2025 (6) TMI 703 - AT - Income Tax

Rejection of registration u/s 12A and approval u/s.80G(5) - nature of objects of the trust which was held to be non-charitable by the Ld. CIT(E) - HELD THAT - As found that the CIT(E) had relied upon only few of the objects to come to the conclusion that the objects were restricted for the benefit of its members and all the objects of the trust have not been considered in totality. In the interest of justice we deem it necessary to set aside the matter to the file of the CIT(E) with a direction to allow another opportunity to the assessee to explain the objects and demonstrate as to how they are covered under the category of charitable object as per provision of Section 2(15) of the Act. The assessee is also directed to make compliance before CIT(E) and not to seek unnecessary adjournment. The matter regarding approval u/s.80G(5) of the Act is also required to be set aside which has to be re-adjudicated after first deciding the matter of registration u/s.12A of the Act. Appeals filed by the assessee are allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal were:

• Whether the assessee trust's objects qualify as charitable under Section 2(15) of the Income Tax Act, 1961, thereby entitling it to registration under Section 12A of the Act;
• Whether the rejection of the registration application under Section 12A was justified based on the nature of the trust's objects;
• Whether the assessee was afforded adequate opportunity of being heard before the rejection of registration;
• Whether the approval under Section 80G(5) of the Act can be granted in the absence of registration under Section 12A;
• Whether the matter should be remanded back to the Commissioner of Income Tax (Exemption) for reconsideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Qualification of the Trust's Objects as Charitable under Section 2(15) of the Act

Relevant Legal Framework and Precedents: Section 2(15) defines "charitable purpose" to include relief of the poor, education, medical relief, and advancement of any other object of general public utility. The law requires that the objects of the trust be for the benefit of the public at large and not restricted to a particular class or members.

Court's Interpretation and Reasoning: The CIT(E) had concluded that the trust's objects were restricted to the benefit of its members and thus did not qualify as charitable. However, the Tribunal found that the CIT(E) relied upon only a few objects selectively and did not consider the objects in their entirety. This partial consideration was deemed insufficient to conclusively determine the nature of the objects.

Key Evidence and Findings: The assessee had submitted the trust deed and other documents outlining the objects. The Tribunal noted that the assessee claimed the objects were for the benefit of the general public as well.

Application of Law to Facts: Since Section 2(15) requires a holistic view of the objects, the Tribunal found that the CIT(E)'s approach was flawed for not considering the full scope of the trust's objectives.

Treatment of Competing Arguments: The assessee argued the objects were charitable and for public benefit, while the CIT(E) held the opposite. The Tribunal sided with the assessee on the need for comprehensive consideration and further opportunity to clarify.

Conclusion: The issue of whether the trust's objects are charitable under Section 2(15) was not conclusively decided and required further examination with full opportunity to the assessee.

Issue 2: Adequacy of Opportunity of Being Heard Before Rejection of Registration

Relevant Legal Framework: Natural justice principles and procedural fairness require that an applicant be given adequate opportunity to explain and defend their case before adverse orders are passed.

Court's Interpretation and Reasoning: The Tribunal observed that the CIT(E) had issued a single show cause notice dated 01.10.2024 and did not consider the assessee's request for adjournment. The assessee contended that this amounted to denial of proper opportunity.

Key Evidence and Findings: The record showed only one opportunity was provided, and the assessee's request for adjournment was not entertained.

Application of Law to Facts: The Tribunal held that a single show cause notice without adequate opportunity to respond, especially when the assessee sought adjournment, was insufficient and contrary to principles of natural justice.

Treatment of Competing Arguments: The CIT(DR) did not oppose remand for reconsideration, implicitly acknowledging procedural inadequacies.

Conclusion: The Tribunal concluded that the assessee was not given a fair and adequate opportunity of hearing, warranting remand for fresh consideration.

Issue 3: Rejection of Approval under Section 80G(5) in Absence of Registration under Section 12A

Relevant Legal Framework: Section 80G(5) approval is contingent upon prior registration under Section 12A. Without registration, approval under Section 80G cannot be granted.

Court's Interpretation and Reasoning: Since the CIT(E) rejected registration under Section 12A, the approval under Section 80G(5) was also rejected as a corollary.

Key Evidence and Findings: The Tribunal noted that the approval under Section 80G(5) depends on the outcome of the registration under Section 12A.

Application of Law to Facts: The Tribunal held that the matter of approval under Section 80G(5) must be reconsidered only after the registration issue is decided.

Treatment of Competing Arguments: No opposition was raised by the Revenue on remanding the approval issue.

Conclusion: The approval under Section 80G(5) was to be reconsidered post the decision on registration under Section 12A.

Issue 4: Whether the Matter Should be Remanded for Reconsideration

Court's Interpretation and Reasoning: Considering the procedural lapse in hearing and incomplete consideration of the trust's objects, the Tribunal deemed it necessary in the interest of justice to remit the matter to the CIT(E) for fresh adjudication.

Key Evidence and Findings: The Tribunal found that the CIT(E) did not consider all objects and rejected the application prematurely.

Application of Law to Facts: The remand was directed with instructions to provide adequate opportunity, consider the objects in totality, and avoid unnecessary adjournments.

Treatment of Competing Arguments: The Revenue did not oppose the remand.

Conclusion: The matter was remanded for fresh consideration and decision.

3. SIGNIFICANT HOLDINGS

The Tribunal