In a recent judgment, ITAT Delhi has held that it is not pre-requirement for seeking registration u/s 12A of the Income tax Act, 1961 that the applicant must show and establish having undertaken charitable activities before filing such application for registration u/s 12A.
ITA No. 3766 & 3767/Del/2013
Saraswati Devi Educational & Charitable Trust Vs. The C.I.T.
Date of Order/Judgment: 31/03/2016
Brief Facts of the Case:
The applicant-trust was registered under the Indian Trusts Act established with the object of spreading education and providing medical and social relief to the poor. Earlier, the registration was refused by the CIT and the ITAT, New Delhi vide its order dated 11.6.2012 in ITA Nos. 4641 & 4642/Del/2011 restored both the issues to the file of CIT for fresh adjudication on merits. During the second round of proceedings, the CIT, Rohtak called for the remand report from the concerned AO as to whether the applicant fulfilled all the conditions required for grant of registration applied for. However, JCIT and AO did not clearly recommend the case for grant of registration u/s 12A and left the matter to be decided by the CIT on merits. The CIT, considering the information as insufficient passed the order rejecting registration u/s 12A and approval u/s 80G.
The main ground taken by CIT for rejection were as under:
(i) That the appellant trust has carried out one time activity of the distribution of sums & also the appellant society has not carried out any activity in the field of formal education which was not charitable activity in view of section 2(15).
(ii) That the appellant society is just like a private discretionary society controlled by the President, Secretary, First Vicepresident, Second Vice-President and Treasurer of the Society who are brother having close family relations with other members.
(iii) That the appellant society has amended the constitution without following the due procedure of the law.
(iv) The Joint CIT as well as Assessing Officer did not recommend the case under registration 12A and left the matter to be decided on merits.
(v) The properties of the society and the financial control are in the hand of members and also the crucial power to transfer the assets to any or many member of the office bearer.
Important Case Law considered:
Sanjeevamma Hanumath Gowda Charitable Trust vs DIT(E) reported as 285 ITR 327 (Karnataka HC)
CIT-I vs Baba Kartar Singh Dukki Educational Trust reported as 221 Taxman 493 (P&H HC)
PIT vs Garden City Educational Trust 191 Taxman 238 (Kar HC)
Excerpts from ITAT Judgment:
……….. we are of the view that at the time of grant of registration u/s 12A of the Act, the ld. CIT has to record his satisfaction about the charitable objects and genuineness of the proposed activities of the applicant. The clause 10 and 12 clearly mandates the charitable activities of the trust. It is not pre-requirement for seeking registration u/s 12A of the Act that the applicant must show and establish having undertaken charitable activities before filing such application for registration u/s 12A of the Act. The ld. CIT(A) has not brought out any allegation or fact on record to establish and allege that the receipts of application trust were not used for charitable purposes and nor it has been shown that receipts were misappropriated or misused by the trustees or office bearers of the trust. Hence this allegation has no legs to stand.
Next allegation made by the ld. CIT(A) is that the applicant trust has amended constitution without following the procedure and properties of the trust and financial control are in the hands of the members and crucial power to transfer the assets to any or many members of the office bearer but we are unable to see any such clause or provision in the trust deed which shows that the control of properties and finance is safely given to members to enjoy the fruits of the properties and financial resources and receipts of the trust.
Last allegation for rejection as noted by the ld. CIT(A) is also not correct that the JCIT and the AO did not recommend the case for registration u/s 12A of the Act. But we do not agree with this basis as the satisfaction has to be recorded by the ld. CIT himself who is considering the grant of registration and it is not the case of the Revenue that the JCIT or the AO did not recommend the grant of registration but at the same time from the copies of the remand report dated 18/2/2013 and 11.2.2013 [available at pages 26 to 28 of the assessee’s paper book] it is clear that it was reported that the amount of Rs. 93,000/- has been utilised for the benefit of brilliant and needy students. In those reports the JCIT & ACIT/AO has also stated that the trust is running on deed which was made on 27.12.2010 and the trust is an educational and charitable trust with the object to help in spreading of education in its widest connotation with special focus on education of poor and needy without any preference on the basis of religion, race, caste, sex or place of birth and operation of the trust shall be carried in accordance with the intention of earning profits will perform with service motive only. In such situation the basis and allegations labelled by the ACIT are not found to be sustainable.
From these provisions, it is amply clear that the scope and ambit of the inquiry revolves around the nature of objects being charitable or religious and the genuineness of the activities of the trust or institution.