No registration to a trust if its financing activities weren’t carried out for furtherance of its objects

Principal activities of metropolitan development authority were to be ascertained before denying it registration under section 12A on account of financing and rental activities.

Facts:

a)The assessee, a city metropolitan development authority under section 12, was established under a State Act, viz., MMRD Act. The assessee was claiming exemption under section 11.

b)It earned interest on sums lent to various organizations and lease rental of its property. The DIT(E) cancelled/withdraws its registration under Sec. 12A on the ground that activities carried out by it were commercial in nature.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)There was no finding that interest and rent receipts were integral to the assessee's functioning or its principal objects, so as to be considered as arising on account of activities necessary for the furtherance of the objects of assessee.

2)There ought to have been some principal activities for financing and rental activities to be considered as necessary and incidental thereto. The physical and/or functional correlation between the two would decide this aspect of the matter.

3)Such a finding was necessary to satisfy conditions stipulated under section 12AA(3). Thus, as the issue of applicability of section 12AA(3) in the instant case being factually indeterminate, the case was to be restored to the DIT(E) for passing a speaking order in accordance with law. - MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY V. DIT(E) [2014] 45 taxmann.com 354 (Mumbai - Trib.)

No IT relief to trust if its business receipts exceeded threshold; yet its registration couldn't be revoked

Where gross receipts of a charitable institution from its business exceeds prescribed limit, it will not be entitled for exemption or other admissible tax benefits for relevant year only; however its registration as charitable institution will continue.

Facts:

a)  The assessee, a textile promotion council, was registered as a charitable trust. Its activities were falling under the category of 'advancement of any other objects of general public utility' as per definition of 'charitable purpose' given under section 2(15);

b)  The Director (Exemption) had cancelled the registration of assessee as he noticed that the assessee was carrying out activities in the nature of trade, commerce or business, etc., and its gross receipts therefrom were in excess of prescribed limit.

c)  The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)  Merely because income of a registered charitable trust from ancillary activities of business crosses prescribed limit, that by itself cannot be a ground for cancellation of its registration invoking section 12AA(3);

2)  If income arising out of the activities is not in accordance with the objects of the trust, the assessee may not get the exemption under section 11.

3)  Thus, for the previous year, during which the gross receipt of income of trust crossed the prescribed limit, it would not get exemption or benefit of its being charitable in nature despite its charitable activities;

4)  Therefore, the impugned order of the Director (Exemptions) was to be set aside and the registration granted to assessee under section 12A was to be restored.- Cotton Textiles Exports Promotion Council v. DIT (Exemption) [2014] 44 taxmann.com 168 (Mumbai - Trib.)