18 August 2011
Whether a Trust deed can be made a reason for cancellation of registration already granted u/s 12AA in which the settler has retained the post of life long chairmanship till his life and after his death his son or the male descendants to take over as chairman?
19 August 2011
..in case the Commissioner is satisfied that the activities are not genuine or not being carried out according to the objects of the trust he may proceed for cancellation after hearing the party concerned. The authority for cancellation of Registration already granted under Section 12AA should be read with the provisions inserted under Clause 3 and it does not empower the Income Tax Authority to cancel the registration beyond the legal scope so defined under this clause. The question is as regards provision in the Trust Deed about the settlor being the Chairman (Managing Trustee) for life time and on his demise authority automatically transferring to his successors/legal heirs/sons..whether specifically mentioned or not but to be implied or understood...it is therefore, the subject of management of the Trust in accordance to the Trust Deed and is not the subject matter of Income Tax Act except in the circumstances specified under relevant sections, here relevant in the instant query referred is the cancellation of registration already granted and that would be settled only in accordance to the provisions given under clause 3 of section 12aa. Therefore, in my opinion registration granted under income tax act cant' be cancelled under the subject referred in your query i.e. the trust deed relating to the succession of chairmanship..whether explicit or implied...further there does not seem to be any objection by the other trustees..
18 July 2024
Under Section 12AA(3) of the Income Tax Act, 1961, the registration of a trust can be cancelled by the Commissioner of Income Tax if the trust:
1. **Ceases to exist**: If the activities of the trust are found to have ceased or are not genuine anymore.
2. **Operates in a manner not genuine**: If the activities are found to be not genuine or are not being carried out in accordance with the objects of the trust.
Regarding the scenario you described:
- A trust deed that grants the settler (the person who creates the trust) the lifelong chairmanship, and subsequently to their son or male descendants after their death, does not by itself provide grounds for cancellation under Section 12AA(3).
- However, if the trust is found to not genuinely pursue its charitable or religious objectives as outlined in its trust deed, or if its activities are found to have ceased or are not genuine, the Commissioner could consider cancelling its registration.
**Key Points to Consider:**
1. **Genuine Charitable Activities**: The trust must primarily engage in genuine charitable or religious activities as per its trust deed and comply with the provisions of the Income Tax Act.
2. **Compliance with Trust Deed**: The trust's activities should align with the provisions of its trust deed, including the appointment of office bearers like the chairman.
3. **Non-Compliance or Mismanagement**: Any instances of mismanagement, non-compliance with trust objectives, or diversion of trust funds for personal use could lead to scrutiny by the tax authorities.
**Procedure for Cancellation:**
If the Commissioner of Income Tax considers cancellation, they will typically follow a procedure that includes:
- Issuing a show-cause notice to the trust, detailing the grounds for cancellation. - Providing an opportunity for the trust to respond to the notice and provide explanations. - Conducting an inquiry or investigation, if necessary, to verify the trust's activities. - Finally, issuing an order either confirming the cancellation or retaining the registration based on the findings.
**Legal Advice:**
Given the specific details of your trust and its operations, it is advisable to consult with a tax advisor or legal expert specializing in trust law and income tax regulations. They can provide guidance tailored to your trust's circumstances and help navigate any potential issues related to Section 12AA(3) cancellation.
CAclubindia
