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Facts
The assessee, Nathmal Jee Foundation, applied for permanent registration under Section 12AB and approval under Section 80G(5) of the Income Tax Act. The CIT(E), Jaipur, rejected these applications, citing reasons like "Doing commercial activities and activities are not as per the objects of the Trust and also misrepresentation of the facts" and issues with the application of income and non-submission of documents related to Rule 17. The assessee appealed the rejection.
Held
The Tribunal noted that the Ld. CIT(E) did not effectively adjudicate the applicability of Section 2(15) and did not deal with judicial pronouncements. It also acknowledged new evidence from the assessee regarding changes to its objects. Therefore, the Tribunal remanded both applications (for Section 12AB registration and Section 80G(5)(iii) approval) back to the Ld. CIT(E) for a fresh decision after providing the assessee a reasonable opportunity of being heard and considering all relevant information and amendments.
Key Issues
Rejection of trust registration under Section 12AB and 80G(5) due to alleged commercial activities, misrepresentation of facts, and non-compliance with statutory requirements for application of income and documentation, including the non-adjudication of Section 2(15) applicability by the CIT(E).
Sections Cited
12AB, 80G(5), 2(15), 11(1), 139
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: SHRI GAGAN GOYAL & SHRI NARINDER KUMAR
PER BENCH This common order is to dispose of the above-captioned two appeals filed by the applicant Trust, as the same are inter-connected and have been argued together.
1. This appeal by the assessee vide is directed against the order of CIT(E), Jaipur dated 30.11.2023 passed u/s. 12AB(1)(b)(ii)(B)of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal:
1. In the facts and circumstances of the case and in law, the Id. CIT(E) has erred in rejecting the registration under section 12AB of Income Tax Act, 1961 for the alleged reasons of "Doing commercial activities and activities not as per objects of trusts and also misrepresentation of facts". The action of the Id. CIT (E) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by directing the Id. CIT (E) for grant of registration under section 12AB of the Act.
2. the assessee craves its rights to add, amend or alter any of the grounds on or before the hearing. ITA No. 76/JPR/2024
1. In the facts and circumstances of the case and in law, the ld. CIT (E) has erred in rejecting the registration under section 80G (5) of the Income Tax Act, 1961 for the alleged reasons of “Approval u/s. 80G cannot be granted without registration u/s 12AB”. The action of the ld. CIT (E) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by directing the ld. CIT (E) for grant of registration under section 80G(5) of the Act.
2. The assessee craves its rights to add, amend or alter any of the grounds on or before the hearing.”
2. The brief facts of the case are that the assessee filed an application in Form No. 10AB seeking permanent registration u/s. 12AB of the Act on 09.05.2023. Application of the assessee was rejected on the ground of “Doing commercial activities and activities are not as per the objects of the Trust and also misrepresentation of the facts”. The assessee being aggrieved with the same preferred an appeal before us.
3. We have gone through the order of the Ld. CIT (E), Jaipur and submissions of the assessee alongwith the grounds taken before us. It is observed that the assessee is a company incorporated under the Companies Act, 2013 and came into existence on 12th April 2022. It is observed that the Ld. CIT (E), Jaipur primarily relied on the provisions of section 2(15) of the Act, which is reproduced below as under:
(15) "Charitable purpose" includes relief of the poor, education, [yoga,] medical relief, preservation of environment(including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) The aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.
In view of the proviso (“any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity”) vis-a vis the observation of the Ld. CIT(E), Jaipur, it is observed that the findings of the Ld. CIT(E), Jaipur does not establish the applicability of the provisions of section 2(15) of the Act.
We have gone through the audited financials also of the assessee and it is observed that the assessee has a surplus of Rs. 8,90,590/- for F.Y. 2022-23 and deficit of Rs. (-) 7,05,750/- for the F.Y. 2023-24. The total receipt of the assessee during the F.Y. 2022-23 was Rs. 11,00,100/- and surplus was Rs. 8,90,590/-, i.e. 80.95% means the assessee applied only 19.05% towards the objects and balance carried forward relying on the provisions of section 11(1) read with clause (2) of the explanation 1 of the Act, which read as under:
Explanation 1. —For the purposes of clauses (a) and (b), — (1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount—
(i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then—
(a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income such option to be exercised at least two months prior to the due date specified under sub-section (1) of section 139 for furnishing the return of income, in such form and manner as may be prescribed be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.
