THE BARODA LAKKAD PITHA PUNCH PROPERTY BARODA,VADODARA vs. THE CIT(EXEMPTION), AHMEDABAD

The CIT(Exemption), after issuing notices and granting opportunities of hearing on 24.04.2024, 30.04.2024, 08.07.2024, and 22.07.2024, rejected both applications by separate orders dated 27.07.2024. In the order rejecting the application under section 12AB, the CIT(Exemption) recorded that the name of the assessee appearing in the PAN database, namely “The Baroda Lakkad Pitha Punch Property,” did not match the name appearing in the trust registration certificate and Scheme of Administration, namely “The Vadodara Timber Merchant Association.” The explanation furnished by the assessee that the difference arose due to translation from Gujarati to English (e.g., “Vadodara” as “Baroda,” “Lakkad Pitha” as “Timber Merchant”) was not accepted in the absence of corroborative evidence or documentary rectification at the time of adjudication. Although the assessee subsequently filed updated PAN documents after the order, the same was not available before the CIT(Exemption) when the order was passed.

In the separate order rejecting the application for approval under section 80G(5), the CIT(Exemption) recorded that the Scheme of Administration approved by the Joint Charity Commissioner, Vadodara, dated 20.03.2013, included objects such as “giving gifts for materials in temples” and “to do religious and charitable activity.” It was held that these objects are of a religious nature and fall within the prohibition contained in Explanation 3 to section 80G(5), which provides that “charitable purpose” shall not include any purpose the whole or substantially the whole of which is of a religious nature. The assessee argued that these clauses were generic, not directed toward any particular religious community, and that no actual

The CIT(Exemption), however, rejected these arguments and held that section 80G(5B) only permits expenditure of a religious nature within the 5% threshold, but does not permit trusts having religious objects to qualify for approval. It was further held that even a single religious object in the trust deed renders the trust ineligible under the main provision of section 80G(5). The CIT(Exemption) relied on some judicial precedents and concluded that the presence of composite or dual religious- cum-charitable objectives violated the express conditions of section 80G(5) read with Explanation 3, and accordingly, the application for approval was liable to be rejected.

Aggrieved by the orders of CIT(Exemption), the assessee has filed the present appeals before us raising following grounds of appeal: In 1. The learned Hon. CIT Exemption is not correct in rejecting registration u/s 12A of the Income Tax Act.

The learned AR also filed detailed written submissions, which were taken on record. On the question of genuineness of activities, the AR submitted that the learned CIT(Exemption) has proceeded on an erroneous premise by treating the absence of recorded expenditure in the audited accounts as conclusive evidence of absence of charitable activity. It was explained that many charitable initiatives undertaken by the trust such as training programs, educational aid in the form of notebooks, and the donation of an ambulance to a charitable medical institution were carried out with the support of donors who directly incurred the expenses. The trust acted as facilitator and coordinator of these activities, but the amounts were not routed through its books, which explains the absence of such entries in the audited financials. However, photographs, donor correspondences, and trustee resolutions evidencing such activities were submitted before the lower authorities.

The AR further submitted in writing that the trust has not claimed any exemption under sections 11 or 12 of the Act in any previous year and has filed returns of income for the preceding

As regards the second appeal pertaining to the rejection of approval under section 80G(5) of the Act, the AR, by way of written submission, submitted that the dominant and operative objects of the assessee trust are charitable in nature, covering activities such as education, medical relief, public welfare, and social development. The AR submitted that the trust has not incurred any expenditure toward religious purposes since its inception, and there is no record of the trust having undertaken activities such as running a temple or religious establishment. The reference in the Scheme of Administration dated 20.03.2013 to “giving gifts for materials in temples” is of general and ancillary nature and does not constitute a principal or core object of the trust. It was further submitted that the trust deed, in addition to the impugned clause, contains several explicitly charitable objects, such as Running schools, hostels, and libraries, providing scholarships and financial aid, arranging medical camps, laboratories, and ambulance services and developing crematory facilities for the public benefit. The AR strongly contended that merely because one of the clauses refers to religious terms, the entire deed cannot be treated as religious in 9 character. In support, reliance was placed on various judicial pronouncements. It was also pointed out that the audited accounts filed before the CIT(Exemption) for financial years 2017–18 to 2022–23 reveal no expenditure whatsoever on religious purposes. In fact, the trust has neither claimed any exemption under section 11 or 12 nor engaged in activities that attract the bar under Explanation 3. Accordingly, the trust qualifies for relief under section 80G(5B) as well, which permits incidental religious expenditure up to 5% of total income. However, even this provision has not been invoked in the assessee’s case, since there is no actual religious outgo reflected in the books. The AR submitted that the impugned order proceeds on a misinterpretation of the objects clause and fails to adopt the "substance over form" approach mandated by judicial discipline. The CIT(Exemption) has erred in concluding that the trust is not established solely for charitable purposes, despite the overwhelming documentary evidence to the contrary. The AR, therefore, prayed that the order passed under section 80G(5) be set aside and that the assessee be granted the approval sought. In the alternative, it was requested that the matter be remanded to the CIT(Exemption) for fresh consideration after examining the evidentiary materials now placed on record.

