CIT(E) Can’t Reject Trust’s Registration Application Without Showing Profit-Oriented Objects

Case Details: Baba Balaknath Seva Sansthan vs. CIT-Exemption - [2024] 167 taxmann.com 716 (Jaipur-Trib.)

Judiciary and Counsel Details

• Rathod Kamlesh Jayantbhai, Accountant Member & Narinder Kumar, Judicial Member
• Vishal Gupta, CA for the Petitioner. 
• Ms. Alka Gautam, CIT for the Respondent.

Facts of the Case

The assessee-trust filed an application seeking registration under section 12AA. The Commissioner (Exemption) rejected the same on two grounds: firstly, that two objects as available in the Memorandum of Association (MAO)/deed of the assessee related to activities that were commercial/business in nature, and secondly, that the activities carried out by the assessee were not in accordance with the objects of the trust.

ITAT Held

On appeal, the Jaipur Tribunal held that the income and expenditure account for the relevant period did not depict any such activity as mentioned in object nos. 3 and 6 of the MAO/deed was carried out by the applicant.

The Commissioner (Exemption) relied on a decision by the Apex Court in ACIT(E) v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 (SC) wherein it was clarified that the assessee advancing general public utility cannot engage itself in any trade, commerce or business or provide service in relation thereto for any consideration. The assessee pointed out that the MAO/deed stated that the activities or objects of the trust specified therein would not be to earn profit.

In the India Trade Promotion Organisation v. DGIT [2015] 371 ITR 333 (Delhi), the High Court of Delhi, while upholding the constitutional validity of the proviso to section 2(15), held that the same would apply where the dominant intention of a trust or the institution is profit-making. Nothing was brought to the department’s notice to suggest that any of the objects of the trust was found to be profit-oriented/making.

Thus, the impugned order rejecting the assessee’s application for registration under section 12AA deserved to be set aside.

List of Cases Referred to

• India Trade Promotion Organization v. DIT (Exemptions) [2015] 53 taxmann.com 404/229 Taxman 347/371 ITR 333 (Delhi) (para 5).