SAYFTY TRUST,KANPUR vs. COMMISSIONER OF INCOME TAX (EXEMPTION), LUCKNOW

PER T. S. KAPOOR, A.M.

This is an appeal filed by the assessee against the order of learned CIT (Exemptions), dated 18/03/2019.

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the application, the learned CIT (Exemptions) has held that no evidence of any charitable activity was showcased by the assessee. It was submitted that learned CIT (Exemptions) also held that assessee had filed part reply to the notice which in fact is incorrect as complete reply to the notice of CIT (Exemptions) was filed vide letter dated18/03/2019 and our attention was invited to paper book pages 20 – 38 of the paper book wherein a copy of letter, covering reply to all 25 queries raised, was placed. As regards the observation of learned CIT (Exemptions) that the assessee has not produced books of account, Learned counsel for the assessee invited our attention to para 21 of the reply dated 18/03/2019 wherein the assessee had mentioned that books of account were available for examination. As regards the observation of learned CIT (Exemptions) that no evidence of any charitable activity could be showcased by the assessee, Learned counsel for the assessee submitted that the assessee trust was created on 30/01/2018 and within five months from the date of its formation, it applied for registration u/s 12A by filing application in Form No. 10A manually and thereafter on the direction of learned CIT (Exemptions) the same was filed electronically. Learned counsel for the assessee further submitted that in reply to the questionnaire of learned CIT (Exemptions), the assessee had produced confirmation of receipt of donation of Rs.67,300/- paid to the assessee to be utilized for the objects of the assessee trust. Learned counsel for the assessee stated that the aforesaid evidences clearly show that soon after formation of the trust, the trustees initiated the activities by arranging donation so as to meet its objects. It was further submitted that it is not correct on the part of learned CIT (Exemptions) to say that the assessee merely submitted the trust deed and no other material was submitted. It was submitted that assessee had furnished point-wise reply to the questionnaire issued by learned CIT

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(Exemptions). He further submitted that the books of account were also produced for verification which is apparent from the letter dated 18/03/2019, placed at pages 20-23 of the paper book. It was submitted that learned CIT (Exemptions) did not raise any objection regarding the objects of the trust inspite of the fact that the copy of trust deed was available with him.

3.1 Learned counsel for the assessee further submitted that as per the judgment of Hon'ble Supreme Court in the case of Ananda Social & Educational Trust 114 Taxmann.com 693 (SC), it is not necessary that activities should actually have been started and it is sufficient for CIT (Exemptions) to examine the objects of the society along with the proposed activities of the assessee to grant registration. Learned counsel for the assessee also placed reliance on the order of Hon'ble Allahabad High Court in the case of Hardayal Charitable & Educational Trust vs. CIT [2013] 335 ITR 534 (Alld.) and further reliance was placed on the judgment of Hon'ble Allahabad High Court in the case of CIT vs. R.S. Bajaj Society reported in [2014] 42 taxmann.com 573 (All)\. Further reliance was placed on the judgment of Hon'ble Allahabad High Court in the case of CIT (Exemptions) vs. Reham foundation reported in [2019] 418 ITR 205 (All) and submitted that this judgment of Hon'ble Allahabad High Court is fully applicable to the assessee and accordingly the claim of registration u/s 12A deserves to be granted by Hon'ble Tribunal. As regards the reliance placed by learned CIT (Exemptions) on the judgments cited by him, Learned counsel for the assessee submitted that first decision in the case of National Institute of Aeronautical Engineering Education Society [2009] 181 Taxman 205 (UK) is not applicable to the facts and circumstances as in that case there was a clear finding that the dominant object of the society was to earn profits

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under the garb of education. As regards the case laws in the case of Kirti Chandra Tarawati Charitable Society vs. DIT(E) 232 ITR 11, Learned counsel for the assessee submitted that this case relates to renewal of approval u/s 80G and hence was not applicable. As regards the decision of Lucknow Bench of Tribunal in I.T.A. No.809/Lkw/2014 dated 28/02/2015, Learned counsel for the assessee submitted that in this case the assessee had withdrawn the appeal and accordingly, the same was dismissed as withdrawn. In view of the above submissions, Learned counsel for the assessee submitted that learned CIT (Exemptions) be directed to grant registration to the assessee u/s 12AA of the Act.