The learned Departmental Representative (DR) strongly supported the orders passed by the learned CIT(Exemption) in both proceedings under section 12AB and section 80G(5) and submitted that the impugned orders are reasoned, lawful, and passed in accordance with the provisions of the Act. The DR

We have carefully considered the contentions advanced by the learned AR and the learned DR, perused the impugned orders passed by the learned CIT(Exemption), and examined the material available on record. The primary grievance of the assessee in both appeals is that the CIT(Exemption), while rejecting the applications, proceeded to do so without granting a fair and meaningful opportunity of hearing, particularly in respect of the submissions made regarding the mismatch in the name of the trust and the availability of updated documentation. It is the contention of the AR that the assessee had submitted its clarification regarding the mismatch in PAN name vis-à-vis the name in the trust deed, arising due to linguistic translation from Gujarati to English, and that a PAN correction application had already been made. It is further submitted that supporting material including photographs of charitable events, donor communications, and minutes of trustee meetings were offered but were not effectively considered. However, on scrutiny of the records and paper book, we find that the said documents, though referred to by the AR, were not placed on record either before the CIT(Exemption) or before us. The paper book is notably silent on such evidentiary support, and the trust’s reliance on bare

At the same time, we are conscious of the settled principles laid down in judicial precedents, wherein it has been consistently held that the inquiry at the stage of registration or approval is confined to the assessment of objects and prima facie genuineness of activities, and not the actual quantification or application of funds which is subject to examination during regular assessment. Further, it has been judicially recognised that the presence of a single religious clause in a trust deed does

We further observe that the CIT(Exemption), in both impugned orders, has not applied these settled interpretive principles while analysing the trust’s application. In the order under section 12AB, the rejection is primarily based on the absence of reported expenditure in the audited financials, without adequately appreciating the assessee’s explanation that its role was limited to facilitation of donor-supported charitable activity. No independent inquiry appears to have been made by the CIT(Exemption) to ascertain the genuineness of such activities, despite reference to photographs and donor records. Similarly, it has been emphasised that non-routing of donor- sponsored activities through books of account does not ipso facto negate the charitable nature of such acts, especially when the trust acts merely as an implementing or coordinating agency. These interpretive aids are relevant and must inform the re- examination of facts where the initial denial appears to have been grounded primarily in technical inconsistencies and lack of contemporaneous evidence.

Similarly, in the order under section 80G(5), the CIT(Exemption) has treated the presence of certain phrases such as “religious and charitable activities” and “giving gifts in temples” as conclusive of religious character, without

We also find it necessary to comment upon the observation made by the CIT(Exemption) in paragraph 11 of the impugned order passed under section 12AB, wherein it is noted that the trust, having been in existence since 1952, had not applied for registration under the earlier provisions of section 12A or 12AA and had chosen to apply only under the amended regime through Form No. 10AB. In our considered view, this reasoning is neither relevant nor determinative for disposal of the present application. The statute, as amended and the accompanying circulars and procedural forms, provide for different routes and timelines for fresh and re-registration applications, and the assessee’s choice to avail a particular route at a later point of time cannot by itself be a ground for drawing adverse inference against it. The eligibility or otherwise for registration must be tested on the basis of statutory compliance with the conditions stipulated under section 12A(1)(ac) and section 12AB, and not on the timing or delay in opting for such registration under the earlier regime. The 14 legislative intent is to enable registration for genuine charitable institutions that come forward to comply under the new scheme, even if they had not previously availed exemption. The CIT(Exemption)’s observation on this point, therefore, is not germane to the core issue and unduly prejudices the assessment of the trust’s eligibility on merits.

Having regard to the totality of facts and circumstances, we are of the considered view that the rejection of registration under section 12AB and of approval under section 80G(5) was premature, particularly in light of the assessee’s claim that it was not afforded a full and effective opportunity to present updated and corrected documents, including the revised PAN, as well as evidentiary materials to establish the charitable character of its activities. The requirement under law is not merely procedural compliance, but adherence to the principles of natural justice and fair hearing. In our considered opinion, these requirements were not adequately fulfilled.

Before we conclude, we deem it necessary to place on record our serious displeasure at the manner in which certain submissions were made on behalf of the assessee during the course of the proceedings. The Authorised Representative (AR), both during oral arguments and in written submissions, made specific assertions that photographs evidencing charitable activities, donor acknowledgments, trustee meeting records, and other supporting materials had been filed and were part of the record. However, upon careful examination of the paper book, it

In view of the foregoing, and in the interests of justice, we set aside both impugned orders passed by the CIT(Exemption) and restore the matters to the file of the CIT(Exemption) for fresh adjudication. The assessee shall be at liberty to file a complete set of supporting documents, including the corrected PAN, trust registration certificates, Scheme of Administration, audited accounts, and any evidences in support of its charitable

In view of the above, both the appeals are allowed for statistical purposes.