2025 (5) TMI 497 - AT - Income Tax

Rejection of application u/s 12AB and 80G - Non-Registration under Rajasthan Public Trust Act 1959 Utilising income assets of the trust not as per objects and Non-Genuineness of activities - HELD THAT - Taking into consideration the serious issues involved the matter needs to be restored to Learned CIT(E) for decision afresh so as to provide the applicant trust another opportunity to furnish requisite information/details/documents which its representative did not furnish earlier. As a result this appeal is disposed of for statistical purposes and the application u/s 12AB of the Act is restored to the files of Learned CIT(E) for decision afresh after affording another opportunity to the applicant of being heard.

Summary

The core legal questions considered in this judgment pertain to the rejection of applications filed under sections 12AB and 80G of the Income Tax Act, 1961. Specifically, the issues are:

1. Whether registration under the Rajasthan Public Trust Act, 1959, is a mandatory prerequisite for registration under section 12AB of the Income Tax Act.

2. Whether the applicant trust's utilization of income and assets was in accordance with its objects, and whether the activities of the trust were genuine.

3. Whether approval under section 80G can be granted without prior registration under section 12AB.

4. Whether the applicant trust's activities were restricted to a particular religious community, thereby violating provisions related to eligibility under section 80G.

5. Whether religious trusts are eligible for approval under section 80G, considering the relevant statutory provisions.

Regarding the first issue of mandatory registration under the Rajasthan Public Trust Act (RPT Act) for section 12AB registration, the Court noted the appellant's admission that the trust was not registered under the RPT Act at the time of application. However, the Tribunal relied on a precedent from a coordinate bench which held that registration under the RPT Act is not an essential requirement for registration under section 12AB of the Income Tax Act. This interpretation clarifies that the statutory framework under the Income Tax Act operates independently of state public trust registrations for the purpose of income tax exemptions and registrations.

On the second issue concerning utilization of income and genuineness of activities, the Court examined the findings of the Learned Commissioner of Income Tax (Exemptions) (CIT(E)) who rejected the application under section 12AB on grounds that the trust failed to demonstrate that loans and advances shown in the balance sheets were in furtherance of the trust's objects. The CIT(E) issued a detailed notice requesting ledger accounts, purposes of payments, and justification for the use of funds, which the trust did not adequately respond to. The failure to furnish such critical information led to a prima facie conclusion that the income and assets were not utilized as per the objects of the trust, potentially violating section 11(5) and the explanation to section 12AB(4).

Further, the genuineness of activities was questioned due to the trust's failure to provide essential documents such as bills, vouchers, bank statements, salary payment details, repair and maintenance bills, details of payments to related parties under section 13(3), and receipts for corpus funds. The absence of these documents prevented verification of the trust's activities and financial transactions, raising suspicion of siphoning off income and restricting activities to a particular religious community, which is impermissible under the relevant provisions.

The appellant's representative contended that the failure to furnish the requisite documents was due to inadequate time and requested remand for fresh consideration. The Tribunal acknowledged that multiple notices had been issued and, considering the seriousness of the issues, directed the matter to be restored to the CIT(E) for fresh adjudication after providing the applicant another opportunity to submit the required information. However, due to prior non-compliance, the appellant was burdened with costs, which were ordered to be deposited with the Prime Minister's National Relief Fund before the remand proceedings commenced.

Regarding the rejection of the application under section 80G, the Tribunal noted that the primary reason for rejection was the prior rejection of the section 12AB application. Since the section 12AB application was restored for fresh consideration, the section 80G application was also restored to the CIT(E) for decision afresh. The Tribunal emphasized the necessity for the appellant to participate actively in the proceedings and comply with all directions issued by the CIT(E) to enable effective adjudication.

In conclusion, the Tribunal established the following significant principles and determinations:

- Registration under the Rajasthan Public Trust Act, 1959, is not a mandatory requirement for registration under section 12AB of the Income Tax Act.

- The applicant trust must demonstrate that its income and assets are utilized strictly in accordance with its objects and provide substantiating documents to prove the genuineness of its activities.

- Non-furnishing of critical financial documents and details can lead to rejection of applications for registration and exemption under the Income Tax Act.

- Approval under section 80G is contingent upon registration under section 12AB; thus, the fate of the 80G application is linked to the 12AB application.

- Trusts whose activities are restricted to a particular religious community may violate the eligibility criteria under section 80G.

- The Tribunal has the discretion to restore matters for fresh consideration with directions to provide reasonable opportunity of hearing, especially where non-compliance is due to procedural lapses, but may impose costs for repeated non-compliance.