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Income Tax Appellate Tribunal, B BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
Both these appeals are filed by the assessee against the order passed by the CIT(E), Bangalore vide BOTH order dated 30/12/2024 in DIN No.ITBA/EXM/F/EXM45/2024-25/1071703118(1) and No. ITBA/EXM/F/EXM45/2024-25/1071703066(1).
2. The only issue raised by the assessee is that the learned CIT(Exemption) erred in rejecting the application for regularisation of registration under section 12AB of the Act.
3. The facts in brief are that the assessee was established as charitable trust as on 30th September 2021 with the objective of providing relief to the poor, medical aid and other assistance to needy people such as handicapped and promotes yoga.
4. The assessee got the provisional registration under section 12AB of the Act as on 30th November 2021. Finally, the assessee filed application for regularization of registration under section 12AB and 80G of the Act on 29-06-2024 which has been rejected by the learned CIT (Exemption) for the reason discussed here under: 1. Lack of Genuine Charitable Activities • The trust claimed to have been created for charitable purposes (eradicating hunger, poverty, malnutrition etc.), but in practice it carried out only one small activity of providing windows, painting tables, and blackboards to a Government school in January 2022.
• No further charitable activities were undertaken in FYs 2022- 23 and 2023-24, despite having received large funds.
Nature of Donations and Transactions • Donations and contributions came from companies where the trustees themselves hold important managerial roles, namely:
o M/s Vasaka Promoters and Developers Pvt Ltd o M/s Alpha Design Technologies Pvt Ltd .
• This raised doubts about the independence and genuineness of the donations, as they appeared to be accommodation entries rather than genuine charitable contributions.
Share Transfer and Consideration Arrangement • The trust received 50,000 shares of Vasaka Promoters and Developers Pvt Ltd as donation.
• These were later sold to M/s Bhavana Holdings Pvt Ltd for ₹32.50 crore, but only ₹1.625 crore (5%) was actually received.
• The balance of ₹30.87 crore and interest at 8% p.a. were neither received nor pursued by the trust, showing lack of seriousness and commercial intent rather than charitable purpose.
Non-Utilisation of Funds • Even the sum of ₹1.625 crore received was merely placed in fixed deposit and not applied towards charitable objects.
• The financial statement revealed no reflection of expenditure on charitable purposes and major expenses incurred towards professional charges.
Based on above observation, the ld. CIT(E) concluded that the entire arrangement of donation of shares, subsequent sale, and partial receipt of consideration was a façade. The trust was engaged in accommodative transactions rather than genuine charity. The learned CIT(E) observed that under section 12AB(1)(b)(i) & (ii), the assessee has to satisfy about: (A) genuineness of activities, and .
(B) compliance with other laws.
Since activities were found to be non-genuine and not in line with charitable objects, the trust failed both conditions.
Accordingly, the application in Form 10AB dated 29.06.2024 was rejected and registration under Section 12AB was cancelled. In essence the rejection was because the trust’s activities were found to be non- charitable, funds were not used for intended purposes, donations were from related parties, major consideration from sale of shares was never realised, and the overall arrangement was treated as a façade lacking genuineness.
Being aggrieved by the order the learned CIT(E) the assessee is appeal before us.
The learned AR before us filed a paper book having 67 pages and submission having 30 pages and submitted that the appellant trust was formed with the objective of providing relief to the poor, medical aid, yoga promotion, and other charitable purposes. Soon after its creation, the appellant applied for provisional registration under section 12AB of the Income-tax Act, 1961, by filing Form 10A on 23.11.2021. The application was accepted and provisional registration was granted vide Form 10AC dated 30.11.2021. Later, as per CBDT Circular No. 7/2024 dated 25.04.2024, the appellant filed Form 10AB on 29.06.2024 for regularisation of provisional registration.
9.1 It was argued that the trust has carried out charitable activities during the three financial years under consideration and has utilised the donations it received for the same. In FY 2021-22, the trust received donations of ₹8,38,910/- and in FY 2022-23, ₹20,00,000/-. These donations have been utilised for charitable purposes, and detailed accounts were submitted before the lower authority. Hence, the allegation of the ld. Commissioner that no charitable activity was undertaken is factually incorrect.