Prescribed here means Rule 17 of the Rules and Form No. 9A as reproduced below: Rule - 17, Income-tax Rules, 1962 Exercise of option etc. under Explanation 3 to the third proviso to clause (23C) of section 10 or section 11. 17. (1) The option to be exercised in accordance with the provisions of the Explanation to sub- section (1) of section 11 of the Act in respect of income of any previous year relevant to the assessment year beginning on or after the 1st day of April, 2016 shall be in Form No. 9A and shall be furnished before the expiry of the time allowed under sub-section (1) of section 139 of the Act for furnishing the return of income of the relevant assessment year. (2) The statement to be furnished to the Assessing Officer or the prescribed authority under clause (a) of the Explanation 3 to the third proviso to clause (23C) of section 10 of the Act or under clause (a) of sub-section (2) of section 11 of the Act or under the said provision as applicable under clause (21) of section 10 of the Act shall be in Form No. 10 and shall be furnished before the expiry of the time allowed under sub-section (1) of section 139 of the Act, for furnishing the return of income. (3) The option in Form No. 9A referred to in sub-rule (1) and the statement in Form No. 10 referred to in sub-rule (2) shall be furnished electronically either under digital signature or electronic verification code. (4) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall— (i) specify the procedure for filing of Forms referred to in sub-rule (3); (ii) specify the data structure, standards and manner of generation of electronic verification code, referred to in sub-rule (3), for purpose of verification of the person furnishing the said Forms; and (iii) be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to Forms so furnished.]
FORM NO. 9A [See rule 17(1)] Application for exercise of option under clause (2) of the Explanation to sub-section (1) of section 11 of the Income - tax Act, 1961. To The Assessing Officer, I, ............... on behalf of [name of the trust/institution/association].........................Permanent Account Number (PAN)......................................do hereby wish to exercise the option referred to in clause (2) of the Explanation to sub-section (1) of section 11 of the Income-tax Act, 1961 for an amount of Rs.......................( detailed in A below) to be deemed to be the income applied for charitable or religious purposes during the previous year 20..- 20.. for the reasons mentioned in B below. A. The details of income in this regard are: (i) Amount of income derived from property held under trust / held under trust in part, during the above-mentioned previous year: Rs...................; (ii) Amount of income [out of (i)] actually applied to charitable or religious purposes in India: Rs .........................; (iii) Amount of income referred to in (ii) that falls short of 85% of the income referred to in (i): Rs.................; (iv) The amount of income in respect of which the option is being exercised: Rs.................. B. The reasons for the shortfall in application of income areas under: (a) Whether the income was not received during the previous year? .........Yes/No. If yes, the amount of income that was not received: ...............; (b) Any other reason? .........Yes/No If yes, then specify the reason and the corresponding amount of income: Sr. No. Reason for short fall Amount of Income Date: Signature..................................Designation...............................Address....................................Not e: 1. this option Form should be signed by a trustee/principal officer.2. Delete the inappropriate words 5. In view of the above discussion on the facts of the case and law applicable, it is observed that the Ld. CIT(E), Jaipur neither effectively adjudicated the issue of applicability of section 2(15) in the present case nor dealt with the judicial pronouncements relied upon by the assessee on this aspect. Hence the matter deserves to be restored back to the file of the Ld. CIT (E), Jaipur for reconsideration of the matter keeping in view the main objects of the assessee alongwith the judicial pronouncements relied upon by the assessee and a speaking order on the facts and law is to be passed after giving a proper opportunity of being heard to the assessee.
It is observed that the assessee never produced the documents relating to Rule 17 of the Rules alongwith Form No. 9A as discussed (supra). It is also not before us that the assessee was registered provisionally even before the Ld. CIT (E), Jaipur. In the light of this fact, the assessee is directed to come forward with the documents as prescribed in Rule 17 of the Rules before the Ld. CIT (E), Jaipur for verification. In case of failure to do so, the Ld. CIT (E), Jaipur is free to proceed as per law treating the assessee’s surplus as an income of AOP and chargeable to tax as per the provisions of Act.
Record reveals that the application u/s 12AB of the Act, came to be filed on 09.05.2023. Thereupon, various notices were issued by the office of Learned CIT(E) to the applicant trust, seeking various documents/information on different aspects.
