Under general law, a ‘trust’ is
defined as an obligation attached to the ownership of property, and arising out of the confidence reposed
by the author of the trust in the trustees. In the Income Tax Act (hereafter referred
to as the Act), however, the word has been used in a wider sense to include any
other legal obligation, even where the legal requirements for creation of a
trust are not strictly met.
Section 11 of the Act excludes income of a charitable or
religious trust from the total income of the person in receipt of such income.
Section 12 of the Act exempts the income of a charitable or religious trust
derived from voluntary contributions and applicable solely to charitable or
religious purposes. Section 2(15) defines that “charitable purposes” includes
relief of the poor, education, yoga, medical relief, preservation of
environment (including watersheds, forests and wildlife) and preservation of
monuments or places or objects of artistic or historic interest, and
advancement of any other object of general public utility.
This article attempts to discuss few latest decisions of the
judiciary on various aspects pertaining to charitable or religious trust :
Registration of Trust :
For availing of exemption under section 11 & 12 of the
Act, registration of the trust or institution is a must. In the case of CIT v. U.P. Forest Corpn. [1998] 230 ITR
945/97 Taxman 259 (SC), it was observed that in order to take advantage of the
provisions of section 11, a trust or institution has to get itself registered.
Cancellation of
registration :
According to section 12AA(3) of the Act, if the CIT is
satisfied that the activities of the trust or institution are not genuine or
are not being carried out in accordance with the objects of the trust or
institution, he shall, after giving reasonable opportunity of being heard to
the concerned trust or institution, pass an order in writing cancelling the
registration granted under the said section.
In the latest judgment of a High Court, the Bombay High Court
in the case of DIT (Exemption) v. North
Indian Association [2017] 79 taxmann.com 410 in its decision dated
14-02-2017 expressed the view that jurisdiction to issue a notice under section
12AA(3) would only arise if one of the two conditions for its exercise is
satisfied, i.e., either the trust should not be genuine or the activities of
the trust are not carried out in accordance with its objects.
In one of the latest decision on the issue from the ITAT, the
ITAT, Mumbai Bench-B in its decisions
dated 08-02-2017 in the case of Bhakti
Kala Kshetra v. DIT (Exemptions) [2017] 163 ITD 440/79 taxmann.com 66 (Mum.-Trib.),
held that even if trust or institution was hit by monetary limits mentioned
under section 2(15) w.e.f. 1-04-2009, the same would adversely affect entitlement
of assessee towards claim for exemption under section 11 of the Act, but, the
same cannot lead to cancellation/withdrawal of registration granted under
section 12A/12AA of the Act.
In the case of Vignana
Jyothi v. Dy. CIT [2017] 81 tamann.com 204 (Hyderabad – Trib.), the ITAT,
Hyderabad Bench held that trust registration could not be cancelled for
receiving of voluntary donation (capitation fee) from students while seeking
admission.
Filing of Form 10
during re-assessment :
In the case of CIT v.
Sakal Relief Fund [2017] 81 taxmann.com 396 (Bombay), the Bombay High Court
held that filing of Form 10 during re-assessment proceedings was same as it was
filed within the time allowed for furnishing the return of income under section
139(4); intimation in Form 10 had to be filed before completion of assessment,
and therefore, the benefit of accumulation under section 11(2) could not be
denied if Form 10 was filed during the re-assessment proceedings. In the
instant case, the assessee-trust filed its return of income consequent to
notice issued under section 148 and Form 10 for the purpose of availing
accumulation of income under section 11(2) was filed later during the course of
assessment. Assessing Officer (AO) rejected Form 10 on the ground that the same
was not filed with the return. Accordingly, the accumulation of income wasn’t
allowed and the income was brought to taxation.
Non-filing of return
and denial of trust’s registration :
In the case of CIT (Exemptions)
v. Shri Shirdi Sai Darbar Charitable Trust (Dharamshala) [2017] 81
taxmann.com 49 (Punjab & Haryana), the Punjab & Haryana High Court held
that denial of trust’s registration merely on the ground of non-filing of
return in the earlier years was unjustified. In the instant case, CIT (Exemptions)
denied registration to the trust on the ground that it had not filed any return
of income for the earlier assessment years. The High Court held that the CIT
(Exemptions) had to satisfy two conditions while granting registration under
section 12AA, firstly, whether the objects of the assessee were charitable in
nature and, thus, the activities were genuine.
Miscellaneous :
In the case of DIT (Exemptions)
v. Shree Nashik Panchvati Panjrapole [2017] 81 taxmann.com 375 (Bombay), it
was held that where the dormant activity carried out by the trust was to take
care of old, sick and disable cows, any incidental activity of selling milk
which might have resulted in receipt of money, by itself would not make it
trade, commerce or business nor an activity in the nature of trade, commerce or
business to be hit by the proviso to section 2(15).
In the case of CIT v.
Seth Anandram Jaipuria Edu. Society Cantonment [2017] 80 taxmann.com 96
(Allahabad), the Allahabad High Court has held that grant of scholarship to
deserving students to pursue higher studies was charitable in nature.
