2025 (6) TMI 1051 - AT - Income Tax

Exemption u/s 11 - registration was denied on the ground that no substantial charitable activities are being carried out by the assessee trust which is in violation of the provisions of section 11 and 12A - HELD THAT - It is pertinent to note that if the assessee trust has not started/commenced its charitable activities then the proposed activities are to be considered for satisfying itself by the competent authority while granting registration u/s 12AB of the Act. If the activities are yet to be commenced then it cannot be the case of the activities are not genuine. If the proposed activities of the assessee trust are to achieve its objects which are accepted as charitable in nature then non- commencement of the activities at the time of filing the application or at the time of passing the order for grant of registration u/s 12AB cannot be a sole reason for denial of registration without considering the proposed activities of the assessee. There is no dispute that the assessee has not carried out any charitable activities till the application was filed and the impugned order was passed. However assessee has stated that in the subsequent year the assessee trust has carried out the activities. We further note that the learned CIT (E) has dismissed the application summarily without even discussing anything which is held to be non-genuineness of the activities of the assessee. Only in the case where the assessee has already started or carried out its activities which were found to be not in line with the objects of the assessee then the conditions as prescribed u/s 12AB can be regarded as not satisfied. Accordingly when the assessee has claimed to have carried out the charitable activities in the subsequent years which are required to be considered by the CIT (E) to satisfy himself about the genuineness of the activities carried out for achieving the objects of the Trust. Hence the impugned order of the learned CIT (E) is set aside and the matter is remanded to the record of the learned CIT (E) for fresh adjudication.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in these appeals are:

• Whether the learned Commissioner of Income Tax (Exemptions) was justified in rejecting the application for registration of the charitable trust under section 12AB of the Income Tax Act, 1961, despite the trust fulfilling all conditions for registration.
• Whether the denial of registration on the ground that no substantial charitable activities were carried out by the trust was legally sustainable.
• Whether the learned Commissioner erred in holding that the trust violated provisions of sections 11 and 12 of the Income Tax Act without any evidence on record.
• Whether the Commissioner failed to properly appreciate the objects of the trust, the genuineness of its activities, and the documents and evidence furnished by the trust.
• Whether the rejection of approval under section 80G of the Income Tax Act was justified on the same grounds as the rejection under section 12AB.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of rejection of registration under section 12AB for lack of substantial charitable activities

Relevant legal framework and precedents: Section 12AB of the Income Tax Act, 1961 governs the registration of charitable trusts and institutions. Registration is a prerequisite for claiming exemption under sections 11 and 12. The Supreme Court in Ananda Social & Educational Trust held that the term 'activities' under section 12AA (now 12AB) includes 'proposed activities' and that the Commissioner must consider whether the objects and proposed activities are genuinely charitable in nature. Registration is intended for trusts with genuine charitable objects and activities, including those yet to commence activities. The Court distinguished this from cancellation proceedings under section 12AA(3), which relate to actual activities carried out.

Court's interpretation and reasoning: The Tribunal observed that the learned Commissioner did not dispute the charitable nature of the trust's objects but denied registration solely on the ground that no substantial charitable activities were being carried out. The Tribunal emphasized that if the trust has not commenced activities, the competent authority must consider the proposed activities to determine genuineness. The rejection without such consideration was held to be improper.

Key evidence and findings: The trust was established in December 2021 and was granted provisional registration under section 12A in January 2022. The application for registration under section 12AB was filed in January 2024. The Commissioner rejected the application in December 2024 citing lack of substantial charitable activities. The trust submitted its objects, income and expenditure accounts showing no income and only administrative expenses. The trust asserted that it had commenced charitable activities in the subsequent year after the application.

Application of law to facts: The Tribunal applied the Supreme Court's ruling to hold that since the trust's objects were accepted as charitable and activities were yet to commence at the time of application, the Commissioner was required to consider the genuineness of proposed activities. The mere absence of commenced activities was insufficient ground for denial. The Tribunal found that the Commissioner's order was a summary rejection without examining the genuineness of proposed activities or subsequent commencement.

Treatment of competing arguments: The Department argued that substantial time had lapsed without activities and thus registration was rightly denied. The Tribunal rejected this, holding that the law requires consideration of proposed activities and that non-commencement alone cannot justify denial. The Tribunal also noted that violation of sections 11 and 12 can only be considered after registration is granted.

Conclusion: The Tribunal set aside the rejection order and remanded the matter to the Commissioner for fresh adjudication after considering the proposed and subsequent activities to satisfy the genuineness of the trust's charitable activities.

Issue 2: Rejection of approval under section 80G on similar grounds

Relevant legal framework: Section 80G approval allows donors to claim deduction for donations to the trust. Approval is contingent on the trust's registration and genuine charitable activities.

Court's interpretation and reasoning: The Tribunal noted that the rejection of approval under section 80G was on identical grounds as the section 12AB registration rejection.

Application of law to facts: Since the Tribunal remanded the registration matter for fresh consideration, it also set aside the 80G approval rejection and remanded it for reconsideration on the same terms.

Conclusion: The 80G approval rejection was set aside and remanded for fresh adjudication.

3. SIGNIFICANT HOLDINGS

The Tribunal preserved and relied heavily on the Supreme Court's reasoning in Ananda Social & Educational Trust, particularly the following excerpt:

"Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term 'activities' in the provision includes 'proposed activities'. That is to say, a Commissioner is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust."

Core principles established:

• Registration under section 12AB requires satisfaction that the trust's objects and activities (including proposed activities) are genuinely charitable.
• Non-commencement of activities at the time of application cannot be the sole ground for denial of registration.
• Violation of sections 11 and 12 provisions can only be considered after registration is granted.
• Rejection orders must be reasoned and consider all relevant material, including proposed and subsequent activities.

Final determinations:

• The denial of registration under section 12AB solely on the ground of non-commencement of activities was improper and set aside.
• The matter was remanded for fresh adjudication considering the genuineness of the trust's objects and proposed/subsequent activities.
• The rejection of approval under section 80G was also set aside and remanded for reconsideration on the same terms.