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Facts
The assessee, Sree Raja Rajeswari Educational Trust, applied for registration under section 12AB of the Income Tax Act. The CIT(E) rejected the application, holding that the Trust was not engaged in charitable activities and its income was primarily commercial.
Held
The Tribunal held that the CIT(E) erred in rejecting the application by going beyond the scope of verifying the genuineness of the objects and proposed activities. The inquiry at the registration stage is confined to these aspects, not a full assessment.
Key Issues
Whether the CIT(E) can go beyond the trust's declared objects and proposed activities to reject a registration application under section 12AB, and whether generating profit incidental to charitable activities disqualifies an entity.
Sections Cited
12AB, 12A(1)(ac)(iii), 194C, 12AA
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
The present appeal is filed by the assessee against the order dated 28.01.2025 passed by the Commissioner of Income Tax (Exemptions) (hereinafter referred to as “CIT(E”), rejecting the approval for registration u/s.12AB, filed in terms of section 12A(1)(ac)(iii) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”).
At the outset, we find that there is a delay of 3 days in appeal filed by the assessee, wherein, the Ld. AR of the assessee filed a petition and submitted that the delay in filing the appeal was due to the circumstances beyond the control of the assessee. Hence, there was a delay in filing the appeal by the assessee. After hearing both the parties, we find that there is a reasonable cause for the assessee in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit the appeal filed by the assessee for adjudication.
The solitary ground of appeal raised by the assessee is that the ld.CIT(E) has rejected the application filed in Form 10AB seeking final registration u/s.12A(1)(ac)(iii) of the Act without assigning proper reasons and justification.
The brief facts of the case are that the assessee is a Trust and filed an application dated 11.07.2024 in Form 10AB, seeking registration u/s.12AB of the Act.
The Ld.CIT(E) rejected the said application dated 11.07.2024 on the ground that the assessee is not engaged in any charitable activities and has not substantiated its nature of activities as charitable. Aggrieved by the order passed by the ld.CIT(E), the assessee is in appeal before us.
The ld.CIT(E), pursuant to the application made by the assessee, for the approval of registration u/s.12AB called for the various records, including the Trust deed, Byelaws of the society and its financial statements. The ld.CIT(E) carried out an analysis of the financial statements and held that the assessee is not carrying out any charitable activities and rejected the approval sought for registration u/s.12AB of the Act.
The case of the ld.CIT(E) observed in para 4.4 of his order that the objects of the assessee and the financial statements for the year ending 31.03.2022, 31.03.2023 and 31.03.2024, most of the activities as per the financials are in commercial in nature and no concrete charitable activities are enumerated. Further, the ld.CIT(E) stated that the assessee is engaged in providing skill development programme on contractual basis and for which it is collecting fees subject to TDS u/s.194C of the Act by entering into contracts with the commercial entities like CSC Computer Education Pvt.Ltd and Leeds Skills Training Centre Pvt.Ltd. Further, the assessee’s income from operations earned by the from consultancy fees, Empanelment fees, HR Developments fees, Mobilisation support, Project implementation support, Project Management consultancy etc., These heads of income point out that the assessee is not engaged in charitable purpose. Further, the assessee collaborates with Leeds Skill Training Centre Private Limited and had conducted skill development program for 600 urban youth across five districts of Tamilnadu and received receipts of Rs.12,54,900/- after TDS u/s.194C of the Act.
Since the assessee had earned profit, it ceases to exist as a charitable organization.
Further, the objects of relief of the poor, environmental protection and education are not to be seen from the financial statements and hence the approval was rejected.
Further, the ld.CIT(E) held that more than 20% of its income is applied for the purposes specified above and hence registration could not be granted.
Before the ld.CIT(E), the assessee contended that at the time of grant of registration, the only two conditions that could be verified by the ld.CIT(E), as per section 12AB are (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. The ld.CIT(E) is not bound to make an enquiry akin to assessment, making a financial analysis and rejecting the application made for approval of registration u/s.12AB of the Act. The assessee also argued that generating income incidental to charitable activities does not disqualify an entity from being charitable so long as the predominant objects are charitable in nature.
The CIT(E) relied on Assistant Commissioner of Income-tax (Exemptions) vs. Ahmedabad Urban Development Authority [2022] 449 ITR 389 (SC) and New Noble Educational Society vs. Chief Commissioner of Income-tax [2022] 448 ITR 594 (SC) to reject the contentions of the assessee while the assessee relied on various cases, including Ananda Social & Educational Trust vs. Commissioner of Income tax [2020] 426 ITR 340 (SC)
Before us, the Ld. AR of the assessee reiterated the submissions made before the ld.CIT(E) and prayed that the appeal be allowed.
Per contra, the Ld.DR supported the views taken by the ld.CIT(E) and argued that the rejection is justified and thus prayed that the appeal of the assessee may be dismissed.
We have heard the rival submissions and perused the materials on record and gone through the order of the authority. We find that the sole issue for consideration before us is that whether, at the stage of grant/refusal of registration u/s.12AB of the Act can the ld.CIT(E) go beyond the trust’s declared objects and proposed activities and decide issues which belong to assessment proceedings. In our view, the action of the ld.CIT(E) in rejecting the application for approval seeking registration u/s.12AB of the Act is erroneous.
The statutory scheme, as laid down u/s.12AB of the Act requires the ld.CIT(E) to satisfy himself about the objects of the trust and the genuineness of its activities before granting registration. But the inquiry at the registration stage is confined to whether the objects are charitable and whether the activities proposed/undertaken are genuinely in furtherance of those objects. It is not an exercise to carry out assessment issues or to determine, on the merits, whether sums appearing in the financial statements are taxable receipts of the trust or not. Where a trust is newly formed, “activities” include proposed activities. Similarly, generating profit is not anathema to any trust existing for charitable activities. We also find that the ld.CIT(E)’s reliance on the Ahmedabad Urban Development Authority (cited supra) and New Noble Educational Society (cited supra) are misconstrued and not applicable to the facts in the instant case. In our view, the objects or the activities or the proposed activities of the trust are genuine, and we hold that they are indeed charitable in nature.
We place reliance on the judgment rendered by the Hon'ble Supreme Court in Ananda Social and Educational Trust (cited supra), wherein it was held as follows: “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.”.
By respectfully following the decision rendered by the Hon'ble Supreme Court (supra), which would be applicable to the facts of the case, we direct the ld.CIT(E) to grant registration u/s.12AB of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 06th October, 2025 at Chennai.