Registration u/s 12AA can not be denied for non-commencement of activities. Registration can be applied for by a new trust. Supreme Court settles the law.
ABCAUS Case Law Citation:
ABCAUS 3275 (2020) (02) SC
Important case law relied upon by the parties:
Commissioner of Income Tax-II vs. R.S. Bajaj Society
Self Employers Service Society vs. Commissioner of Income Tax (2001)Vol.247 ITR 18
In the instant case, the appeal had been preferred by the Income Tax Department against the impugned judgment passed by the Delhi High Court holding that a newly registered Trust is entitled for registration undersection 12AA of the Income Tax Act, 1961 (the Act) on the basis of its objects, without any activity having been undertaken.
In this case, no activities had been undertaken by the Trust before the application was made. The Commissioner had rejected the application on the sole ground that since no activities had been undertaken by the trust, it was not possible to register it, presumably because it was not possible to be satisfied about whether the activities of the trust were genuine.
The Income Tax Appellate Tribunal reversed the orders of the Commissioner. The High Court upheld the order of the Tribunal and came to the conclusion that in case of a newly registered trust even though there was no activities, it was possible to consider whether the trust can be registered under section 12AA of the Act.
The Hon’ble Supreme Court observed that Section 12AA of the Act related to procedure for registration of a trust provides that such registration can be applied for by a trust which has been in existence for some time and also by a newly registered trust. There is no stipulation that the trust should have already been in existence and should have undertaken any activities before making the application for registration.
The Hon’ble Supreme Court stated that section 12AA of the Act empowers the Principal Commissioner or the Commissioner of the Income Tax on receipt of an application for registration of a trust to call for such documents as may be necessary to satisfy himself about the genuineness of activities of the trust or institution and make inquiries in that behalf; it empowers the Commissioner to thereupon register the trust if he is satisfied about the objects of the trust or institution and genuineness of its activities.
The Hon’ble Supreme Court noted that in the instant case, the trust applied for the registration within about two months after the it was formed as a society.
The Hon’ble Supreme Court stated that Section 12AA undoubtedly requires the Commissioner to satisfy himself about the objects of the trust or institution and genuineness of its activities and grant a registration only if he is so satisfied. The said section requires the Commissioner to be so satisfied in order to ensure that the object of the trust and its activities are charitable since the consequence of such registration is that the trust is entitled to claim benefits under sections 11 and 12 of the Act. In other words, if it appears that the objects of the trust and its activities are not genuine (not charitable) the Commissioner is entitled to refuse and in fact, bound to refuse such registration.
The Revenue argued that the Commissioner is required to be satisfied about two things – firstly that the objects of the trust and secondly, its activities are genuine. If there have been no activities undertaken by the trust then the Commissioner cannot assess whether such activities are genuine and therefore, the Commissioner is bound to refuse the registration of such a trust.
Registration 12AA can not be denied for non-commencement of activities
However, the Hon’ble Supreme Court disagreed with the above argument and stated that the purpose of section 12AA of the Act is to enable registration only of such trust or institution whose objects and activities are genuine. In other words, the Commissioner is bound to satisfy himself that the object of the Trust are genuine and that its activities are infurtherance of the objects of the Trust, that is equally genuine.
The Apex Court opined that since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, the term ‘activities’ in the provision includes ‘proposed activities’. That is to say, a Commissioner is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust.
The Hon’ble Supreme Court clarified that the position would be different where the Commissioner proposes to cancel the registration of a Trust under sub-section (3) of section 12AA of the Act. There the Commissioner would be bound to record the finding that an activity or activities actually carried on by the Trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found to have undertaken activities contrary to the objects of the Trusts.
Accordingly, the Hon’ble Supreme Court upheld the judgment of the High Court of Delhi and stated that there was no reason to interfere with it.
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