2025 (6) TMI 571 - AT - Income Tax

Rejection of application for registration u/s 12AB - as argued revenue rejecting the applications proceeded to do so without granting a fair and meaningful opportunity of hearing particularly in respect of the submissions made regarding the mismatch in the name of the trust and the availability of updated documentation. HELD THAT - Rejection of registration u/s 12AB and of approval u/s 80G(5) was premature particularly in light of the assessee s claim that it was not afforded a full and effective opportunity to present updated and corrected documents including the revised PAN as well as evidentiary materials to establish the charitable character of its activities. The requirement under law is not merely procedural compliance but adherence to the principles of natural justice and fair hearing. In our considered opinion these requirements were not adequately fulfilled. Before we conclude we deem it necessary to place on record our serious displeasure at the manner in which certain submissions were made on behalf of the assessee during the course of the proceedings. The Authorised Representative (AR) both during oral arguments and in written submissions made specific assertions that photographs evidencing charitable activities donor acknowledgments trustee meeting records and other supporting materials had been filed and were part of the record. However upon careful examination of the paper book it is evident that no such documents were submitted before us. This amounts to a misstatement of fact and reflects a casual approach on the part of the AR particularly in a matter involving statutory adjudication under sections 12AB and 80G(5). Thus we set aside both impugned orders passed by the CIT(Exemption) and restore the matters to the file of the CIT(Exemption) for fresh adjudication.

Summary

Issues Presented and Considered

The core legal questions examined by the Tribunal in these consolidated appeals are:

• Whether the rejection of registration under section 12AB of the Income-tax Act, 1961, was justified on grounds including the mismatch in the name of the trust in PAN records vis-`a-vis trust registration documents, and the alleged absence of verifiable charitable activities reflected in the audited accounts.
• Whether the rejection of approval under section 80G(5) of the Act was appropriate, specifically considering whether the presence of religious objects in the trust's Scheme of Administration disqualified the trust from approval, and whether the trust's activities and expenditure substantiate a predominantly charitable character.
• The procedural compliance regarding opportunity of hearing and consideration of evidentiary materials submitted by the assessee, including updated PAN details and documentary proof of charitable activities.
• The applicability and interpretation of statutory provisions relating to charitable trusts, including the scope of "charitable purpose" under section 80G(5) and the permissibility of incidental religious expenditure under section 80G(5B).
• The relevance of the trust's historical registration status and timing of filing under the amended registration regime in assessing eligibility for registration and approval.

Issue-Wise Detailed Analysis

1. Rejection of Registration under Section 12AB

Legal Framework and Precedents: Section 12AB mandates registration of trusts seeking exemption under sections 11 and 12, with conditions including genuineness of activities, consistency with declared objects, and compliance with applicable laws. Judicial precedents emphasize that the inquiry at the registration stage is limited to prima facie satisfaction of these conditions, not detailed scrutiny of accounts or application of funds.

Court's Interpretation and Reasoning: The CIT(Exemption) rejected registration primarily due to (i) a mismatch in the trust's name across PAN records and trust documents, and (ii) absence of identifiable charitable expenditure in audited accounts. The Tribunal noted that the name discrepancy arose from linguistic translation differences between Gujarati and English versions, and the assessee had initiated correction of PAN records. The Tribunal found that the CIT(Exemption) did not adequately consider these explanations or grant a meaningful opportunity to present updated documents.

Key Evidence and Findings: The assessee asserted that charitable activities such as skill training, educational aid, and ambulance donation were donor-sponsored and not routed through trust accounts, explaining the absence of expenditure entries. Although the assessee claimed to have submitted supporting materials (photographs, donor correspondences), these were not found on record before the Tribunal, limiting their evidentiary value.

Application of Law to Facts: The Tribunal emphasized that non-routing of donor-supported charitable activities through trust accounts does not ipso facto negate genuineness. The CIT(Exemption)'s reliance solely on absence of accounting entries without independent inquiry or consideration of alternative evidence was found to be a narrow and formalistic approach inconsistent with judicial principles. The Tribunal also rejected the CIT(Exemption)'s adverse inference drawn from the trust's delayed application under the amended regime, holding that statutory compliance, not timing, governs eligibility.