As observed by Learned CIT(E), in para 2.3 of the impugned order, vide letter dated 21.11.2023 i.e. reply to the notice dated 17.11.2023, the applicant apprised that the applicant trust had decided not to pursue on the following two activities:-
Sr. No. 10 -Rural development projects.
Sr. No. 11 -Slum area development
The applicant further informed the office of Learned CIT(E) that the applicant trust had initiated process for deleting the above said two activities from its object clause in the Memorandum of Association.
During pendency of these appeals, the applicant filed an application under Rule 29 of ITAT Rules, 1963, seeking permission to produce following additional evidence:-
S. No. Particulars Page No.
Form MGT-14: Filing of Resolution and agreement to the 1-6 Registrar of Companies (ROC) 2. Fees Receipt from MCA for MGT-14 7 3. Form INC-13: e-Memorandum of Association (MoA)- amended 8-15 4. Form GNL-1: Form for filing an application with ROC 16-19 5. Fees Receipt from Ministry of Corporate Affairs (MCA) for GNL-1 20 6. Approval Mail from MCA for GNL-1 21 7. Certified copy of Board Resolution for altering the MOA 22-23 8. Application to ROC for alteration of MOA 24-25
Additional evidence pertains to amendments made by the applicant trust, as regards its objects in view of the observations made by Learned CIT(E).
Admittedly, the abovesaid additional evidence pertains to the events which are stated to have taken place subsequent to passing of the impugned order. In other words, the evidence now sought to be produced before us, was not before Learned CIT(E).
Since the above said evidence is sought to be produced for the first time and pertains to a very important issue i.e. objects of the applicant trust, said evidence needs to be considered by Learned CIT(E) so as to enable him to find out as to whether the activities of the applicant trust, after said amendments, would be inconsonance with the provisions of law. Therefore, on this aspect also, the matter needs to be remanded to Learned CIT(E) for decision afresh, while providing reasonable opportunity of being heard to the applicant trust.
With these observations, the application under Rule 29 filed before us is disposed off.
In the impugned order, Learned CIT(E) observed that in column No. 10 of Form 10AB, applicant trust did not make any reference about Nathmalji Institute for Entrepreneur Mentoring (in short “NIEM”); that as claimed by the applicant trust through NIEM, it wanted to impart guidance, lend support and provide motivation to newly formed start-ups with respect to challenges in the form of advancement on technology, running business in current era and use of advanced skills in order to grow their business.
Learned CIT(E) went on to observe that the applicant had deliberately concealed about NIEM; that the applicant failed to provide copy of MOU with start-ups, and further that said activity was clearly in the nature of running of business, and as such, did not amount to charitable activity.
That is how, show cause notice dated 17.11.2023 came to be issued to the assessee. Admittedly, the applicant trust furnished response dated 21.11.2023.
In para 2.5 of the impugned order, Learned CIT(E) held that the act of the applicant trust i.e. in providing mentorship to persons, who enrolled themselves on payment fees, with margin of 50%, did not fall in any category of charitable activity, what to say of advancement of general public utility.
In the given facts and circumstances, when the applicant trust did not provides certain significant details to Learned CIT(E), as regards NIEM and the activities, if any, done there, we deem it a fit case to restore the matter to Learned CIT(E), so as to provide another opportunity to the applicant to produce all the relevant/information/document/evidence before Learned CIT(E), to enable him to effectively adjudicate said issue, having regard to the settled law and also dealing with decisions cited by ld. AR for the applicant trust.
12AB of the Act needs to be restored to the files of Learned CIT(E) for decision afresh, after providing reasonable opportunity of being heard to the applicant trust. vide impugned order separate application submitted by the applicant trust u/s 80G(5)(iii) of the Act came to be rejected.
As noticed above, the impugned order passed on the application u/s 12AB of the Act has been set aside, and the said application has been restored to its original number. As a consequence, this connected application u/s 80G(5)(iii) of the Act is also restored to its original number for decision afresh after providing reasonable opportunity of being heard to the applicant trust.
In view of the above findings, both appeals are disposed of for statistical purposes. Learned CIT(E) to decide both application i.e. u/s 12AB of the Act and 80G(5)(iii) of the Act afresh in accordance the law, after providing reasonable opportunity of being heard to the applicant trust.
Copy of the order be placed in the connected file of appeal.
The Order is pronounced in the open court on the 19th day of May, 2025.