ITAT Delhi Rules: Absence of Dissolution Clause in Trust Deed Doesn't Hinder Section 12AA Registration

In a pivotal decision, the Income Tax Appellate Tribunal (ITAT) Delhi Bench has provided clarity on the significance of the dissolution clause in trust deeds concerning the Income Tax Act. The case revolved around the Roop V.K Jain Foundation, which sought registration under Section 12AA of the Income Tax Act, 1961.

The foundation's application was initially denied by the Commissioner of Income Tax (Exemption) {CIT(E)}, citing the absence of a dissolution clause in the trust deed as the primary reason.

As you know, dissolution clause typically outlines the procedures and measures to be taken in the event of the trust's dissolution.

Challenging this decision, the foundation approached the ITAT.

The tribunal, after careful consideration, ruled that

The absence of a dissolution clause should not be a ground for denying an application for registration under Section 12AA.

Yet, dissolution clause is forms a basic component of any trust deed, so the tribunal ordered the Foundation to amend its trust deed by including dissolution clause with in 2 months and then submit the amended trust deed before the learned CIT(E).

This ruling emphasizes the importance of evaluating the merits of a trust or foundation based on its overall objectives and operations, rather than focusing solely on specific clauses in its deed. The decision also underscores the judiciary's role in ensuring a fair and balanced interpretation of tax laws, ensuring that entities are not unduly penalized for minor omissions in their documentation.

For trusts and foundations, this ruling serves as a reminder of the importance of understanding the nuances of tax laws and regulations. It also highlights the potential for legal recourse in situations where they believe their rights have been infringed upon. The decision is expected to have a significant impact on similar cases in the future, providing much-needed clarity and guidance to trusts and foundations seeking registration under the Income Tax Act.

Court Name : ITAT Delhi

Parties : Roop V.K Jain Foundation vs The CIT

Decision Date : 14 July 2023

Judgement ref : ITA No.297/Del/2021

PER CHANDRA MOHAN GARG, J.M.

This appeal has been filed against the order of CIT(Exemption) Chandigarh dated 16.09.2020 for AY 2020-21.

2. The grounds of assessee are as follows:-

I. THAT the impugned order passed by the learned Commissioner of Income Tax

(Exemption) unjust and arbitrary, contrary to provisions of law and facts available on record.

II. That the learned Commissioner of Income Tax (Exemptions) has not considered completely the information/evidence brought on records, in correct perspectives while denying the registration us 12AA of the Income Tax Act.

III. While denying the registration u/s 12AA of the Act, the learned

Commissioner of Income Tax (exemptions) never held that the Trust was not for charitable purposes as defined us 2(15) of the - Income Tax Act 1961.

IV. The Ld. CIT(A) has erred on facts and in law in rejecting the

application for grant of registration Us 12AA of Income Tax Act, 1961 of the Appellant on the basis of apprehensions and presumptions for an event that might happen in future and not on the basis of facts ignoring the provisions of Income tax Act 1961.

3. The ld. counsel of assessee submitted that the impugned order passed by the learned Commissioner of Income Tax (Exemption) unjust and arbitrary, contrary to provisions of law and facts available on record and has not considered completely the information/evidence brought on records, in correct perspectives while denying the registration us 12AA of the Income Tax Act. He further submitted that the registration u/s 12AA of the Act, the learned Commissioner of Income Tax (exemptions) never held that the Trust was not for charitable purposes as defined us 2(15) of the - Income Tax

Act 1961 and rejected application merely on the basis of apprehensions and

presumptions for an event that might happen in future and not on the basis of facts ignoring the provisions of Income tax Act 1961.

4. Further placing reliance on the order of ITAT Mumbai dated 02.01.2015 in the case of Geeta Lalvani Foundation vs. DIT(E) in ITA No. 3566/Mum/2013 for AY 2013-14 the ld. counsel submitted that nothing has been brought on record, except alleging that there is no dissolution clause in the trust deed, that the same is a mandatory clause of dissolution of any trust.

Further placing reliance on the order of ITAT Mumbai Bench dated 14.07.2014 in the case of Tara Educational & Charitable Trust vs. DIT(E) the ld.

counsel submitted that the ld. DIT(E) has gone beyond scope of enquiry while rejecting application of assessee on the ground that its trust deed does not contain dissolution clause and on totality of irrelevant ground without pointing out as to how he was not satisfied either about the objects of trust of the genuineness of its activities.

5. Lastly, placing reliance on the judgment of Hon’ble High Court of Bombay in the case of CIT(E) vs Tara Educational & Charitable Trust the ld. counsel submitted that the Hon’ble High Court has upheld the said order of ITAT Mumbai Bench and submitted that in absence of the clause of dissolution in the trust deed would in no manner and impediment in the operation of the statue. The ld. counsel submitted that if it is found necessary then the assessee is ready to include dissolution clause in its trust deed and

copy of the same would be submitted to the ld. CIT(E) for his satisfaction and compliance but in absence of any other allegation about the charitable objects of the trust and genuineness of its activities the registration u/s. 12A of the Act cannot be denied at the threshold.

6. Replying to the above, the ld. Senior DR supported the order of ld. CIT(E). however, in all fairness, the ld. CIT(DR) candidly agreed that the only objections of ld. CIT(E) would met if the assessee trust files its amended trust deed including dissolution clause.

7. On careful consideration of above submissions, from the impugned order we

clearly note that the ld. CIT(E) has not made any allegations or has not made any adverse comment or conclusion, except omission of dissolution clause in the trust deed, regarding charitable objects of the assessee and the genuineness of its activities.

Therefore in our humble opinion although the inclusion of dissolution clause in the trust deed is not mandatorily required and absence of such clause cannot be a sole basis for rejecting application seeking registration u/s. 12AA of the Act. This conclusion also gets support from the judgement of Hon’ble Bombay High Court in the case of CIT(E) vs Tara Educational & Charitable Trust (supra) and order of ITAT Mumbai Bench in the case of Geeta Lalvani Foundation (supra) therefore the sole basis for rejection of

registration u/s. 12AA of the Act taken by the ld. CIT(E) is not correct, valid and sustainable thus the same is dismissed and the ld. CIT(E) is directed to grant registration to the appellant trust u/s. 12AA of the Act.

8. Before we part with the order, we find a proper and necessary to direct the assessee to amend its trust deed by way of inclusion of dissolution clause therefore we direct the appellant to submit a copy of amended trust deed before ld. CIT(E) clarifying the position in a situation dissolution of trust, complying with the requirements of registration granting authority preferably within two months of receipt of this order.

9. In the result, the appeal is allowed with the directions given hereinabove.

Order pronounced in the open court on 14.07.2023.

Sd/- Sd/-

(DR. B.R.R. KUMAR) (CHANDRA MOHAN GARG)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 14th July, 2023.