SARBAT THE BHALA GURMAT MISSION CHARITABLE TRUST,MOHALI vs. CIT(EXEMPTION), CHANDIGARH

Per Annapurna Gupta, Accountant Member:

The appeal filed by the assessee is directed against the order of Learned Commissioner of Income Tax (Exemptions) [in short the ‘ Ld.CIT(E)], Chandigarh dated 18.05.2020 ,denying grant of registration u/s 12A of the Income Tax Act, 1961 (in short ‘the Act’) as a charitable society.

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are that the assessee is a trust in operation since

30.12.2014 and had applied for grant of registration u/s

12AA,as a charitable society for the purposes of claiming

exemption of its income u/s 11 & 12 of the Act ,on

02.11.2019. The Ld.CIT(E) after calling for requisite

information and making due enquiries, denied registration

for the reason that the objects of the trust provided for

operations being carried out/extended outside India also.

The Ld.CIT(E) observed that the Act rules out grant of

exemptions of incomes applied for charitable purpose

outside India, allowing operation outside India only for

limited purpose subject to approval by the Central Board of

Direct Taxes. Accordingly, he derived from the same and

held that the activities of a trust can be treated as

charitable only when its income is applied for the activities

carried out in India only. For the aforesaid reasons he

denied grant of registration u/s 12A of the Act to the

assessee. The relevant findings of the CIT(E) at paras 5 and

6 of the order are as under:

“5. In response to the fixation letter dated 20.12.201J, the applicant trust has not submitted the reply. The reminder was issued on 15.01.2020 to the trust to submit the reply to questionnaire on or before 24.01.2020. In response, the applicant trust has submitted the response online on ITBA. On perusal of the trust deed of the trust provided in the submission, it is noticed that operation will be extended outside INDIA also

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which mentioned at Sr. no. 7(r) of the objects incidental or ancillary to the attainment of the main objects & same are reproduced as under:- "7(r). To open branches of trust in India and Abroad. " As per section 11(1) (c) of the income tax Act, any income applied on activities outside India is not eligible for exemption. A charitable organization cannot have activity outside India unless it happens to be a trust/company/society created before 1-4-1952 or it is engaged in promotion of international welfare in which India is interested. In other words, NGOs registered after 1-4-1952 are not allowed to have any international activity unless such activity is specifically exempted by CBDT. Provisions of section 11 (1 )(c) are as under:- (c) Income derived from the property held under trust- * Created on or after the 1st day of April, 1952 for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes, outside India, and * For charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that board, by general or special order, has directed in either case that all not be included in the total income of the person in receipt of such income. It is also worthwhile to mention that the activities will be treated as charitable when the expenses incurred on such activities will be borne by the applicant in INDIA only. 6. In view of the above, the present application for grant of registration u/s 12AA is hereby rejected.” 3. Aggrieved by the same the assessee has come up in

appeal before us. He has raised the following grounds:

“1. That the Ld. Commissioner of Income Tax Exemptions Chandigarh has wrongly rejected the registration u/s 12AA of Income Tax Act simply on the basis of general clause at sr no 7 in objects clause i.e To Open branches

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of trust In India or Abroad without appreciating the fact that the appellant trust has neither incurred any expenses outside India nor intention to incur expenses abroad. 2. That the Ld. Commissioner of Income Exemptions Chandigarh has wrongly rejected the registration u/s 12AA of Income Tax Act particularly in view of fact that the appellant had given complete details to Ld. CIT and there is no material pointed out by Ld. CIT that the appellant had incurred any expenses outside India & he simply rejected registration on the basis of clause for opening of branches outside India & there is no provision in trust deed that the appellant society shall incur any expenses outside India out of funds collected from India & also there is no prohibition under Income Tax to open branches outside India. 3. That the Ld. Commissioner of Income Exemptions Chandigarh has wrongly rejected the registration u/s 12AA of Income Tax Ac during lockdown period and before 1-6-2020 hurriedly in order to avoid of benefit granted by Finance Act 2020 to appellant trust. 5. That the Assessee craves for permission to add, amend, alter or withdraw any grounds of appeal with approval of the hon'ble bench.” 4. During the course of hearing before us, the Ld.Counsel

for the assessee contended that the Ld.CIT(E),while denying

grant of registration, had referred to the provisions of

section 11 of the Act which denied exemption to incomes

applied outside India for charitable purposes, which

provision was applicable only while computing or

determining the exempt income of entities which qualified

for the same under the section. That for the purpose of

grant of registration the Ld.CIT(E) was only required to

consider the genuineness of the objects and activities of the

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applicant trust or entity, whether they qualify as existing

for “charitable purpose” as defined under the Act in section

2(15) of the Act. Drawing our attention to the same, the

Ld.Counsel for the assessee pointed out that the definition

of “charitable purpose” nowhere restricted the carrying out

of charitable activities within the geographical boundary of

India alone. Therefore, while granting registration the

possibility of the applicant trust carrying out the activities

outside India cannot lead to the conclusion that it is not in

existence for charitable purpose at all and, therefore,

registration cannot be denied for the said reason. He

contended that it is only when the quantum of income

exempt is to be determined, that the factum of income

applied for charitable activities outside the India would be

relevant for the purposes of excluding the same for

exemption. He pointed out that this issue has been dealt

with in various judicial decisions in favour of the assessee

as under:

1) MK Nambyar SAARC Law Charitable Trust Vs. Union of India & Others (Del) 2) Foundation for Indo-German Studies Vs. Director of Income-Tax (Exemptions) (Hyd) 3) National Informatics Centre Services Inc. Vs. DIT(Exemption) (New Delhi)

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Copies of the aforesaid orders were placed before us. He

further contended that in any case carrying out activities

outside India was not its main object but only incidental

and the applicant primarily would carry out its activities in

India only.

the Ld.CIT(E).

relates to grant of registration u/s 12AA of the Act, for the

purposes of claiming exemption u/s 11 & 12 of the Act of

incomes applied for charitable purposes.

denied registration for the reason that its incidental and

ancillary objects included carrying out the activities outside

the India. The Ld.CIT(E) has held that for the aforesaid

reason the assessee cannot be said to be indulging in

charitable activities. And for holding so he has referred to

the provisions of section 11(1)(c) of the Act.

order of the Ld.CIT(E) is that for the purposes of granting

registration only the conditions mentioned in section 12AA

need to be fulfilled and the provisions of section 11(1)(c) are

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not relevant for the said purpose, being applicable only

while determining the income entitled to exemption u/s 11

of the Act. That in any case carrying out charitable

activities outside India was not the sole or main object but

only incidental/ancillary object of the applicant assessee.

provides for any such geographical limitation in carrying

out charitable activities for the purposes of recognising an

entity as charitable and eligible for registration as such u/s

12A of the Act. We have gone through the provisions of the

Act relating to charitable entities, relevant for adjudicating

the issue before us, i.e section 11, 12, 12A,12AA & 2(15) of

the Act. While section2(15) defines charitable purposes,

section 11 exempts incomes, derived from properties held

under trust, to the extent applied for charitable purposes.

Section 12A imposes the requirement of seeking registration

for the purposes of availing the exemption u/s 11, and the

process of granting registration is governed by section 12AA.

Since in the present case registration has been denied u/s

12AA of the Act, relying upon provisions of section 11, it is

relevant to reproduce both the aforesaid provisions for

adjudicating the issue.

“12AA. (1) The [Principal Commissioner or] Commissioner, on receipt of an application for

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registration of a trust or institution made under clause (a) [or clause (aa) [or clause (ab) of sub-section (1)] of section 12A, shall— (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.”

“Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income— (a) 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 to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property;

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(c) income derived from property held under trust— (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.” 10. As per section 12AA of the Act, the Commissioner,

while considering the application of the trust/societies, has

to satisfy himself regarding the genuineness of the objects

and the activities of the trust/societies, whether they are

for charitable purposes or not. Charitable purpose is

defined u/s 2(15) of the Act as under:

“S.2(15) (15) Charitable purpose includes relief of the poor, education, [yoga,] medical relief, [preservation of environment (including water-sheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility. [Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, of any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration,

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irrespective of the nature of use of application, or retention, of the income from such activity, unless— (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]]” 11. As is evident from the above, the section lists various

activities which qualify as charitable purpose but there is

no restriction to the scope of such activities within the

geographical boundary of India. It is only section 11,as

reproduced above, which places a geographical restriction

allowing exemption only to incomes applied to charitable

purposes in India. But even the said section does not

completely rule out exemption to incomes applied outside

India for charitable purposes, granting exemption to certain

such applications, as mentioned in section 11(1)©,subject to

being approved by the Board.

incomes applied outside India for charitable purposes are

not completely and categorically ruled out from being

eligible for grant exemption.

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denying registration to the applicant assessee merely for

the reason that its objects included application of income

outside India, we hold, is not in accordance with law.More

particularly when, admittedly, this was not the sole and

main object of the applicant assessee, but only its ancillary

and incidental object. It is not the case therefore that there

is to be no application of income within India at all as per

the objects. In fact the main object of the applicant assessee

involves carrying out charitable activities in India. In this

factual situation, denying registration u/s 12AA of the Act,

for the reason that its incidental object entailed application

of income outside India, we find, would result in the

assessee being denied exemption to income applied in India,

which it would otherwise be entitled to under law.

the assessee, the provisions of section 11(1)(c) of the Act,

which the Ld.CIT(E) has relied upon for holding that only

activities carried out in India will qualify as charitable for

grant of registration, is only for the purpose of determining

the income which qualifies for exemption u/s 11 of the Act.

