2025 (7) TMI 1304 - AT - Income Tax

Rejection of registration u/s. 12AB - As per AO assessee trust has not commenced its charitable activities - HELD THAT - The facts clearly show that assessee has obtained land on lease for which lease deposit is also paid and has also obtained Bank OD of Rs. 10 crores. CIT did not consider the above aspect. She further did not consider the bank statement of assessee with ICICI Bank Kotak Mahindra Bank and term loan statement from Kotak Mahindra Bank which clearly show that there are substantial activities carried on by the assessee. To support its contention the assessee furnished a lease deed dated 26.6.2023 and also submitted copies of bills for construction of school along with purchase bills of building material. CIT despite all these facts and merely considering the Income Expenditure for FY 2023-24 held that assessee has not received sufficient donation and has not made any expenditure towards the objects of the trust. When the assessee is a trust which has an object for education constructs a school and makes substantial investment in fact the activities of the trust has already commenced and these evidences could not have been ignored. Therefore we are of the view that rejection of the application of the assessee for registration u/s. 12AB holding that assessee has not commenced its activities is not proper. Accordingly we quash the order passed by the ld. CIT(E). As CIT(E) has not examined the details submitted on 10.1.2025 we restore the appeal back to her file with a direction to consider the reply filed by the assessee before her and thereafter examine the application of the assessee and decide it in accordance with law. Appeal of assessee allowed.

Summary

ISSUES:

Whether the rejection of registration under section 12AB of the Income-tax Act, 1961, on the ground that the trust has not commenced its activities, is justified.Whether the administrative authority is required to consider all relevant material, including provisional financial statements and evidence of ongoing activities, before rejecting registration under section 12AB.Whether mere insufficiency of donations and lack of expenditure towards the objects of the trust in one financial year justifies rejection of registration under section 12AB.

RULINGS / HOLDINGS:

The rejection of registration under section 12AB on the basis that the trust "has not commenced its activities" was held improper where substantial evidence showed ongoing activities, including lease of land, construction work, and financial transactions indicating operational commencement.The administrative authority failed to consider "the provisional balance sheet for FY 2024-25," bank statements, lease deeds, and construction bills, which collectively demonstrated that the trust had commenced its activities, rendering the rejection unsustainable.The court held that "mere considering the Income & Expenditure for FY 2023-24" and concluding insufficient donations and lack of expenditure towards the objects does not justify rejection when other substantial activities and investments are evident.The order rejecting registration was quashed and the matter was remanded with a direction to the authority to consider all submitted replies and evidence before deciding the application in accordance with law.

RATIONALE:

The court applied the statutory framework of section 12AB of the Income-tax Act, 1961, which governs registration of trusts for exemption purposes, requiring that the trust should have commenced its activities in furtherance of its objects.The court emphasized the necessity for the administrative authority to examine all relevant materials submitted by the applicant, including provisional financial statements and supporting documents evidencing commencement of activities.The decision reflects a doctrinal insistence on a holistic and fact-based inquiry rather than a narrow focus on income-expenditure accounts of a single financial year.No dissent or concurring opinions were noted; the judgment underscores the principle that registration under section 12AB must not be denied on incomplete or selective consideration of facts.