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Facts
The assessee trust was created in 2017 and applied for registration under section 12AB of the Income Tax Act, 1961. The CIT rejected the application, stating that the trust had not received donations or conducted charitable activities, only selling a property and purchasing another. The assessee argued that these actions constituted commencement of activities.
Held
The Tribunal held that the CIT erred in rejecting the registration solely based on the quantum of expenditure and not verifying the genuineness of proposed activities. The Tribunal found that the CIT did not properly verify the genuineness of the activities and remitted the issue back to the CIT for further verification.
Key Issues
Whether the CIT was justified in rejecting the registration application under section 12AB without verifying the genuineness of the trust's proposed activities, considering that 'activities' includes 'proposed activities' for registration purposes.
Sections Cited
12AB, 12AA, 80G(5)
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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of the ld. CIT(Exemptions), Bangalore vide DIN & Notice No. ITBA/EXM/F/EXM45/2024-25/1072591573(1) cancelling the registration u/s 12AB of the Income Tax Act, 1961(In short “The Act”)
The assessee has raised the following grounds of appeal:
1. “The order of the learned CIT[E] u/s. of the I. T. Act, 1961 dated 27/01/2025 refusing to grant recognition u/s 12AB of the Act, in so far as it is against the appellant, is opposed to law, equity, weight of evidence, probabilities facts and circumstances of the case.
M/s. Budugunte Lakshmaiah Setty, Mysore Page 2 of 11
2. The learned CIT(E) is not justified in disposing off the Application in Form No.10AB of the Act without providing the appellant an opportunity to make submissions on the observations of the learned CIT[E] for refusal of registration and cancellation of the provisional registration under the facts and in the circumstances of the appellant's case.
3. The learned CIT[E] erred in refusing to grant recognition u/s 12AB of the Income-tax Act, 1961, on the ground that the appellant has neither received any donations nor conducted any activity towards attainment of the objects of the trust under the facts and in the circumstances of the appellant’s case.
4. The learned CIT[E] failed to appreciate that the impugned order refusing recognition u/s. 12AB was on erroneous consideration of the provisions and therefore, the impugned order passed deserves to be vacated.
5. The learned CIT[E] is not justified in observing that the appellant had not furnished copy of the sale deed which was not specifically called for and hence, the impugned order passed is in violation of the principles of natural justice.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The brief facts of the case as submitted by the AR of the assesseee are that the assessee trust was created by way of declaration of trust dated 07/06/2017. As per the Trust deed, the corpus of the trust shall continue to be the property or the trust as settled in favour of the trust under a registered deed dated 24/03/1945 registered as No. 4719/ 1944-45 book-I with the Sub-Registrar, Mysore. The primary objective of the trust as enumerated in the trust deed are to promote education, medical relief, relief of poor & preservation of environment. After formally M/s. Budugunte Lakshmaiah Setty, Mysore Page 3 of 11 creating a trust by way of declaration of trust dated 07/06/2017, the assessee trust applied for provisional registration in form 10A on 06/06/2023 under sub-clause (vi) of clause (ac) of sub-section (1) of section 12A of the Act. Thereafter, the Ld. PCIT /CIT passed an order granting provisional registration bearing unique registration no. AAFTB0962RE20231 on 13/06/2023 which is effective from the assessment year 2024-25 to assessment year 2026-27. It is also submitted that the assessee trust had acquired a property on 25/03/1945 vide registered deed dated 29/03/1945 for a sum of Rs. 4,909/-. The trust had to sell the said land in order to pursue its activity and finally the land was sold on 04/09/2023 for a consideration of Rs. 1,45,00,000/- vide sale deed dated 06/09/2023. The sale proceeds were deposited in the bank and an advance of Rs. 45,40,000/- was paid to Shri Mahaveer Chand for purchase of a building for the trust in Asoka Road, Mysore for carrying out the trust activity. Further, it is submitted that the assessee trust started its charitable activity on 25/03/2024 by giving donation of Rs. 5,00,000/- for educational purposes to M/s. Sree Vasavi Vrunda Mysore Paschima. As the activity of the trust started on 25/03/2024 accordingly, the trust applied for the final registration within 6 months of commencement of activities (provisional registration expires on 24/09/2024). Further, the form no. 10 seeking accumulation of income is also furnished on 18/07/2024 vide acknowledgement no. 880252320230724 as per the resolution of the trust passed on 13/09/2023. Thereafter, pursuance to said resolution dated 13/09/2023, a Building was purchased on 11/05/2024 vide sale deed dated 13/05/2024 for a sum of Rs. 1,18,24,100/- including stamp duty and other related expenses. The purchased building needed some modification which is being spent with the support from Budugunte Charitable Trust (PAN: AAATB3401C).