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consideration ignoring the judgment of Hon'ble Supreme Court. Learned counsel for the assessee submitted that Hon'ble Allahabad High Court in the case of Reham Foundation has clearly held that Hon'ble Tribunal is empowered to grant registration if it was satisfied with the charitable nature of objects and genuineness of its activities.

“i) To make the daily lives of girls and young women/girls safer by educating and empowering them against all forms of sexual violence ii) Challenge Mindsets rooted in age-old practices and customs for a gender equal society. iii) To use digital and traditional media, educational tools, campaigns, events and workshops to raise awareness on the issue of violence against womens/girls. iv) To rally and encourage citizens to act and raise awareness on the issue of violence against womens/girls, take action and collectively work on addressing this global problem. v) To work with men and boys and engage them in ending violence against womens/girls through open dialogues, educational programs and actions. vi) To hold the institutions, administrations and governments accountable for policies, funding and action related to girls and young womens/girls safety. The trustees shall have full power and absolute authority to add to and introduce other specific public charitable objects not inconsistent with the objects and purposes of these presents and in that case such newly added objects decided upon by the trustees shall be deemed to have been incorporated in the objects of these presents and in such event due intimation shall be given to Income Tax Authorities for the time being having jurisdiction over the trust.”

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6.1 The above objects enumerated in the trust deed have not been mentioned in the definition of charitable objects u/s 2(15) but they fall into the category of objects of general public utility. Therefore, as regards the charitable nature of objects, we do not find any hesitation to hold that the objects of the society are charitable in nature. The learned CIT (Exemptions) has not commented anything adverse regarding the objects of the assessee inspite of the fact that copy of trust deed was available with him. On receipt of application by learned CIT (Exemptions), the learned CIT (Exemptions) issued a questionnaire vide letter dated 21/02/2019 listing therein 25 queries to which the assessee filed reply vide letter dated 18/03/2019, placed at pages 20-38 of the paper book wherein the point-wise reply to the queries raised was submitted. The examination of questionnaire along with its answers proves that learned CIT (Exemptions) has gone through the copy of trust deed and has also gone through the objects clause of the assessee and must have gone through the reply to questionnaire. In fact learned CIT (Exemptions) has noted down that the assessee had filed reply vide letter dated 18/03/2019. While passing the order, rejecting the application of the assessee, one of the objections of learned CIT (Exemptions) is that the assessee had not filed complete reply to its questionnaire which is factually incorrect as the assessee has filed point-wise reply to the questionnaire and the copy of reply is placed at pages 20-38 of the paper book. The other objection of learned CIT (Exemptions) is that books of account were not produced for examination, which fact is also incorrect as in the same reply dated 18/03/2019, vide point No. 21, the assessee had submitted that relevant papers, documents, registers and books of account are being produced before him for his verification. As regards the objection of learned CIT (Exemptions) regarding non carrying out of activities, the Hon'ble Supreme

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Court, in the case of Ananda Social & Educational Trust (supra), has clearly held that the term ‘activities’ in the provision includes ‘proposed activities.’ Hon'ble court further went to hold that while considering the application for registration u/s 12A of the Act, the Commissioner is bound to consider whether the objects of the trust are genuinely charitable in nature and whether the activities which the trust is proposed to carry on are genuine in the sense that they are in line with the objects of the trust. For the sake of completeness, the relevant part of the order of Hon'ble Supreme Court is reproduced below:

“This appeal has been preferred by the appellant -Director of Income-tax against the impugned judgment and order passed by the Delhi High Court holding that a newly registered Trust is entitled for registration under section 12AA of the Income-tax Act, 1961 (for short, the 'Act') on the basis of its objects, without any activity having been undertaken. Section 12AA of the Act reads as follows :

"12AA. Procedure for registration.—-(1) The [Principal Commissioner or] Commissioner, on receipt of an application for 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; (if) 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:

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Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.

(1A) All applications, pending before the [Principal Chief Commissioner or] Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the [Principal Commissioner or] Commissioner and the [Principal Commissioner or] Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day. (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) or clause (ad) or clause (ab) of sub- section (1) of section 12A. (3) Where a trust or an institution has been granted registration under clause (b) of subsection (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently the [Principal Commissioner or] 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. [(4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution:

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Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner.]

