ITAT has no jurisdiction to direct registration of Trust u/s 12AA without satisfaction recorded by Commissioner

ITAT has no jurisdiction to direct registration of Trust u/s 12AA without there being satisfaction recorded by the Registering Authority as contemplated by the Income Tax Act – High Court

 ITAT jurisdiction to direct registration of Trust

ABCAUS Case Law Citation:
ABCAUS 2074 (2017) (09) HC

The Challenge/Grievance:
The appeal was filed by the Revenue under Section 260-A of the Income Tax Act, 1961 (“Act”) against the order of the Tribunal directing the Commissioner of Income Tax to grant registration of a trust under Section 12AA

The Substantial Question of Law framed/urged for determination:
Whether the tribunal itself can direct for the registration of a trust under Section 12AA of the Act without there being satisfaction recorded by the registering authority? 

Brief Facts of the Case:
The respondent trust had applied for registration under Section 12AA of the Act but the same was refused by the Commissioner of Income Tax on the ground that the respondent was not carrying out any charitable activities. 

The Tribunal by the impugned order allowed the appeal of the respondent and had directed for registration of the Trust under Section 12 AA of the Act. 

Observations made by the High Court:
The High Court observed the decisions of the various High Courts as under and opined that In view of the aforesaid authorities, for the purposes of registration of a Trust under Section 12AA of the Act, the authorities have to satisfy about the genuineness of the objects of the Trust and its activities. 

Karnataka High Court
The Karnataka High Court had held that for the registration of a Trust under Section 12AA of the Act, the authorities have to satisfy about genuineness of the activities of the trust and the manner in which its income is applied in charitable or religious purpose.

It observed as under :- 

“Therefore, for the purpose of registration under section 12 AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purpose and not the nature of the activity by which the income was derived by the trust.” 

Allahabad High Court
At the stage of considering the application for the registration, all that may be examined is whether the application is made in accordance with the requirements of Section 12 AA read with Rule 17A, whether Form-10 A has been properly filled up and thereafter, to see whether the objects of the Trust are charitable or not and its activities are genuine but it is not within the domain of the Commissioner of Income Tax (Exemptions) to examine whether any activity carried out by the Trust is charitable in nature or not. 

The High Court observed the decisions of the various High Courts as under and opined that the Tribunal was justified in holding that the Commissioner of Income Tax (Exemptions) committed illegality in refusing registration. 

Kerala High Court

It was observe as under :-

“At the time of registration of the trust, going by the binding judgments of the apex court, what is to be looked into is whether the trust is a genuine one and whether it is a sham institution floated only to avail the benefits of exemption under the Act …….” 

Allahabad High Court
The Court accepted that the Commissioner of Income Tax (Exemptions) at the stage of registration is not supposed to inquire into the conduct of charitable or other activities performed by a Trust applying for registration as these are matters of investigation at the time of assessment and held that the authorities could only examine the genuineness of the Trust and its activities. 

Allahabad High Court
A Division Bench of the High Court had held that the genuineness of the objects and activities of the Trust has to be tested at the time of registration and not the activities, which had not commenced by that time. 

However, the High Court observed that Section 12AA of the Act provides that the Registering Authority after satisfying himself about the objects of the Trust and genuineness of its activities shall pass an order in writing for registration of the Trust or to refuse the registration. Therefore, satisfaction of the Registering Authority is mandatory before any Trust is registered under Section 12 AA of the Act. The aforesaid satisfaction has not to be recorded by any other authority. 

It was observed that the registration was refused simply for the reason that the objects and activities of the Trust were not charitable in nature. The said order had been set aside by the tribunal left no material which could reflect that any satisfaction as required existed. Thus, in the absence of any satisfaction of the Registering Authority, the direction to register the Trust was without jurisdiction. 

The High Court opined that the Tribunal could have ordered for setting aside the order of Registering Authority refusing registration but it could not have directed for registration straight away inasmuch as there has to be satisfaction recorded by the Registering Authority which was lacking. 

Held:
The question was answered in favour of the Department and against the respondent and it was held that the Tribunal had no jurisdiction in law to direct for registration of the Trust without there being satisfaction recorded by the Registering Authority as contemplated by Section 12 AA of the Act. 

Accordingly, the order of the Tribunal to the extent it directed for registration of the respondent Trust was set aside and the matter was sent to the Commissioner of Income Tax for recording its satisfaction in the light of decision of the Tribunal and to pass appropriate order in accordance with law thereunder.

ITAT jurisdiction to direct registration of Trust

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