M/s. Budugunte Lakshmaiah Setty, Mysore Page 4 of 11
The assessee trust thereafter filed form 10AB on 29/07/2024 vide acknowledgment no. 188736320290724 for final registration u/s. 12AB of the Act. On receipt of the application dated 29/07/2024, the Ld.CIT(E) assigned the case to the jurisdictional assessing officer for verification. After carefully examining the submissions made by the assessee trust, the Ld.CIT(E) was of the view that the assessee trust had not furnished the details of the properties sold i.e. copy of the sale deed to establish when the property was purchased / gifted / donated to the trust to know the value of the property and therefore the value of property at Rs. 4,909/- was not considered to be genuine in absence of details. Further, the Ld. CIT(E) observed that the assessee trust has neither received any donation nor carried out any charitable activities towards object of the trust except for one single donation to another trust. Further, enquiries were conducted at the address mentioned in the ITR of the assessee in which it is seen from the sign board that one M/s. BKP Convention Hall Trust is operating from the said premises. Further, from the date of the inception of the trust, i.e. 07/06/2017, the assessee has not filed any return of income except for the a.y. 2024-25 filed on 12/08/2024. Therefore, the Ld.CIT(E) is of the view that the assessee trust could not establish what charitable activity of the trust had been carried out towards its objects from the date of incorporation. Lastly, the Ld.CIT(E) held that as the assessee is required to submit necessary documents to prove the genuineness of the activity of the trust and also the compliance of such requirements of any other law as are material for the purpose of achieving its objects, the application in form 10AB dated 29/07/2024 filed for registration u/s. 12AB of the Act was rejected and the registration was cancelled.
M/s. Budugunte Lakshmaiah Setty, Mysore Page 5 of 11
Aggrieved by the order of the Ld.CIT(E), the assessee has filed the present appeal before this Tribunal.
The assessee has also filed a paper book comprising 94 pages containing therein the various applications, orders, notices, financials, audit report, trust deed, activity report, copy of sale deed and copy of donation paid etc. which were also available before the Ld.CIT(E).
Before us, the Ld.AR of the assessee vehemently submitted that the activity of the trust had commenced on 25/03/2024 by paying a sum of Rs. 5,00,000/- as donation for educational purposes to M/s. Vasavi Vrunda Mysore Paschima in accordance with the object of the trust. Further, the Ld.AR of the assessee submitted that the assessee society has also purchased a property on 11/05/2024 after selling the vacant plot of land for a consideration of Rs. 1,18,24,100/- including stamp duty and other related expenses. Further, as the building needed modifications which is being spent with the support from Budugunte Charitable Trust and assessee trust has to pay Rs. 19,02,000/- as can be verified from the audited balance sheet as at 31/03/2024. The Ld.AR also submitted that the Ld.CIT(E) could not point out single activity to be non-genuine and accordingly prayed to allow the appeal of the assessee.
The Ld. DR on the other hand, supported the order of the authorities below and vehemently submitted that except purchase and sale of the land and building, no activity has been carried out by the assessee trust. Further, the Ld.DR submitted that giving donation to another trust out of the sale proceeds from land cannot M/s. Budugunte Lakshmaiah Setty, Mysore Page 6 of 11 be said to be a commencement of the the activity of the trust and accordingly, prayed to dismiss the appeal of the assessee.
We have heard the rival submissions and perused the materials available on record.
On going through the order of the Ld.CIT(E), we find that the main contention of the Ld.CIT(E) in cancelling the registration is that the assessee trust has neither received any donation nor carried out any charitable activities towards object of the trust except for one single donation to another trust. Further, the Ld.CIT(E) observed that from the date of the inception of the trust, i.e. on 07/06/2017, the assessee trust has not filed any return of income till a.y. 2023-24 except for the a.y. 2024-25 filed on 12/08/2024. We also take a note of the fact that the assessee trust had made a corpus donation u/s. 80G(5) of the Act to Sree Vasavi Vrunda Mysore Paschima and accordingly, the form no. 10BE has been issued by the said trust on 28/05/2024 (placed at page 92 of the paper book). It is submitted that the donation was given for the educational purposes which is one of the object of the assessee trust. However, we are of the opinion that the Ld.CIT(E) has not verified the object of the donee trust whether it is created for the educational purposes or not. Further, it is also observed from the order of the Ld.CIT(E) that the assessee trust has purchased a building on 11/05/2024 for a total purchase consideration of Rs. 1,18,24,100/- including stamp duty and other related expenses after selling the vacant land for a sale consideration of Rs. 1,45,00,000/- for the purposes of commencement of its activity. Further, we also take a note of the fact that as the purchased building needed modification, the amount is also being spent with support from Budugunte Charitable Trust (PAN: AAATB3401C). Further, on going through M/s. Budugunte Lakshmaiah Setty, Mysore Page 7 of 11 the audited balance sheet for the year ended as at 31/03/2024, an amount of Rs. 19,02,000/- is payable to Budugunte Charitable Trust. However, the ld. CIT(E) had not made any enquiry regarding the activity of the trust after the purchase of the building. We do not agree with the contention of the Ld.CIT(E) that the assessee had not commenced its activity at all towards the attainment of the objects but in fact we are of the opinion that the ld. CIT(E) failed to verify the genuineness of the activities carried on by the assessee. For the purpose of granting registration, the Ld.CIT(E) should call for such documents or information or make such enquiry as she thinks necessary in order to satisfy herself about the twin object:- a) The genuineness of the activity of the trust 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 object.