The said section comes into operation only once registration

is granted u/s 12A of the Act and therefore cannot be

relevant for the purposes of granting registration u/s 12A of

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the Act. The scheme of the Act is that all entities carrying

out charitable activities, as defined in section 2(15) of the

Act, qualify to be registered as charitable entities subject

to satisfaction of the concerned officer vis a vis their objects

and activities, but the exemption is provided/restricted only

to the extent of income which is applied for charitable

purpose in India.

assessee by the decisions relied upon by the Ld.Counsel for

the assessee before us. In the case of MK Nambyar SAARC

Law Charitable Trust (supra), we find, the application for

grant of registration was rejected on the ground that the

applicant itself had admitted that the scholarship could be

paid to members even outside India. The Hon'ble High Court

held that the application of income outside India is not a

relevant criteria for rejecting the application for grant of

registration u/s 12AA of the Act and the officer has to only

restrict himself to the satisfaction about the objects and

genuineness of the activities of the trust while granting

registration with no restriction on the activities being

carried out inside or outside India. The relevant findings of

the Hon’ble High Court is as under:

“The judgment of the court was delivered by

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B.C. Patel C.J. - M.K. Nambyar SAARC Law Charitable Trust has filed this petition against the order made by the Director of Income-tax (Exemptions) New Delhi, on February 24, 2004. The aforesaid trust submitted two applications in Form No. 10A for registration under section 12A and recognition under section 80G of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The application was rejected on the ground that the applicant itself has admitted that the scholarships can be paid to the members even outside India. It is in view of this admission that the activities will be extended outside India as per the objects laid down, it was held that the registration cannot be granted under section 12A of the Act and the approval of exemption under section 80G also cannot be granted. Section 11 of the Act refers to income from property held for charitable or religious purposes. The relevant provisions are reproduced hereunder: "11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-fa) 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 to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent, of the income from such property; . .. (a) income derived from property held under trust- (b) (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (c) (ii) for charitable or religious purposes, created before the 1 st day of April, 1952, to the extent 1o which such income is applied to such purposes outside India: (d) Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;. .." (e) So far as the benefit of section 11 (1 )(a) is concerned, it can be extended only to the extent to which such income is applied to such purposes in India. However, if the income is applied to the purposes outside India, then clause (c) will be applicable and if the permission is granted by the Board either by general or special order then, benefit can be extended. Section 12AA prescribes the procedure for

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registration. Reading the section, it becomes clear that after the application is made, the officer has to call for documents or information from the trust to satisfy himself about the genuineness of the activities of the trust, He can make further enquiry as he may deem necessary. It is only after satisfying himself about the objects of the trust and the genuineness of its activities that he has to pass an order in writing registering the trust or institution. And if he is not satisfied, he can reject the same. This section does not refer to the activities in India or outside India. It refers to application of income for charitable or religious purposes in India as also with direction or order of the Board for application of income as aforesaid outside India. Reading the order dated February 24, 2004, it is very clear that there is non-application of mind, it was necessary for the Commissioner to examine the purpose for satisfying himself that the activities are genuine. It was open for him to make necessary enquiries in this behalf and to pass an order as per the procedure laid down under section 12AAof the said Act. So far as income which is applied outside India is concerned, it is not a relevant criteria for rejecting the application. In the absence of an order under section 11(1)(a) and (c), one cannot seek benefit for application of income for charitable or religious purposes, outside India. Therefore, the order dated February 24, 2004 made by the Director of Income-tax (Exemptions), annexed at page 32, which is based on irrelevant criteria is quashed and set aside with a direction to consider the application strictly in accordance with law. It is made clear that even the application under section 80G is required to be considered afresh. It is directed that the applications shall be disposed of within a period of four weeks by the Commissioner.”

has been followed by the Coordinate Benches of the Tribunal

in the case of National Informatics Centre Services Inc.

(supra).

denying registration u/s 12A of the Act is set aside and the

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Ld.CIT(E) is directed to grant registration as applied for by the assessee.

Order pronounced on 30.03. 2021.

Sd/- Sd/- (ANNAPURNA GUPTA) (R.L. NEGI) �याय�क सद�य/Judicial Member लेखा सद�य/Accountant Member Dated: 30th March, 2021 *रती* आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar