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Facts
The assessee, Hemlata Charities, sought registration under Section 80G of the Income Tax Act. The CIT(E) rejected the application because the trust deed's objects allowed for utilization of funds outside India, which was deemed to be in contravention of Section 11(1)(a) of the Act. The trust argued that payments would be made in Indian rupees, even for foreign studies or medical treatment.
Held
The Tribunal held that the provisions of Section 12AB, particularly subsections (4) and (5) introduced by the Finance Act, 2022, require strict compliance. The trust's object clauses, which permit activities outside India, pose a hurdle to obtaining final registration under Section 80G, as they may not be in consonance with the Act's intent for granting exemptions.
Key Issues
Whether the trust's objects allowing for utilization of funds outside India contravene Section 11(1)(a) of the Income Tax Act, thereby disentitling it from Section 80G registration?
Sections Cited
80G, 11(1)(a), 12AB, 13(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI OMKARESHWAR CHIDARA
ORDER Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order dated 24/09/2024 passed by Ld.CIT(E), on following grounds of appeal :
“(1) The Ld CIT(Exemptions) has erred in law and on the facts of the case in rejecting the Assesse's application under section 80G of the Income Tax Act. The action is unjustified and unwarranted. (2) The Ld CIT(Exemptions) has erred in law and on the facts of the case in rejecting the Assesse's application under section 80G of the A.Y. 2024-25 Hemlata Charities Income Tax Act without considering written submissions judicially. The action is unjustified and unwarranted. (3) Your petitioner craves leave to add, amend, alter and / or withdraw the aforesaid grounds of appeal
” Brief facts of the case are as under:
2. The assessee is stated to be a trust and was established with an object to provide scholarship to the needy students. It is submitted that the trust has just started the activity in the financial year 2023-24 and the corpus accumulated as on 31/03/2023 was Rs.2,34,582/-. It was submitted that assessee carries out charitable activity by giving education scholarships to students and thus imparting education. Assessee was granted provisional registration under NEC on 28/05/2021 for a period till assessment year 2024-25. 2.1 The Ld. CIT(E) issued notice dated 02/09/2024 calling upon assessee to furnish details in respect of object clause 5A(8) and 5B (4) of the trust deed that intends to apply the funds outside India. Assessee was also called upon the assessee to file details of the religious activities as per clause E of the objects of the trust deed. The said clause reads as under : “Clause 5A(8) Grants of Scholarships for Education in deserving student studying in India or abroad.
Clause 5B(4) Grant of Medical help and treatment to the poor and deserving persons in India and in abroad.
Clause 5(E) Setting up or helping by endowments or otherwise institutions or funds for the benefits of poor widows, blind, old and needy persons.”
2.2 Response to said notice assessee file its reply on 07/09/2024. The Ld.AR submitted that providing grants of A.Y. 2024-25 Hemlata Charities scholarship for education to the deserving student studying in India or abroad does not mean that assessee is going to make the payment outside India it was submitted that this clause indicates that the grant for scholarship education to the deserving student studying in India who may want to pursue study abroad will be provided grant in Indian rupees. 2.3 Similarly for providing medical help to the deserving people in India as well as abroad the funds if at all is required would be provided in Indian rupees in India. The Ld.AR submitted that as per clause E of the objects it does not indicate that assessee is indulged in religious activities. It was submitted that assessee intends to set up to help by endowments to other public welfare institution, spiritual institution, Ashrams and other Religious institutions, irrespective of sex, cast creed or sect. 2.4 It was submitted that the season with initial stage of setting up its activities and has not carried out any activity except for providing scholarship to the deserving people. Assessee also furnished the details of the expenses made towards the activities of the trust on year to year basis and provided provisional copy of the balance sheet and income and expenditure account for assessment year 2024-25.
The Ld. CIT(E) by the impugned order denied the final registration under section 80 G of the act by observing as under:
“The submissions of the assessee is not sufficient and necessary compliance as per the provisions of section 12 AB of the act is concerned. The words in the object “Grants of scholarship for education to deserving student studying in India or abroad----Grant of medical help and treatment of the poor and deserving persons in India and abroad” means to utilise the funds outside India. Such objects leave the room for any potential future endeavour may be undertaken by the assessee trust which would result in expenditure outside India. The A.Y. 2024-25 Hemlata Charities assessee trust must have amended the clauses of the objects mentioned above which are envoy elation of the IT act.
5. Under section 80G is to be accorded to the applicant after satisfying oneself of the genuineness of activities and the compliance of all the conditions mentioned in section 80G(5) clause (i) to (v) of the act. In the absence of satisfactory compliance by the applicant, the undersigned is unable to arrive at a satisfactory conclusion on these parameters. As such the undersigned is left with no other option but to reject the application seeking approval under section 80G of the act, as a limitation to decide the application is on 30/09/2024.”
Aggrieved by the order of the Ld. CIT(A)(E), assessee is on appeal before this Tribunal.
The Ld.AR submitted that the object clause that has been the subject matter for rejection of provisional registration under section 80G has not yet been amended by the assessee. The Ld.AR once again emphasised that the invention behind those object clause is not to carry out any charitable activity outside India. It is submitted that assessee would always make the payment in Indian rupees to the needy and deserving people either for education abroad or for any medical treatment outside India. He thus submitted that assessee has not carried out any activity in voile Asian of section 12AB of the act or any other provisions of the income tax. 4.1 On the contrary the Ld.DR emphasised that, the amended provisions under section 12 AB has to be strictly construed more specifically sub classed 4 and 5 that requires strict compliance of the provisions of section 11 and that all the activities as per the trust must be genuine. The Ld.DR submitted that, sub clause 3A of section 11 requires that, the activities must be carried out in India. He submitted that object Clause 5A(8), Clause 5B(4) and Clause E of the trust deed is clearly in contravention to the A.Y. 2024-25 Hemlata Charities primary requirement u/s.11, and the claim of exemption by the assessee is rightly denied. The Ld.DR submitted that registration will stand cancelled under section 12AB, if the authorities notice that, the activities of the trust or institution are carried out in a manner that the provisions of section11 and 12 do not apply due to operation of section 13(1), or, the trust or institution has not complied with the requirement of any other law for the time being in force as is material for the purpose of achieving its objects etc. In case there is a specified violation as mentioned in Explanation to sub section 4, the Registration under section 12AB would be denied or stand cancelled, as the case may be. We have perused the submissions advanced by both sides in the light of the records placed before us.
5. It is noted that recently on a bench of this Tribunal in case of Sila for Change Foundation vs. CIT(E) in & 4275/Mum/2024 wide order dated 20/12/24 had an occasion to deal with identical issue. God needs bench has carried out a detailed analysis of the pre-amended and the post-amended provisions and various decisions on this issue categorically observing the difference in the provisions and that the earlier decisions that was rendered in the context of pre-amended provisions of section 12A, would no longer be applicable after the “specified violation” having clarified in the amended provisions of section 12AB of the act. The relevant observations of this Tribunal are as under:
“4. The process of obtaining registration under section 12A has undergone change that is detailed as under:
A.Y. 2024-25 Hemlata Charities 1) Up to 31.03.2021 the registration/approval was permanent in nature. 2) During the period from 01.04.2021 to 31.09.2023, this was the period of two step registration i.e. first provisional and subsequently regular registration. 3) Amended process w.e.f. 01.10.2023 where in only organizations who have not started any activity may apply for provisional registration and where the activity is commenced then direct application for five-year registration is permissible. 4.1. In the present facts of the case, the assssee, was incorporated on 28/07/2021 and filed its application under section 10Asubsequently. Thus, the assessee falls under the new regime of registration process, seeking registration/approval from 01.04.2021 to 30.09.2023, w.e.f. 01.04.2021 under section 12AB of the Act. The key features of registration under the amended scheme from 01.04.2021 to 30.09.2023 under section 12AB are as under: (i) Concept of provisional registration introduced for charity institutions is applicable to all applying for the first time, irrespective of whether they are new or existing institutions. (ii) Concept of perpetuity of registration stands withdrawn under the new scheme and provisional registration is valid for a maximum period of 3 years. The provisional registration is subsequently required to be regularized into five years regular registration within six months of commencement of activities or at least 6 months before the expiry of the provisional registration period. (iii) All the existing trusts or institutions which were registered under section 12A/ 12AA or approved under section 10(23C) and section 80G are mandatorily required to obtain registration under new scheme of registration under section 12AB or to obtain approval under section 10(23C) and section 80G. The registration/approval shall remain valid for a period of five years from 1 April, 2021 i.e. from the AY: 2022-23. (iv) Registration/approval was subject to renewal every 5 years. 4.2. The assessee in the present facts of the case preferred application for the first time post July 2021. Thus, as per section 12AB and Rule 17, the assessee is required to pass through following two stages: 1) Firstly, the application is to be filed in Form 10A for provisional registration.
A.Y. 2024-25 Hemlata Charities The assessee in the present facts filed Form 10A r.w. Rule 17, on 06/09/2022. Based on the application made, a provisional registration was issued to the assessee u/s.12AB effective from 01/10/2021, placed at page 48 of the PB filed in ITA no. 4274/M/2024. 4.2.1. For seeking Provisional Registration, apart from the documents and information required for filing application under Form 10A, no other information will be sought for granting provisional registration. The relevant provision of section 12AB is reproduced as under: (1)The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall, (a)… (b)… (c) where the application is made under sub-clause (vi) of the said clause, pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought, 4.2.2. Thus, it is apparent that, upon filing application in Form 10A (for Provisional registration) the concerned Income-tax Authority (CIT or PCIT) has to issue provisional registration certificate without any further verification or examination 4.3. In the second stage, this provisional registration is required to be converted into regular registration. The application for conversion is to be filed in Form 10AB at least 6 months before the expiry of the provisional registration period or within 6 months of the commencement of its activities, whichever is earlier. For Converting provisional registration into final registration, procedure is identical to what it was prevailing prior to 01.04.2021, under section 12AB(1)(b)(i). That is, the Ld. PCIT/CIT shall call for such documents or information or make such inquiries as he thinks necessary in order to satisfy himself about genuineness of the activities of the trust or institution and the compliances of other laws. The relevant provisions are as under: (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,— a) where the application is made under sub-clause (i) of the said clause, pass an order in writing registering the trust or institution for a period of five years; b) where the application is made under sub- A.Y. 2024-25 Hemlata Charities clause (ii) or sub-clause (iii) or subclause (iv) or sub-clause (v) 66[or item (B) of sub-clause (vi)] of the said clause,— i) call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about— a) the genuineness of activities of the trust or institution; and b) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects; (emphasis supplied) 4.3.1. Thus once the Ld.PCIT/CIT is satisfied on above aspects, then registration shall be granted in Form 10AD. In other case the application will stand rejected after granting an opportunity of being heard (as per section 12AB(1)(b)(ii) of the Act). Further, according to Sub-section 4 and 5 of section 12AB inserted by Finance Act, 2022, with effect from 01/04/2022, Ld.PCIT/CIT may cancel the registration (after providing reasonable opportunity of being heard) if it is found that, the activities are not genuine or are not carried out in accordance with the objects of trust/institution. At this juncture, we note the fact that provisions of sub sections are applicable to the present assessee based on the date of application filed seeking registration under section 12B of the Act. 4.3.2. Registration will also stand cancelled under section 12AB, if the authorities notice that, the activities of the trust or institution are carried out in a manner that the provisions of section11 and 12 do not apply due to operation of section 13(1), or, the trust or institution has not complied with the requirement of any other law for the time being in force as is material for the purpose of achieving its objects etc. In case there is a specified violation as mentioned in Explanation to sub section 4, the Registration under section 12AB would be denied or stand cancelled, as the case may be. For the sake of convenience, relevant portion of sub section 4 are reproduced as under: (4) Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,— (a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or A.Y. 2024-25 Hemlata Charities (b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub- section (3) of section 143 for any previous year; or (c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall— (i) call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation; (ii) pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place; (iii) pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations; (iv) forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such trust or institution. Explanation.—For the purposes of this sub-section, the following shall mean "specified violation",— (a) where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or (b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public; or (d) the trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or A.Y. 2024-25 Hemlata Charities (e) any activity being carried out by the trust or institution— (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or (f) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub- section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality. (5) The order under clause (ii) or clause (iii) of sub-section (4), as the case may be, shall be passed before the expiry of a period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) of subsection (4). 4.3.3. One of the intention of Legislature to introduce sub clause (4) and (5) to the section 12AB is to address the issue related to the process of approval or cancellation or withdrawal thereof. Clause 3.3(a)(i) of memorandum explaining the provisions in finance bill, 2022 is as under: “3.3. Reference to the Principal Commissioner or Commissioner (PCIT/CIT) for the cancellation of registration/approval: a)The following issues related to the process of approval or registration, or cancellation or withdrawal thereof, have been noticed, namely:- i) Registration or approval of non-genuine trusts or institution under automated approval system: First and second provisos to clause (23C) of section 10 of the Act were substituted by new provisos by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 w.e.f. 01.04.2021. These provisos provided that the application for the approval of any trust or institution under the first regime, shall be made to the jurisdictional Principal Commissioner or Commissioner and such Principal Commissioner or Commissioner shall grant approval after examination of the application. Earlier such applications were required to be filed before the prescribed authority. Similarly, provisions of clause (ac) of sub-section (1) of section 12A provide that application for the trusts or institution under the second regime shall be made to the principal Commissioner or Commissioner. The provisional registrations or provisional approval orre-registrations or approvals in certain cases, under these clauses, are granted in an A.Y. 2024-25 Hemlata Charities utomated manner and the respective rules have been amended accordingly. It is essential to ensure that non-genuine trusts or institutions do not get exemption provided by these provisions.” Thus, we do not agree with the argument advanced by the Ld.AR that since provisional registration is granted to the present assessee before u/s.12AB, final registration cannot be denied. 4.4. In the present facts, the assessee’s objects include clause 12, which is not in consonance with the main purpose to grant exemption under section 11(1)(a) of the Act for sale of convenience, the relevant portion are excluded as under. It is noted that, the assessee was offered opportunity of being heard, is apparent from the paper book filed before us. However, nothing on record is filed, to demonstrate that, the assessee took necessary steps to amend the objects which is in contravention to section 11(1)(a) of the Act. Admittedly it is not the case that, the assessee has already applied its funds as per object clause 12 of the memorandum. 4.4.1. It is relevant to note that section 11 (1) (a) was on statute from its inception to the provisions of section 11(1)(c ) that reads as under: Section 11…. (1)…. (a) to (b)….. (c) income derived from the 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 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; 4.4.2. From the above provisions, it is clear that, even otherwise, organisations created after 01/04/1952 were not empowered to do activities outside India, prior to the insertion of amended section under section 12A/AB. However, CBDT in certain circumstances may direct by a general or special order permitting certain activities, which tend to promote international welfare in which India is interested. “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 property13 held under trust wholly13 for charitable or religious A.Y. 2024-25 Hemlata Charities purposes13, to the extent to which such income13 is applied13 to such purposes in India13; 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 apart16 is not in excess of 17[fifteen] per cent of the income from such property;” 4.4.3. Hon‟ble Delhi High Court in case of DIT (E) vs. National Association of Software and Services Companies reported in (2012) 208 Taxman 178 interpreted natural grammatical meaning of the words “to the extent to which such income is applied to such purposes in India” appearing in section 11(1)(a) of the Act. Courts have held that, the words „in India‟ appearing in section 11(1)(a), qualifies only the words ‘such purposes’, would not only be contrary to the plain grammatical meaning of section but also render the provisions of section 11(1)(c) redundant and otiose. Further the Courts have held that, if it was accepted that income of trust can be applied even outside India so long as the charitable purposes are in India, then there is no need for a trust which tends to promote international welfare in which India is interested and was created on or after 01/04/1952 to apply to the CBDT for a general or special order for exemption. Hon’ble Delhi High Court in case of DIT E) vs. National Association of Software and Services Companies reported in (2012) 208 Taxman 178 explained that the literal interpretation of the statute was not, probably in consonance with the intent of the statute. Hon’ble Court however agreed that, it was illogical to allow expenditure paid to a student to study abroad but the same was not permissible if the payment was made directly to the foreign university. 4.4.4. In case of Jamsetji Tata Trust v. Jt. DIT (Exemption) reported in 148 ITD 388 coordinate bench of this Tribunal held that education grant given to Indian students for studying abroad fulfils conditions of application of money in order to claim exemption under section 11. It was observed that, the assessee applied the money for charitable purpose in India and the final execution of the purpose may be outside India but the same will not affect the conditions satisfied by the assessee. 4.4.5. The Courts have always proceeded on the footing that, section 11(1)(a) do not attract forfeiture over the entire income unlike the provisions of section 13(1). In other words, the Courts have held that, if a trust or institution is willing to pay taxes to the extent of its activities outside India, then to that extent it can have such activities. The A.Y. 2024-25 Hemlata Charities decisions and the those referred in the written submissions filed by Ld.AR as well as submitted at the time of hearing, leads to support the contention of the Ld.AR that, the section 11(1)(a) are attracted only if, actual expenditure is incurred outside India. Section 11(1)(a) cannot be invoked only on the ground that the trust deed provides for activities outside India. Some decisions on this Principle are: A. Hon’ble Bombay High Court in the case of CIT v. State Bank of India reported in (1988) 169 ITR 298, considered the issue whether a trust for charitable purposes in India and abroad can claim exemption from its income where the trustees have discretion to apply the income either in India or abroad? Hon’ble Court observed that the trust deed provided, at the discretion of the trustees, to give 45 per cent of the income to the University of Athens. It was thus held that, the trust was eligible for exemption even though it provided for application of income abroad. However, the portion of income actually applied abroad or accumulated for application abroad was not exempt. B. Hon’ble Delhi High Court that in case of Digamber Jain Society for Child Welfare v. DGIT (Exemptions)reported in (2010) 228 CTR 517that, existence of other objects can not affect the charitable status of a Trust or NGOs. Hon’ble Allahabad High Court in the case of Ewing Christian College Society v. CCIT reported in [2009] 318 ITR 160 held that, the objective to serve the church and nation would not mean that the society was not existing solely for educational purposes; therefore, any additional object clauses normally should not affect the charitable status of a trust/institution/NGO. C. Similarly, Hon’ble Andhra Pradesh High Courtin CWT v. Trustees of the Nizam’s Religious Endowment Trust reported (1977) 108 ITR 229 relied by the Ld.AR, it was held that, the charitable or religious expenditure incurred in India will not be affected by a provision for activities outside India or even actual expenditures abroad. Exemptions towards activities in India remain intact and in the case of a clause in the trust deed empowering the trust to have activities outside India, there is no impact. And in the case of trust having activities outside India, the exemptions will be denied to the extent of the income applied outside India.
Be that as it may, by insertion of sub section 4 & 5 inserted by Finance Act, 2022 widened the scope of violations by including violations specified in explanation therein. This was not the legal position u/s. 12A/12AA prior to amendment. The condition to satisfy A.Y. 2024-25 Hemlata Charities that the objects of the trust are not in violation to compliance under any other law for time being in force towards achieving the material purposes of the objects is now become necessary to be established by the assessee at the time when its application is scrutinised for converting provisional to final registration. The explanation (f) to sub clause (4) of 12AB mandates compliance with the requirement of any other law as referred to item (B) of sub-clause (i) of clause (b) to subsection (1) of 12AB. With such compliance required at the stage of registration, pertaining clause 12 in the memorandum of the assessee trust will be an hurdle to grant final registration.
6. We therefore do not find any merit in the arguments advanced by the Ld.AR and the same stands rejected based on the discussions and analysis of the relevant provisions and decisions on the issue. As a consequence, the application seeking 80G also stands rejected. Accordingly, the Grounds raised
by the assessee in both appeal stands dismissed.
7. Liberty is granted to the assessee to specify the memorandum of the objects and file the application seeking final registration before the competent authority which may be considered in accordance with law. In the result appeals filed by the assessee stand dismissed.” Based on the above view we are of the opinion that the assessee cannot be granted registration u/s. 80G unless the relevant clauses are modified or amended.
Accordingly grounds raised by the assessee stands dismissed.
The assessee will not be able to take benefit of the exemption, for assessment year 2024-25, for the reason that the assessee will take time to get the relevant object clauses either clarified as submitted herein above or amended in the Trust deed, with the office of Charity commissioner. Liberty is granted to the assessee to file the amended Trust deed and the Ld.CIT(E)
In the result the appeal filed by the assessee stands dismissed.