9.2 The learned AR further submitted that Mr. M. Yugandhar donated 50,000 equity shares of M/s Vasaka Promoters and Developers Pvt. Ltd. to the trust on 22.11.2021 as corpus donation. These shares were later sold to M/s Bhavana Holdings Pvt. Ltd. on 20.01.2023 for a consideration of ₹32.50 crore. The trust received ₹1.625 crore (5% of the sale consideration) upfront, while the balance was to be paid later. The amount received has been deposited in fixed deposits with a scheduled bank. As per law, corpus donations and their proceeds are to be accumulated and utilised for specific charitable purposes, and accumulation is permissible under section 11(2) of the Act. The trust has also filed Form 10 for accumulation of funds for the purpose of constructing a building. Hence, the ld. Commissioner’s observation that the funds were not utilised is misplaced.
9.3 The learned AR emphasised that the delay in receipt of the balance consideration was due to commercial negotiations between the buyer and seller and the impact of COVID-19 on businesses. This situation was beyond the control of the appellant. Such circumstances cannot be treated as a façade or colourable device, especially when the . trust has acted in accordance with the law and has not diverted funds for non-charitable purposes.
9.4 The ld. AR relied upon judicial precedents to submit that at the stage of registration under section 12AB of the Act, the ld. Commissioner is only required to verify the genuineness of the trust’s objects and activities, not to assess the quantum or sufficiency of activities. Reliance was placed on Swayam Siddha Foundation Society v. CIT (Exemption) [159 taxmann.com 163 (Raipur-Trib)], Embassy Charitable Trust v. CIT (Exemption) [2019 SCC Online ITAT 5681], Director of Income-tax (Exemptions) v. D.R. Ranka Charitable Trust [(2022) 447 ITR 766 (SC)], and Ananda Social & Educational Trust v. CIT [(2020) 114 taxmann.com 693 (SC)], where Hon’ble Courts and Tribunals consistently held that registration cannot be refused merely because the trust had not undertaken wide activities in the initial years or because funds were kept in fixed deposits for future application.
9.5 It was finally submitted that the finding of the ld. CIT(E) that the arrangement was a façade is unjustified and without any supporting evidence. The trust has operated strictly within the provisions of law, and both the objects and activities are charitable in nature. Therefore, the rejection of registration under section 12AB is bad in law and deserves to be set aside.
On the contrary, the learned DR vehemently supported the order of the ld. CIT-E.
We have heard the rival contentions of both the parties and perused the materials placed before us. The impugned order passed by the learned CIT(Exemptions) rejecting the application of the assessee for registration under section 12AB of the Act is primarily based on two reasons: (i) that the assessee has not carried out any genuine charitable activity, and (ii) that the assessee has not pursued recovery of the outstanding sale consideration from the transfer of shares, thereby treating the entire arrangement as a façade.
11.1 First, we note that the scope and objective of verification under section 12AB of the Act is limited. At the stage of regularisation of registration under section 12AB of the Act, the CIT (Exemptions) is required to satisfy himself about (i) the charitable nature of the objects and (ii) the genuineness of activities. The learned CIT(Exemption) is not required to conduct a full-fledged assessment of individual transactions. We find that the Hon’ble Supreme Court in case of Ananda Social & Educational Trust v. CIT reported in 114 taxmann.com 693 has clarified that “section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done”. The early-stage or limited activities are not a ground to refuse/withdraw registration when the objects are undeniably charitable. In the said case the application for registration under section 12AA of the Act was refused on the ground that the assessee has not undertaken any charitable activity. On appeal by the assessee, the Delhi bench of ITAT reversed the order of the learned CIT(E). On appeal by the revenue before the Hon’ble Delhi High Court, the Hon’ble bench 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 .
Page 8 of 13 Act. On further appeal by the revenue, the Hon’ble Bench of Supreme court upheld the finding of the Hon’ble Delhi HC by observing as under: 12. 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 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.
11.2 In the present case the trust was established in September 2021 with objects like relief to the poor, medical aid, and promotion of yoga. Hence the objects of the appellant assessee squarely fall within “charitable purpose” as defined under section 2(15) of the Act. Within few months, i.e. for year ending 31st March 2022 it received donation aggregating to Rs. 8,38,910/- and applied entire receipt towards charitable purpose. As such the assessee in the very first year has carried out a school-support activity (windows, tables, blackboards) on which incurred an amount of Rs. 6,38,910/- only. The assessee further undertakes financial assistance activity of Rs 2 lakh. This can be verified from the income and expenditure account for the period from 30th September 2021 to 31st March 2022 placed on page 69 of the appeal set. However, in the subsequent two years, the assessee has not carried out much of activities. The fact that the first two/three years shows modest or uneven activities does not negate genuineness of charitable objects of the assessee. An emerging trust often scales progressively.