10.1 In the present case, there is not even a whisper about any non-genuineness of the activities carried on by the assessee trust. The only allegation by the Ld.CIT(E) is that the assessee trust has neither received any donations nor carried out charitable activities except for one single donation to another trust. We are of the firm opinion that it is not the quantum of expenditure which are relevant for the purpose of granting registration but in fact the genuineness of the activity of the trust in accordance with the object of the trust is relevant. In the present case, it is undisputed fact that the assessee trust had purchased a building for carrying out activity of the trust. It is also undisputed fact that the assessee Trust had made donation u/s. 80G of the Act to Sree Vasavi Vrunda Mysore Paschima for educational purposes. Further, as the assessee trust was not able to spend the entire sales consideration received from the sale of the land had also filed a form No. 10 on 23/07/2024 for accumulation of Rs. M/s. Budugunte Lakshmaiah Setty, Mysore Page 8 of 11 1,05,00,000/- for the purpose of purchase of site and building for pursuing the activities of the trust for a period of 5 years starting from previous year 2024-25 to previous year 2028-29, which the assessee trust acquired the building in the f.y 2024-25. At this juncture, it is worthwhile here to mention the observations of the Hon’ble Apex Court in the case of Ananda Social & Educational Trust v. Commissioner of Income tax reported in (2020) 426 ITR 340 as below-
“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 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 M/s. Budugunte Lakshmaiah Setty, Mysore Page 9 of 11 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”
10.2 We respectfully, following the above judgment, are of the considered opinion that the purpose of section 12AB of the Act is to enable the registration only of such trust or institution whose objects and activities are genuine. In other words, the Ld.CIT(E) is bound to satisfy herself that the object of the trust is genuine and that its activities are in furtherance of the object of the trust that is equally genuine. Since section 12AB of the Act pertains to the registration of the trust and to assess of what a trust has actually done, we are of the view that the term activities in the provision include “proposed activities”. In the present case, although the assessee trust had filed form 10 belatedly for the accumulation of Rs. 1,05,00,000/- for the purpose of purchase of site and building for pursuing the activity of the trust as per the resolution of the trust passed on 13/09/2023 and purchased the same for Rs. 1,18,24,100/- including stamp duty and other related expenses which in our view is a proposed activity for attaining the object of the trust.
10.3 In these circumstances, we are of the considered opinion that the observation as made by Ld.CIT(E) that assessee trust had not carried out any charitable activity towards the object of the trust is not correct. However, as stated earlier we are of the opinion that the Ld. CIT(E) has not properly verified the M/s. Budugunte Lakshmaiah Setty, Mysore Page 10 of 11 genuineness of the activities under the present facts & circumstances of the case which is crucial in granting the registration of the trust. Therefore, we deem it fit & proper to remit the issue to the file of Ld.CIT(E) for verifying as follows and decide in accordance with law:
1) With regard to the donation as made to Sree Vasavi Vrunda Mysore Paschima amounting to Rs. 5,00,000/- for the purpose of education, the Ld.CIT(E) shall verify the object clause of the trust deed of the donee trust to observe whether any of the objects of the donee trust are education or not.
2) The ld. CIT(E) shall also verify the present status of the building purchased on 11/05/2024 for a consideration of Rs. 1,18,24,100/- for the purpose of carrying on activities of the trust & also take a note of the activities carried on by the trust on the said building since purchased.
3) The ld. CIT(E) shall also verify the status of the current address / registered office of the trust.
4) Any other enquiry as deemed fit for the purpose of establishing the genuineness of the activity carried on by the trust.
10.4 Needless to say a reasonable opportunity of being heard must be granted to the assessee trust. The assessee trust is also directed to produce all the relevant documents / records / information/report in support of its genuineness of the activities carried on by the Trust. It is ordered accordingly.
M/s. Budugunte Lakshmaiah Setty, Mysore Page 11 of 11
In the result, the appeal filed by the assessee trust is partly allowed for statistical purposes.