Treatment of Competing Arguments: The Departmental Representative supported the CIT(Exemption)'s findings as reasoned and lawful, focusing on statutory non-compliance. The Tribunal, however, found that the assessee's explanations were not fairly considered and that the CIT(Exemption) failed to apply settled interpretive principles regarding the nature of charitable activities and evidentiary standards at the registration stage.

Conclusion: The Tribunal concluded that the rejection of registration under section 12AB was premature and set aside the order for fresh adjudication after allowing the assessee to file complete supporting documents and granting a reasonable opportunity of hearing.

2. Rejection of Approval under Section 80G(5)

Legal Framework and Precedents: Section 80G(5) disallows approval for trusts whose objects are wholly or substantially religious in nature, as clarified by Explanation 3. Section 80G(5B) permits incidental religious expenditure up to 5% of total income without affecting approval. Judicial authorities have held that the presence of a single religious object does not necessarily disqualify a trust if the dominant purpose is charitable and no substantial religious activity or expenditure occurs.

Court's Interpretation and Reasoning: The CIT(Exemption) rejected approval on the basis that the Scheme of Administration included objects such as "giving gifts for materials in temples" and "religious and charitable activity," which were held to be religious in nature and thus barred approval. The Tribunal found this approach overly formalistic, as the CIT(Exemption) did not examine whether such objects were operative or whether any religious expenditure was actually incurred.

Key Evidence and Findings: The assessee submitted that the dominant objects are charitable, including education, medical relief, and public welfare, and that no religious expenditure was recorded in audited accounts over several years. The Tribunal noted the absence of any evidence of religious activity or expenditure, and that the trust had not invoked the 5% religious expenditure allowance under section 80G(5B).

Application of Law to Facts: The Tribunal highlighted that the statutory scheme requires a purposive reading of the trust deed and consideration of actual activities and expenditures. The mere presence of a religious clause in the trust deed does not automatically render the trust ineligible. The CIT(Exemption)'s failure to apply this principle and to consider the substance over form was a significant flaw.

Treatment of Competing Arguments: The Departmental Representative relied on the literal presence of religious objects in the deed and judicial precedents supporting strict interpretation. The Tribunal, however, underscored the importance of contextual and functional analysis rather than a rigid textual approach.

Conclusion: The Tribunal held that the rejection of approval under section 80G(5) was unsustainable and directed fresh consideration after full examination of evidentiary materials and adherence to legal principles.

3. Procedural and Evidentiary Issues

The Tribunal extensively considered whether the assessee was afforded a fair and meaningful opportunity to present updated documents, including corrected PAN details and evidence of charitable activities. It found deficiencies in the CIT(Exemption)'s process, including non-consideration of explanations and failure to grant adequate hearing opportunities. The Tribunal stressed the importance of natural justice and fair hearing in such statutory adjudications.

4. Miscellaneous Observations

The Tribunal expressed displeasure at the Authorised Representative's misstatements regarding submission of evidentiary materials, cautioning against casual or inaccurate assertions in judicial proceedings. However, no adverse costs were imposed, recognizing absence of mala fide intent.

Significant Holdings

"The non-routing of donor-sponsored charitable activities through the books of account does not ipso facto negate the charitable nature of such acts, especially when the trust acts merely as an implementing or coordinating agency."

"The presence of a single religious clause in a trust deed does not per se disentitle an institution from approval, provided that the trust is not found to be engaged in any actual religious activity or expenditure in violation of the governing thresholds under the Act."

"The eligibility for registration under section 12AB must be tested on the basis of statutory compliance with the conditions stipulated and not on the timing or delay in opting for such registration under the earlier regime."

"A formalistic approach based solely on the wording of objects without examination of the substance of trust's functioning and financial conduct is inconsistent with the statutory mandate and judicial principles."

"The principles of natural justice and fair hearing are integral to the adjudication of applications under sections 12AB and 80G(5), and denial of adequate opportunity vitiates the impugned orders."

Final Determinations:

• Both impugned orders rejecting registration under section 12AB and approval under section 80G(5) were set aside.
• The matters were remanded to the CIT(Exemption) for fresh adjudication on merits after allowing the assessee to file complete and updated documents and after granting reasonable opportunity of hearing.
• The CIT(Exemption) was directed to apply settled legal principles, including purposive interpretation of objects, consideration of substance over form, and recognition of donor-supported charitable activities not routed through trust accounts.
• The Tribunal cautioned against procedural lapses and misstatements by representatives and emphasized the need for professional responsibility in statutory proceedings.