Commissioner of Income Tax-I vs Baba Kartar Singh Dukki Educational Trust

Rajive Bhalla, J.—The revenue challenges order dated 27.6.2012 passed by the Income Tax Appellate Tribunal, Chandigarh (hereinafter referred to as the Tribunal), setting aside order passed by the Commissioner of income tax and as a consequence, directing registration of the respondent as a charitable Trust. Counsel for the revenue submits that as members of the respondent-Trust are life long members and bank account of the respondent reveals that certain sums of money were paid to individual trustees, the Tribunal was not justified in reversing the order passed by the Commissioner of income tax. It is further contended by reference to Section 13 of the income tax Act, 1961 (for short, the Act) that money paid by a Trust to an individual trustee is to be excluded from the total income of a Trust and as account books presented by the respondent-Trust clearly reveal that certain amounts were paid to individual trustees, the order passed by the Commissioner of income tax should not have been reversed by the Tribunal.

Counsel for the respondent submits that at the stage of considering registration of a Trust u/s 12AA of the Act, the only issue that arises is whether the Trust or Society is charitable in nature or not. The question whether income has been rightly or wrongly applied or has been paid to individual members of the Trust is a matter to be considered at the time of assessment of the return to be filed by the charitable institution. Counsel for the respondent also places reliance on a Division Bench judgment of this Court in Commissioner of Income Tax-II, Chandigarh Vs. M/s Surya Educational and Charitable Trust, .

We have heard counsel for the parties, perused the impugned order as well as the order passed by the Commissioner of income tax and the substantial questions of law but find no reason to hold that the impugned order suffers from any error or raises a substantial questions of law much less questions of law framed by the revenue. The object of Section 12AA of the Act is to examine the genuineness of the objects of the Trust and though while examining genuineness, the income as well as resources of the Trust may be taken into consideration but any suspicion as to these facts cannot be the sole criteria for rejecting an application u/s 12A of the Act. This apart, there appears to be a misconception amongst officers exercising power u/s 12AA of the Act that if a trustee is a life long member of a Trust, it automatically raises an inference that the Trust is not charitable. The fact that a trustee is a life member, may be relevant but cannot by itself lead to a finding that the Trust is not charitable. In view of what has been stated hereinbefore, in the absence of any legal infirmity, the order passed by the Tribunal is affirmed and the appeal is dismissed.