The above section provides for registration of a trust. 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.

In brief, 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.

In the present case, the trust was formed as a society on 30-5- 2008 and it applied for registration on 10-7-2008 i.e. within a period of about two months.

No activities had been undertaken by the respondent Trust before the application was made. The Commissioner rejected the application on the sole ground that since no activities have 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 are genuine. The Income-tax Appellate Tribunal, Delhi (for short, the Tribunal') reversed the orders of the Commissioner. The Revenue Department approached the High Court by way of filing an appeal. 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. This judgment is assailed before us.

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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 that is to say not charitable the Commissioner is entitled to refuse and in fact, bound to refuse such registration.

It was argued before us 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.

We have given our anxious consideration to the above submissions made by Ms. Aishwarya Bhati, learned Senior Counsel appearing for the appellant - Director of Income-tax and find that it is not possible to agree with the same. 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 in furtherance of the objects of the Trust, that is equally genuine.

Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that 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. In Contrast, 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

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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 Trust.

We therefore find that the view of the Delhi High Court in the impugned judgment is correct and liable to be upheld.

Ms. Bhati, learned Senior Counsel for the appellant, fairly drew our attention to a judgment of the Allahabad High Court in IT Appeal No. 36 of 2013 titled as "Commissioner of Income Tax-II vs. R.S. Bajaj Society" which has taken the same view as that of the Delhi High Court in the impugned judgment. The Allahabad High Court has also referred to a similar view taken by the High Courts of Karnataka and Punjab & Haryana.

Apparently, a contrary view has been taken by the Kerala High Court in the case of Self Employers Service Society v. Commissioner of Income-tax - [2001] Vol.247 ITR 18. That view however does not commend itself. However, the facts in Self Employers Service Society (supra) suggest that the Commissioner of Income-tax had observed that the applicant for registration as a Trust had undertaken activities which were contrary to the objects of the Trust.

In the result, we find that there is no reason to interfere with the impugned judgment of the High Court of Delhi. The appeal is, accordingly, dismissed.”

6.2 The above judgment of Hon'ble Supreme Court clearly suggest that Commissioner, at the time of considering the application for registration, has to satisfy himself that the objects of the trust are genuine and its activities are in furtherance of the objects of the trust. The judgment also elaborates that the word ‘activities’ in such provision includes proposed activities also which means that where the assessee has not undertaken any activity, the proposed activity, as enumerated in the trust deed, has to be examined so as to see as to whether such proposed activities are in

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furtherance of the achievement of objects of the society or not. In the present case, we find that learned CIT (Exemptions) has not made any adverse finding on the objects of the assessee which, in our opinion, apparently falls under the category of objects of general public utility which is included in the definition of charitable purpose as defined u/s 2(15) of the Act. The assessee has though not undertaken any activity but the proposed activities to be undertaken by the assessee is the achievement of its objects which we have already held to be charitable in nature. The argument of Learned D. R. that only CIT (Exemptions) is empowered to record a satisfaction regarding charitable nature of objects and genuineness of activities has no force in view of the judgment of Hon'ble Allahabad High Court in the case of Reham Foundation, where the Hon'ble court has held that powers of the Tribunal are coextensive with the power of Commissioner u/s 12AA of the Act and Tribunal is empowered to grant registration u/s 12A of the Act provided the Tribunal is satisfied regarding charitable nature of objects of the society and is also satisfied with the genuineness of its activities. In the case before us, we have already held the objects of the assessee to be charitable falling under the head objects of general public utility. We find that assessee had not carried out any substantial activity but that is not relevant at the time of granting registration as per the judgment of Hon'ble Supreme Court in the case of Ananda Social & Educational Trust 114 Taxmann.com 693 (SC). Further we find that assessee had furnished complete point-wise reply to the questionnaire issued by learned CIT (Exemptions). The observation of learned CIT (Exemptions) that reply was incomplete, are not correct as all replies were filed and books of account were also available for inspection by learned CIT (Exemptions).

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(Order pronounced in the open court on 16/12/2020 in accordance with Rule 34(4) of the I.T.A.T. Rules)

Sd/. Sd/. ( A. D. JAIN ) ( T. S. KAPOOR ) Vice President Accountant Member

Dated:16/12/2020 *Singh

Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow