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Facts
The assessee, a Section 8 company, applied for registration u/s 12AB and u/s 80G of the Income Tax Act. The CIT(E) rejected the applications, observing that certain objects in the trust deed, specifically clauses regarding collaboration with international institutions and entering agreements with any government, indicated an intention to utilize funds outside India, violating statutory provisions.
Held
The Tribunal held that the CIT(E) had misinterpreted the MOA clauses by considering them in isolation and not in conjunction with the overall objects of the trust, which were primarily for activities within India. The Tribunal also noted that the principles of natural justice were not followed due to hasty rejection based on time limitations.
Key Issues
Whether the CIT(E) correctly interpreted the objects clause of the MOA in rejecting the 12AB and 80G registrations, and whether the principles of natural justice were adhered to.
Sections Cited
12A, 80G, 12AB, 11
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Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
आदेश / O R D E R PER BENCH The above two appeals preferred by the assessee emanate from the order passed by the Commissioner of Income Tax (Exemptions), Mumbai [hereinafter referred to as “CIT(E)”] pertaining to the order for the Assessment Year [A.Y.] 2024-25. They are being taken up together for adjudication as both the appeals are inter-related and arise from the same order and also were heard together.
129/Mum/2025 A.Y. 2024-25 Leap to Shine Foundation 2. The grounds of appeal are as under:- Grounds of Appeal for 12A registration – (Appeal No-ITA 128/MUM/2025)
1. Ld. CIT(A) has misguided himself by considering words used the objects in clause III(b) (Incidental objects) as primary objects of the company, and rejecting the application for registration u/s 12A.
2. Ld. CIT(A) has interpreted the clause III(b) and its sub-clauses of MOA document independently, whereas MOA is a legal document that establishes a company's foundation and defines its legal structure, and clauses within the MOA must be construed in their entirety and in relation to each other, rather than in isolation. As a result, application for registration u/s 12A 80G should be allowed.
3. The appellant craves to leave, to add, to alter or modify the grounds of appeal, as stated above, at any time on or before the hearing of appeal.
Grounds of Appeal for 80G registration: (Appeal No-ITA 129/MUM/2025)
1. Ld. CIT(A) has misguided himself by considering words used the objects in clause III(b) (Incidental objects) as primary objects of the company, and rejecting the application for registration u/s 12A, and consequently approval application u/s 80G.
2. Ld. CIT(A) has interpreted the clause III(b) and its sub-clauses of MOA document independently, whereas MOA is a legal document that establishes a company's foundation and defines its legal structure, and clauses within the MOA must be construed in their entirety and in relation to each other, rather than in isolation. As a result, application for registration u/s 12A and approval u/s 80G should be allowed.
129/Mum/2025 A.Y. 2024-25 Leap to Shine Foundation
Facts of the case are that the assessee is a Section 8 company, registered under Companies act 2013.It had applied for registration u/s 12AB and also u/s 80G of the Act. The ld.CIT(E) observed from the perusal of the trust deed the following objects, as stated in the Trust deed are in violation of statutory provisions, as reproduced below:- “ 3(B)(4)- To collaborate with other institutions such as –academic, research, government, non-governmental institutions (NGOs): organisations(CBOs), civil society organisations (CSOs) and both national and international.....
3(B)(7)- To enter into any agreement with any Government or authorities(municipal, local or otherwise)......”
2.1 According to him, the use of such words above referred objects in the MOA/trust deed clearly conveyed its intention to utilise fund outside India, thereby leaving open the possibility for future endeavours, which may involve expenditure outside the country. The applicant Trust ought to have amended these clauses to align with the provisions of the Act. However, it has failed to do so. Since Registration under section 12AB is to be granted in terms of the provisions of section 12AB(1)(b) of the Act after being satisfied about the objects of the trust or institution, the genuineness of activities, and the compliance of any other law for the 129/Mum/2025 A.Y. 2024-25 Leap to Shine Foundation time being in force are material for the purposes of achieving its objects. Thus, based on the reasons mentioned above, the application for registration u/s 12AB was rejected. On the same reasoning and in consequence to rejection of above application, he rejected the application for registration u/s 80G of the Act also.
Before us, it is pleaded by the ld. Authorised Representative of the assessee that the summary of main objects mentioned in MOA III(A) and III(B) includes :
Providing relief to the poor, improve lives of disadvantaged and vulnerable children, women and individuals primarily in India. Improvement of educational, social, cultural economic sectors by providing necessary technological gadgets and medical relief to the poor Providing opportunities to develop skills and talents of children and women with the aim of generating a sustainable income and be independent to march with time and age To promote social welfare activities intended for the general welfare of the public 3.1 It is submitted that the assessee had applied for final registration of u/s 12AB and 80G on 27.06.2024. During the hearing, query was raised by the CIT that as per the point nos. III(B)(2) & III(B)(19) of the MOA/trust deed, the trust intends to apply funds outside India. This is in violation of section 11 of the Act.
129/Mum/2025 A.Y. 2024-25 Leap to Shine Foundation 3.2 In view of the above, the assessee was given an opportunity to submit response along with supporting documents to show cause as to why application in Form 10AB should not be rejected due to the above mentioned violations. In response to it the reply was given as: in cause III(B) of the MOA, III(B) itself is the part of MOA which represents the “matters which are necessary for carrying the main objects as mentioned in clause III(A)”. As a result, these clauses cannot override the object of doing activity in India, as raised in your query. Also, in clause 2 the word international does not mean the Company will take international projects, it simply allows company to be part of projects that will be implemented in India, for instance the helping the “unicef” for its research and implementation of projects in India. Also, the word any government/agencies, etc does not means international government or agencies, it is for inclusion of state governments, local authorities, etc. Similar meaning, in clause 19 for the word any Government. As a result, since clause III(B) is only incidental object clause and with no intention outside the object of the company, the application should not be rejected. The affidavit relating to compliance of provisions of Section 11 has been submitted to your office in previous submission.” 3.3 It is submitted that during the hearing, it was made clear about the legal position and also clause IV of the MOA was also discussed which specifically restricts the objects to India. However, without considering the legal position and proper interpretation of the act, the application for 12AB was rejected by wrongly interpreting the 129/Mum/2025 A.Y. 2024-25 Leap to Shine Foundation causes of the MOA in isolation and against the spirit of law. It is quite evident that he has considered the above cause and words independent and in isolation, while arriving to the conclusion leading to misguiding himself that the assessee is in violation of section 12AB.The rejection made on the above ground is incorrect and bad in law. Similarly, registration application for 80G was also rejected on the grounds that the 12AB registration application had been rejected.
We have carefully considered the facts borne from the record and find that the matter was not properly adjudicated by the ld.CIT(E) and without affording adequate opportunity to the assessee to make due compliance and explanation pertaining to the matter in hand. He has rushed to an adverse conclusion which is apparent from the concluding line on para 5 on pag-5 of the order wherein it is stated by him that due to statutory limitation expiring on 31.12.2024, he had no other alternative but to reject the impugned application. Evidently, principles of natural justice have not been followed in a hurry to pass the order in view of time limitation constraints.
4.2 Considering the totality of the facts and the circumstances of the case, we find it appropriate and in the interest of natural justice to remand the issue back, as agreed to by both the sides, to the ld.CIT(E) by 129/Mum/2025 A.Y. 2024-25 Leap to Shine Foundation setting aside the impugned orders with a direction to him to consider the submissions of the assessee in an objective manner and decide the matter in accordance with the provisions of the Act after allowing the assessee reasonable opportunity of hearing. The assessee is also directed to attend the de novo proceedings and make necessary compliance for fair and substantive adjudication of all the relevant issues by the ld.CIT(E).
4. In the result, both the above captioned appeals are allowed for statistical purposes.
Order pronounced in the open court on 25/02/2025.