2025 (7) TMI 1156 - AT - Income Tax

Denying the registration u/s 12A and 80G - CIT(E) stated that the assessee has not justified of the charitable activities have been carried out by the trust - certain expenses are in the nature of administrative and commercial - HELD THAT - The materials placed before us in the form of photographs which were also filed before the CIT(E) clearly show that the assessee was distributing food to poor people as per the objects of the trust. CIT(E) did not make any comments on the genuineness of the objects of the trust. The registration u/s 12A as well as 80G was denied certain expenses are in the nature of administrative and commercial. As held by various High Courts while granting registration u/s 12A one has to see whether the objects of the trust are charitable and the activities of the trust are genuine. The evidences furnished by the assessee prove that the assessee is a charitable trust and the activities carried on by the assessee are genuine. The queries raised and details required by the Ld. CIT(E) were all subject matter of verification by the AO while completing the assessment. Since the genuineness of the objects of the trust and the activities of the trust were not doubted by the Ld. CIT(E). He should not have rejected the registration u/s 12A as well as 80G of the Act. Thus we direct the Ld. CIT(E) to restore the provisional registration granted to the assessee u/s 12A and also direct to grant registration u/s 12A as well as 80G to the assessee trust. Appeals of the assessee are allowed.

Summary

ISSUES:

Whether the denial of registration under sections 12A and 80G of the Act is justified on the ground that the trust has not carried out genuine charitable activities.Whether expenses characterized as administrative or commercial/trade nature preclude the trust from obtaining registration under sections 12A and 80G.Whether the presence of incidental commercial activities or generation of surplus income affects the charitable status of the trust at the stage of registration under section 12A.What is the scope of inquiry for the Commissioner (Exemptions) while granting or denying registration under section 12A.

RULINGS / HOLDINGS:

Denial of registration under sections 12A and 80G solely on the basis that majority of expenses are administrative or commercial in nature is not justified where the genuineness of the trust's charitable objects and activities is not doubted.The Commissioner (Exemptions) is required to examine the "genuineness of the objects of the society" and "whether it is charitable or not" at the stage of registration under section 12AA, and not the quantum or nature of income or expenditure.Incidental commercial activities and generation of surplus income do not disqualify a trust from registration if the predominant motive and activities are charitable, as recognized by the "predominant object theory."Registration under section 12AA is to be granted if the trust's objects are charitable and activities genuine; detailed scrutiny of income/expenditure and commerciality is a matter for assessment proceedings, not registration.

RATIONALE:

The Court applied the statutory framework of sections 12A, 80G, 11, and 2(15) of the Income Tax Act, emphasizing the distinction between registration and exemption stages.Precedents affirm that incidental commercial activities or collection of fees do not alter the charitable character if the predominant purpose is charitable (e.g., "predominant object theory").Reliance was placed on multiple judicial decisions clarifying that registration under section 12AA focuses on the genuineness of objects and proposed activities, not on detailed financial scrutiny or the presence of minor commercial elements.The Court noted that denial of registration on grounds of administrative expenses or commercial nature without disproving genuineness of charitable activities is contrary to established legal principles.The Supreme Court's clarification that registration under section 12AA does not guarantee exemption, but focuses on genuineness of objects and proposed activities, was a key doctrinal point.The Court directed restoration of provisional registration and grant of registration under sections 12A and 80G, underscoring that detailed verification of activities and income/expenditure is the domain of assessment officers, not the registration authority.