Thursday, August 8, 2013

Assessee can’t claim status of a ‘trust’ if its parental body doesn’t surrender its status of mutual club

Where assessee-trust was an extension of mutual club, status of mutuality having transgressed to assessee, it could not be held to be a Charitable Institution and, accordingly, it could not be granted approval under sub-section (5) of section 80G

In the instant case the assessee was registered under section 12AA as a charitable trust. It was also granted recognition under section 80G for a period. The Director of Income-tax (Exemption) refused to give it approval under section 80G for further period on the ground that the assessee had not carried out any charitable activities for previous three financial years.

The Tribunal held as under:

1) The trust was an extension of the Mutual Club of Masons. The status of mutuality reflected on the assessee trust also. Therefore, it couldn’t claim the status of a charitable institution;

2) As the mother body (i.e., Club of Masons) was not surrendering its status of mutuality, it was not possible to treat the assessee-trust as an independent charitable institution. If it was so treated, one would be encouraging violation of law by permitting the mother body to go beyond the perimeter of mutuality through the medium of a trust;

3) Therefore, even though the assessee was registered under the law relating to trust, yet it couldn’t be construed as a charitable institution for the purpose of the Income-tax Act. Consequently, the application put up by the assessee under section 80G couldn’t be entertained - Lodge of Universal Charity 273 EC Charitable Trust v. DIT (Exemptions) [2013] 35 429 (Chennai - Trib.)

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