The Hon’ble Courts and Tribunal including the coordinate benches (in case of Swayam Siddha Foundation Society and Embassy Charitable Trust cited above) have consistently held that the quantum or spread of activity is irrelevant for registration, once it is established that the objects are charitable and some bona fide charitable activity has been carried out. Therefore, in our considered opinion, the conclusion of the ld. CIT(E) that there were “no genuine activities” rests on an incorrect yardstick.
11.3 We also note that the ld. CIT(E) was influenced by the fact that donations to the appellant assessee arose from companies in which trustees are interested. That, by itself, does not impeach genuineness. The statute addresses related-party benefits through section 13 of the Act, however, there is no finding of any benefit or diversion of the trust fund to specified persons. Also, there is no finding regarding the use of trust funds for non-charitable purposes, or breach of any other law. Therefore, in absence of cogent material exhibiting a colourable device being adopted, the mere source of donation from entities controlled by the trustees cannot brand the trust’s activities as non-genuine. As such the Act does not prohibit or place restriction on receipt of donations from related concern.
11.4 Moving ahead, the appellant assessee has received shares of private company as a corpus donation which as per the provision of the Act was sold by the assessee. The assessee received only 5% of consideration and parked the same in fixed deposits with a scheduled bank which is a permitted mode under section 11(5) of the Act. The Delay/non-receipt of the balance consideration has been explained . as a commercial dispute under pursuit. In our considered opinion such delay/nonreceipt of balance consideration does not bear on the charitable character of the trust or the genuineness of its objects or activities. Regularization of registration cannot hinge upon whether the trust negotiated a “better” commercial bargain or how vigorously it litigates its receivables. In our considered view those are assessment compliance facets, not registration tests. There is no material showing the share arrangement as a sham or that the trust’s corpus was siphoned or misapplied. On the contrary, the monies realised (5%) were not diverted but they were conserved into fixed deposit for the purpose of construction of building.
11.5 The assessee has placed on record that Form 10 was filed to accumulate funds for constructing a building. Accumulation under section 11(2) of the Act and interim parking in fixed deposits pending application are expressly permitted. It is settled position of law that mere accumulation or conservation for planned projects does not indicate non-genuineness.
11.6 We are also conscious to the fact that the provision of section 12AB(1)(b)(ii) of the Act also enables examination of “compliance with other laws.” However, the impugned order of learned CIT(E) does not establish any breach of any specified law or any adverse action by a competent authority. In the absence of such material facts, we hold that the refusal of application for the regularisation of the registration is based on conjectures about transactions discussed above but the same cannot be sustained.
11.7 On the contrary, the assessee has produced its trust deed, evidence of charitable activity being carried out, financials statements, and explanations regarding corpus/accumulation/recovery steps. Therefore, in the given facts, the burden shifts to the Department to arrange concrete material of non-genuineness of the object and activity of the assessee. Merely labelling the arrangement a “façade” without tangible corroboration does not meet the statutory threshold. The record, as brought before us, discloses charitable objects, some charitable activity, compliant investment, and planned application and it does not disclose any misuse, private benefit, or violation of law.
11.8 Therefore, considering overall facts and circumstances, we hold that the assessee’s objects are charitable, and genuineness of activities stands established at this stage. Accordingly, we hereby set aside the order of the ld. CIT(E) rejecting the application for the regularisation of registration under section 12AB pf the Act and direct the ld. CIT(E) to grant registration under section 12AB of the Act forthwith, and thereafter consider the assessee’s section 80G application in accordance with law, bearing in mind the above findings that the activities are genuine and the objects are charitable. Hence, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is hereby allowed. assessee’s appeal.
13. The only issue raised by the assessee is that the learned CIT(Exemption) erred in rejecting the application for regularisation of registration under section 80G of the Act.
At the outset, we note the facts involved for rejection of registration sought under section 80G of the Act are identical to the facts of rejection of registration under section 12AB of the Act for which the assessee is in appeal before us in . Therefore, the finding given for the assessee’s appeal in pertaining to registration under section 12AB of the Act shall also be applicable to the present appeal pertaining to section 80G of the Act registration. The assessee appeal in No.11 to 11.8 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the shall also be applied for present appeal in ITA No. 366/Bang/2025. Hence, the ground of appeal filed by the assessee is hereby allowed.
In the result appeal of the assessee is allowed.