about the objects of the trust and the genuineness of its activities. In the instant case, the Commissioner had not recorded any dissatisfaction on either of these two aspects. The first issue raised by the Commissioner was with regard to the registration of the dissolution deed of the firm. The erstwhile firm, having two partners, which were the trustees of the assessee-trust, was dissolved vide a dissolution deed. The Commissioner had objected that this dissolution deed was not registered but was simply attested by a Notary having no value under the provisions of the Transfer of Property Act. Such observation had no relation whatsoever with either the objects of the trust or its activities. Moreover, the dissolution deed had not been shown to be required to be registered for the purposes of granting of registration to the assessee-trust. The observations of the Commissioner in this regard were, therefore, not in any way detrimental to the assessee’s claim of registration.

The Commissioner had further observed that no transfer deed stood executed regarding the property taken over by the trust from the erstwhile firm on its dissolution. Again, this had no bearing on the satisfaction of the Commissioner with regard to the objects of the trust or its activities. Further, it had been argued and not rebutted that the trustees of the trust were the erstwhile partners of the dissolved firm and, therefore, no transfer deed was thought required to be executed on the take over of the property of the erstwhile firm by the assessee-trust. Also, Schedule ‘A’ forming part of the Trust Deed reflected the properties and assets transferred to the trust by its settlors who were the partners of the erstwhile firm. As per this Schedule, the settlors had only given the properties to the trust and nothing had been taken. Anyhow, the observations of the Commissioner in this regard were, again, not observations adverse to the satisfaction of the Commissioner either regarding the objects of the trust or the genuineness of its activities.

The next observation of the Commissioner was with regard to the take over action being unilateral. In the view of the Commissioner, since the transfer of the property of the trust was not through a duly executed transfer deed, even if the two partners of the erstwhile firm did not object to the take over of the firm, they could, at any future point of time, claim their property from the trust, thereby jeopardizing the functioning of the trust and its objects. This observation, besides having no connection with the satisfaction of the Commissioner with regard to the objects of the trust and its activities, was an observation based on pure conjecture. This observation, as such, had no effect adverse to the registration of the trust.

The Commissioner had further observed that since no objection certificate was obtained from the bankers, the apprehension of any future action by the partners of the erstwhile firm or the financiers thereof, regarding claiming back the property from the trust, was entirely realistic. Again, this observation had no bearing on the registration of the assessee-trust. Under section 12AA, the Commissioner was only required to satisfy himself with regard to the objects and genuineness of the activities of the trust. The observation under consideration did not at all impinge upon either of these aspects. Again, this observation was the result of merely surmises and conjectures. Nothing turned on it against the assessee qua registration.

Lastly, the Commissioner had observed that as per the trust deed, on dissolution of the firm, it had been left to the trustees to decide the fate of the net assets. It had been observed that while registering a trust, safeguards regarding the fate of the trust were to be considered very minutely ; that no trust, the application of whose assets and income was possible to objects other than those envisaged, could be registered ; and that whereas, in the instant case, the trustees had been left to decide the fate of the net assets were irrelevant. The settlors of the trust were trustees for life. The trust was irrevocable. The provisions of the trust deed were only enabling clauses. Moreover, the observations of the Commissioner were with regard to only some hypothetical impending assumed revocation of the trust. These observations lie entirely in the realm of conjecture and registration had wrongly been refused on the basis thereof.

That apart, the objects of the trust, as defined in the trust deed, were laid bare before the Commissioner, who did not find anything offensive therein.

The Commissioner had not observed any of the objects of the assessee-trust, as defined in the trust deed, to be not to his satisfaction. None of these objects had been stated to be outside the purview of section 2(15). Further, the balance sheet of the assessee-trust, as on 31-3-2005 showed that all the income earned by the trust had been invested in the trust only. Further, the Commissioner, had not, anywhere in the impugned order, doubted either the genuineness of the activities of the trust, or its objects. It had not been stated that any object of the trust was not that of charity or that the income of the trust had been used for the purpose of the trustees or their families and had not been utilized for charity.

In these circumstances, in the absence of any dissatisfaction of the Commissioner with regard to either the objects or the genuineness of the activities of the trust, registration had been refused to the trust in violation of the provisions of section 12AA. The reasons recorded for such rejection of registration were entirely extraneously to the requirement of the said section.

Various decisions of the Tribunal propounded that for grant of registration under section 12AA, the only relevant consideration is the satisfaction of the Commissioner regarding the objects of the trust and the genuineness of its activities.

In view of the above, the grievance of the assessee was entirely justified and was accepted as such.

In the result, the appeal of the assessee was to be allowed.