2025 (5) TMI 1641 - AT - Income Tax

Rejecting the application for registration u/s 12AB - charitable activity or not - assessee had not furnished a reply to the notice HELD THAT - It is a settled principle of law that the process of registration u/s 12AB of the Act is not an assessment of income but rather a preliminary stage to examine the genuineness of the trust s objects and proposed activities. When the trust has explicitly stated that it has not filed returns as it had no activities and thus no income chargeable to tax it was incumbent upon the Ld. CIT(E) to evaluate such explanation objectively and to call for any further clarifications or proposed activity plan rather than summarily rejecting the application. In our considered view the interest of justice would be served if the matter is restored to the file of the CIT(E) for de novo adjudication. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Presented and Considered

The core legal questions considered by the Tribunal are:

1. Whether the rejection of the application for registration under section 12AB of the Income Tax Act, 1961, by the Commissioner of Income Tax (Exemption) was justified, particularly on the ground that the assessee had not furnished a reply to the notice dated 21.11.2023.

2. Whether the Commissioner of Income Tax (Exemption) was correct in not considering the written submissions and documentary evidence furnished by the assessee in response to the notices issued during the registration process.

3. Whether the registration application ought to have been rejected without examining the genuineness of the trust's objects and proposed activities, especially when the trust asserted that its activities had not commenced and it had no income chargeable to tax.

4. The procedural propriety and legal correctness of the CIT(E)'s approach in summarily rejecting the application without providing adequate opportunity to the assessee.

Issue-wise Detailed Analysis

Issue 1: Validity of Rejection of Registration Application under Section 12AB

Legal Framework and Precedents: Section 12AB of the Income Tax Act, 1961, governs the registration of charitable trusts for exemption purposes. The registration process is primarily intended to verify the genuineness of the trust's objects and activities, not to conduct an income assessment at this preliminary stage. The law mandates that registration should be granted if the trust is genuine and its activities fall within the scope of charitable purposes.

Court's Interpretation and Reasoning: The Tribunal noted that the Commissioner of Income Tax (Exemption) rejected the application on the ground that the assessee had not replied to the notice dated 21.11.2023. However, the assessee had submitted a detailed reply with documentary evidence via email on 06.12.2023, explaining the inability to upload the response on the Income Tax Portal due to technical reasons. The CIT(E) did not consider this explanation or the reply submitted.

Key Evidence and Findings: The assessee's written submissions, documentary evidence, and explanation of technical difficulties in filing the reply were on record. The trust's activities, as described, included charitable work related to the care and protection of cows, including medical treatment, vaccination, fodder provision, and maintenance of grazing lands, all without discrimination and free from political motives.

Application of Law to Facts: The Tribunal emphasized that the process under section 12AB is not an income assessment but a preliminary verification of genuineness. The rejection based solely on a technicality, without considering the substantive reply and evidence, was deemed contrary to the scheme of the Act.

Treatment of Competing Arguments: The Departmental Representative did not oppose restoration of the matter for fresh adjudication, implicitly recognizing the need for a substantive examination rather than a procedural dismissal.

Conclusion: The rejection order was found to be excessively technical and improper. The matter required fresh consideration on merits.

Issue 2: Examination of Genuineness of Trust's Objects and Activities

Legal Framework and Precedents: The registration under section 12AB demands an objective evaluation of the trust's objects and proposed activities to confirm their charitable nature. The trust's claim of non-commencement of activities and absence of income chargeable to tax is relevant and must be objectively examined.

Court's Interpretation and Reasoning: The Tribunal observed that the CIT(E) failed to evaluate the assessee's explanation that activities had not commenced and no income had been earned. Instead of seeking further clarifications or a proposed activity plan, the CIT(E) summarily rejected the application.

Key Evidence and Findings: The trust's detailed description of its charitable activities related to cow welfare and allied industries was undisputed. The trust had also complied with procedural requirements by filing the application under the correct sub-section and submitting documentary evidence.

Application of Law to Facts: The Tribunal held that the CIT(E) ought to have objectively assessed these facts and afforded the assessee an opportunity to clarify or supplement the application rather than rejecting it outright.

Treatment of Competing Arguments: The Department did not challenge the genuineness of the trust's objects or activities but focused on procedural grounds, which the Tribunal found insufficient.

Conclusion: The genuineness of the trust's objects and activities should be examined afresh, with due opportunity to the assessee.

Issue 3: Procedural Fairness and Opportunity of Hearing

Legal Framework and Precedents: Principles of natural justice and procedural fairness require that before rejecting an application, the applicant must be given adequate opportunity to be heard and to rectify any defects.

Court's Interpretation and Reasoning: The Tribunal criticized the CIT(E) for not considering the assessee's written submissions and documentary evidence, and for ignoring the explanation regarding the technical difficulty in uploading the reply. The rejection without due consideration violated the principles of natural justice.

Key Evidence and Findings: The record showed the assessee had requested adjournments and submitted replies within the stipulated time, albeit via email due to technical issues. The CIT(E) did not grant any further hearing or opportunity to explain.

Application of Law to Facts: The Tribunal underscored that the CIT(E) should have granted a hearing or at least considered the submissions before passing the rejection order.

Treatment of Competing Arguments: The Revenue did not oppose restoration for fresh adjudication, indicating acceptance of procedural deficiencies.

Conclusion: The order was procedurally flawed and required reconsideration after affording due opportunity to the assessee.

Significant Holdings

The Tribunal set aside the impugned order of the CIT(E) and restored the matter for de novo adjudication. It held that:

"It is a settled principle of law that the process of registration under section 12AB of the Act is not an assessment of income, but rather a preliminary stage to examine the genuineness of the trust's objects and proposed activities."

"When the trust has explicitly stated that it has not filed returns as it had no activities and thus no income chargeable to tax, it was incumbent upon the Ld. The CIT(E) to evaluate such explanation objectively and to call for any further clarifications or proposed activity plan rather than summarily rejecting the application."

"The interest of justice would be served, if the matter is restored to the file of the Ld. CIT(E) for de novo adjudication. The assessee is directed to co-operate in the proceedings and furnish any further details that may be required to ascertain the genuineness of its claim."

"The Ld. CIT(E) shall decide the matter on merits and in accordance with law, after granting due opportunity of being heard."

These principles establish that the registration process under section 12AB must be conducted with an objective, substantive examination of the trust's charitable nature and activities, ensuring procedural fairness and avoiding rejection on mere technical grounds.

The final determination was that the rejection order dated 18/12/2023 was set aside, and the matter remanded for fresh consideration in accordance with law and after affording the assessee adequate opportunity to be heard and to submit any additional information or corrections.