TMI Blog2013 (3) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutions, and receives donations, the registration under Section 12AA cannot be refused, on the ground that the Trust has not yet commenced the charitable or religious activity. It is not denied that for subsequent year the appellant has been granted exemption under Section 12AA and has also been approved under Section 80G of the Act, subject to certain conditions. If the Commissioner of Income Tax was satisfied with the genuineness of the objects of the trust for the subsequent assessment year, the refusal of the registration for the previous assessment year 2011-12 was not justified. - Decided in favor of assessee. - Income Tax Appeal No.(107) of 2012 - - - Dated:- 15-3-2013 - Sunil Ambwani And Bharat Bhushan, JJ. JUDGMENT We have heard Shri Rahul Agarwal for the appellant. Shri Govind Krishna appears for the Commissioner, Income Tax. The appeal was admitted on 11.12.2012 on the following substantial questions of law.: "(a) Whether it is essential for a trust to commence charitable/educational activity before it can be considered eligible for registration under Section 12 AA of the Income Tax Act and the order of the Tribunal below is legally sustainable? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. The construction of university campus is towards completion and admission for various educational courses are in progress. Copy of the prospectus issued by the university is filed. The advertisement appearing in July 2011 issue of Out Look magazine is also enclosed." The Trust received a letter dated 1.8.2011 from the Income Tax Officer (Tech), for Commissioner, Income Tax-II, Agra requiring it to produce books of accounts for the F.Y.2010-11 and for the period from April 11 to July 11, copy of the sale deed in respect of purchase of land, the construction account in respect of the building and extent of construction done, details of advertisement-publication of brochure including prospectus, the rate at which prospectus is sold and the PAN of Choudhry Hardayal Singh Shiksha Samiti. The entire information was provided by the trust by the Chairman of the trust by its letter dated 16.8.2011. By an order dated 17/23.8.2011, the Commissioner of Income Tax-II, Agra after providing an opportunity of hearing to the Trust, refused to grant registration under Section 12AA of the Act and the approval under Section 80G on the grounds that the trust is in the process of construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in initial stage, itself has tried to promote business of group concern. The Tribunal held:- considering the totality of the facts and circumstances, we are of the view that the assessee failed to establish that it has carried out genuine activities towards the objects of the assessee trust. Whatever other activities were carried out were found for promoting commercial activities of the group concern. Therefore, the assessee has failed to satisfy the requirements u/s. 12AA of the Act and as such, the ld. Commissioner was justified in refusing to grant registration and approval under the above provisions of the IT Act. We are, therefore, of the view that there is no irregularity or illegality in the impugned order . The Tribunal, thereafter, observed that considering the facts of the case that the assessee Trust is still at the stage of raising construction for schools and colleges and yet to start educational and charitable activities, it is given an opportunity to file fresh application before the ld. Commissioner for grant of registration and approval, when it would actually start educational and charitable activities and in that event, the led. Commissioner shall cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred on advertising and publishing the high quality prospectus, could not be a ground on which the registration could be denied. Shri Rahul Agrawal relies on Director of Income Tax (Exemptions) v. Meenakshi Amma Endowment Trust, (2011) 50 DTR (Kar) 243; Director of Income-tax v. Foundation of Ophthalmic Optometry Research Education Centre, (2012) 25 taxmann.com 376 (Delhi), and the opinion of the Punjab and Haryana High Court in Commissioner of Income-tax-II, Chandigarh v. Surya Educational Charitable Trust decided on October 5th, 2011. In these judgments the High Court of Karnataka, Delhi and Punjab Haryana have held that the object of Section 12AA of the Act is to examine the genuineness of the object of the Trust and not its activities, which may not have begun at the time, when the application is made for registration. At such stage, the Commissioner (Enquiries) should address his enquiries on the application of the income of the trust for charitable or religious purposes. The stage for allocation of income arrives, when the trust or the institution files its return. Shri Govind Krishna on the other hand submits that the application for registration of the trust under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being contribution made with a specific direction that they shall form part of corpus of the trust or the institution. These contributions shall for the purposes of Section 11 be deemed to be income derived from property held under the Trust wholly for charitable or religious purposes and the provisions of that Section and Section 13 shall, apply to such income. Section 11 (1) (a) exempts the income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India, and where any such income is accumulated or set apart for application for such purposes to the extent to which the income was accumulated or set apart is not in excess of 15% of the income from such property, subject to condition and percentage of income set out in the Section. Section 12A (1) provides that the provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the conditions in Clause (a), (aa), (b) are satisfied. One of the condition is that the application is made before the expiry of the period of one year from the date of the creation of the trust or the estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution; Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard." In CIT v. Red Rose School, 212 CTR 394 (Allahabad High Court) it was held that to ascertain the genuineness of the activities of the trust or the institution whose object do not run contrary to public policy and are infact related to charitable purpose, the CIT is empowered to make enquiries as he think fit. In case the activities are not genuine and they are not being carried out in accordance with object of the trust/ society or the institution, registration can again be refused but on mere presumption and on surmise that the income is being misused or that there is some apprehension that same would not be used in the proper manner, and for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unjab and Haryana High Court in CIT-II, Chandigarh v. Surya Educational Charitable Trust also held that the object of Section12AA of the Act to examine the genuineness of the objects of the trust and not the income of the trust for charitable or religious purposes. The stage for allocation of income will arrive, when the trust or institution files its return. The preponderance of the judicial opinion of all the High Court including this Court is that at the time of registration under Section 12AA of the Income Tax Act, which is necessary for claiming exemption under Section 11 and 12 of the Act, the Commissioner of Income Tax is not required to look into the activities, where such activities have not or are in the process of its initiation. Where a trust, set up to achieve its objects of establishing educational institution, is in the process of establishing such institutions, and receives donations, the registration under Section 12AA cannot be refused, on the ground that the Trust has not yet commenced the charitable or religious activity. Any enquiry of the nature would amount to putting the cart before the horse. At this stage only the genuineness of the objects has to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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