2025 (5) TMI 692 - AT - Income Tax

Denual of registration u/s 12A(1)(ac)(iii) and approval u/s. 80G(5) - HELD THAT - As considering the judgment passed in Chadha Education Society Maxfort Pre-Primary School 2024 (6) TMI 1465 - ITAT DELHI we held that the CIT(E) does not have any jurisdiction to reject the application for grant of registration on the premises that the play school is not registered/affiliated by any State or Central Government authority. Thus having regard to the entire aspect of the matter we deem it fit and proper to remit the issue to the file of the CIT(E) for adjudication of the issue of granting registration u/s 12A of the Act taking into considerations all the relevant documents in support of the case made out by the assessee and to pass a reasoned order upon granting an opportunity of being heard to the assessee. The Ld. CIT(E) is also directed to pass an order in regard to the exemption claimed u/s 80G of the Act accordingly. Appeals filed by the assessee are thus allowed for statistical purposes.

Summary

The core legal questions considered by the Tribunal in this matter are:

1. Whether the rejection of registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961, on the ground that the appellant trust (running a play school) is not registered or affiliated with any State or Central Government authority, is legally sustainable.

2. Whether the trust qualifies as a charitable institution under Section 2(15) of the Act and fulfills the conditions prescribed under Section 12AB for grant of registration.

3. The scope of the jurisdiction of the CIT(Exemption) in rejecting the application for registration under Section 12A of the Act, particularly whether the CIT(E) can probe the genuineness of the trust's objects or statutory compliance once provisional registration is granted.

4. The correctness of the rejection of approval under Section 80G(5) of the Act consequent to the denial of registration under Section 12A.

Issue-wise Detailed Analysis

Issue 1: Validity of rejection of registration under Section 12A(1)(ac)(iii) on the ground of non-affiliation/registration with State/Central authority

Relevant legal framework and precedents: Section 12A of the Income Tax Act provides for registration of charitable trusts or institutions, which is a prerequisite for claiming exemption under the Act. Section 12AB prescribes conditions for grant and cancellation of registration. Section 2(15) defines "charitable purpose." The Apex Court ruling in ACIT vs. Surat City Charitable Trust (2008) 300 ITR 214 (SC) established that once a trust is registered under Section 12A, the Assessing Officer (AO) cannot probe into the genuineness of the objects of the trust. Additionally, a Coordinate Bench decision in ITO vs. Chadha Education Society Maxfort Pre-Primary School (ITA No. 91/Del/2016) was relied upon, which held that affiliation or registration with State or Central authorities is not a prerequisite for registration under Section 12A.

Court's interpretation and reasoning: The Tribunal observed that the CIT(Exemption) rejected the registration application solely on the ground that the play school was not registered or affiliated with any State or Central Government authority. The Tribunal held that such a ground is not sustainable as per the extant legal framework and precedents. The Tribunal emphasized that the jurisdiction of the CIT(E) does not extend to rejecting registration on this basis.

Key evidence and findings: The appellant had filed relevant documents including the trust deed, ITRs, balance sheets, and registration under the Niti Aayog DARPAN portal, substantiating its claim. No contrary evidence was produced by the Revenue to negate these documents.

Application of law to facts: The Tribunal applied the principle from the Surat City case and the Coordinate Bench decision to conclude that the absence of State or Central affiliation does not disqualify the trust from registration under Section 12A.

Treatment of competing arguments: The Revenue's argument that non-affiliation justified rejection was dismissed due to lack of legal basis and supporting precedent. The appellant's reliance on binding precedents was accepted.

Conclusion: The rejection of registration on the ground of non-affiliation is not sustainable and the matter requires reconsideration by the CIT(E) on merits and evidence.

Issue 2: Whether the trust qualifies as charitable under Section 2(15) and meets Section 12AB conditions

Relevant legal framework and precedents: Section 2(15) defines "charitable purpose" broadly, including education. Section 12AB sets out conditions for registration, including genuineness of objects and compliance with law. The Apex Court in Surat City clarified that once registration is granted, the AO or CIT(E) cannot revisit the charitable nature of the trust in the context of registration.

Court's interpretation and reasoning: The Tribunal noted that the CIT(E) had held that the trust was not for charitable purposes and did not fulfill Section 12AB conditions. However, the Tribunal observed that the trust's objects as per the trust deed clearly include running a play school, which falls within educational charitable purposes under Section 2(15). The Tribunal emphasized that the genuineness and compliance aspects are to be examined after registration, not as a ground for rejection of registration itself.

Key evidence and findings: The trust deed, registration documents, and financial statements were on record, demonstrating the trust's educational activities. The appellant's submissions and reliance on precedents supported the charitable nature claim.

Application of law to facts: The Tribunal applied the legal principle that registration under Section 12A is a "fait accompli" once granted provisionally and that the CIT(E) cannot reject registration on the basis of questioning charitable nature at this stage.

Treatment of competing arguments: The Revenue's contention that the trust was not charitable was rejected due to the binding nature of the Apex Court ruling and the absence of contrary evidence.

Conclusion: The trust qualifies as charitable under Section 2(15) and meets the conditions under Section 12AB; therefore, rejection of registration on this ground is not justified.

Issue 3: Jurisdiction and scope of CIT(Exemption) in rejecting registration and approval under Section 80G(5)

Relevant legal framework and precedents: Section 12A(1)(ac)(iii) deals with registration of trusts; Section 80G(5) provides for approval for donations to be eligible for deduction. The Apex Court's ruling in Surat City restricts the scope of inquiry by the AO or CIT(E) post-registration. The Coordinate Bench decision in Chadha Education Society also supports limited scope at registration stage.

Court's interpretation and reasoning: The Tribunal held that the CIT(E) erred in rejecting the application for registration and approval under Section 80G solely on the basis of non-affiliation and questioning charitable nature at the registration stage. The Tribunal directed the CIT(E) to reconsider the application afresh, taking into account all relevant documents and providing the appellant an opportunity of hearing.

Key evidence and findings: The appellant had submitted comprehensive documents including Form 10AB, trust deed, financials, and registrations. The CIT(E) had not considered these fully before rejection.

Application of law to facts: The Tribunal applied the principle that the CIT(E) must pass a reasoned order after considering all relevant material and hearing the applicant, rather than rejecting registration summarily on improper grounds.

Treatment of competing arguments: The Revenue failed to produce any authoritative precedent or legal basis supporting the rejection. The Tribunal accordingly rejected the Revenue's position.

Conclusion: The CIT(E) must reconsider the registration and approval application on merits and pass a reasoned order after hearing the appellant, ensuring compliance with statutory provisions.

Issue 4: Consequential rejection of approval under Section 80G(5)

The Tribunal noted that since approval under Section 80G is contingent on registration under Section 12A, the rejection of registration led to rejection of approval. The Tribunal directed reconsideration of approval in tandem with reconsideration of registration.

Significant Holdings

"The CIT(E) does not have any jurisdiction to reject the application for grant of registration on the premises that the play school is not registered/affiliated by any State or Central Government authority."

"The registration of trust once done under Section 12A