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Facts
M/s. NSS Taluk Union, Adoor, an Association of Persons and member of Nair Service Society, applied for registration under Section 12A(1)(ac)(iii) of the Income Tax Act, which was rejected by the CIT(E). The rejection was based on three main reasons: failure to register bye-laws with a recognized Registrar of Societies/Trusts as per Rule 17A(2)(c), benefits being allegedly restricted to a particular religious community, and the Registrar of Nair Service Society not being a recognized authority for registration under Section 12A. This was a fresh application after a previous rejection for permanent registration under Section 12A(1)(ac)(ii) was remitted by the Tribunal for fresh consideration.
Held
The Tribunal held that the Income Tax Act does not mandate registration with a Registrar of Trust/Society for obtaining Section 12A registration, and the existence of a trust can be proven by other evidential documents, as supported by High Court judgments. It found the CIT(E)'s reasoning regarding the community-specific benefits to be unfounded, as no evidence showed the assessee prevented other communities from availing benefits. Consequently, the Tribunal set aside the CIT(E)'s order and directed the CIT(E) to grant registration within 8 weeks.
Key Issues
1. Whether registration of bye-laws with the Registrar of Societies/Trusts is a mandatory condition for registration under Section 12A of the Income Tax Act. 2. Whether an application for registration under Section 12A can be rejected on the ground that the benefits extended by the assessee appear to be limited to a particular religious community, without proof of intentional restriction. 3. Whether registration by the Registrar of Nair Service Society is considered a valid basis for registration under Section 12A of the Act.
Sections Cited
12A, 12A(1)(ac)(iii), 12A(1)(ac)(ii), 12AB, 12AB(4), 12AA, 12A(1)(a)
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Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SOUNDARARAJAN K.
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the Ld.CIT(E)-Kochi dated 26/03/2024 in which the Ld.CIT(E) had rejected the application filed for registration u/s. 12A(1)(ac)(iii) of the Act. The assessee raised the following grounds: “1) The order of the Commissioner (Exemption) Kochi is against Law and Facts.
2) The action of Commissioner of Income tax (Exemption), Kochi in cursorily rejecting the application u/s 12AB is Page 2 of 10 against the specific provisions of the Act. One objection raised by the Commissioner (Exemption) is that the appellant did not file self- certified copy of registration with Registrar of Companies or Registrar of firms and Societies or the Registrar of Public Trusts. To read clause (c) of Rule 17A in isolation and stating that registration with the Registrar or. Companies/ Firms/ Societies or Registrar of Public Trusts is mandatory is not correct especially when a charitable entity can he formed even without an instrument in writing as is borne out by clauses (a ) and (b) of Rule 17A.
3) The Commissioner (Exemption) should have appreciated that the appellant was already granted provisional registration and the present application filed was only for renewal of the provisional registration. As per the objects of the appellant it is very clearly laid down in Clause 4(a) that the benefits of the appellant would be open to all irrespective of caste, colour creed, sex, etc. The Learned Commissioner (Exemption) has not disputed that as per the objects of the appellant, that the benefits of the appellant are open to all though during the year, the persons who had approached the appellant for help and to whom benefits were extended belonged to one community.
4) Without prejudice to the above, your appellant would like to submit that even if for arguments' sake it is accepted that the appellant has extended the charitable benefits to members of one religious community only, this should be considered only at the time of assessment and not at the time of granting of registration.
PRAYER For these grounds and such other grounds that may be urged at the time of hearing, it is prayed to grant registration under section 12A to the assessee.”
The brief facts of the case are that the assessee is an Association of Persons which was formed seven decades ago and a member of the Nair Service Society which is a society with registration no. 1126, having their Head Office at Chenganacherry. The said society was registered in the year 1100 under the Travancore Company Regulations Act. The assessee association carries on charitable activities from the contributions received
Page 3 of 10 from the members as well as the public. The assessee also purchased a property during the year 2022 in which the office of the assessee is located. Previously, the assessee applied for provisional registration u/s. 12A in the financial year 2020-21 and the provisional registration was also granted on 27/05/2021. Thereafter, the assessee applied for permanent registration u/s. 12A(1)(ac)(ii) which was rejected on 29/03/2023 for the reason that the assessee is for a particular community and their objects are not charitable in nature. The then Ld.CIT(E) had not considered the amendment made to the byelaws of the assessee and therefore the assessee filed an appeal challenging the rejection order before this Tribunal and the Tribunal also by an order dated 20/06/2024 in had set aside the order of the Ld.CIT(E) and remitted it to the file of the Ld.CIT(E) for fresh consideration.
3. In the meanwhile, the assessee filed a fresh application on 26/09/2023 u/s. 12A(1)(ac)(iii). The Ld.CIT(E) had again rejected the application vide his order dated 26/03/2024 by giving some other reasons which were not raised by him while passing the earlier rejection order. The assessee challenged the said proceedings before this Tribunal.
At the time of hearing, the Ld.AR filed a paper book consisting of the argument notes and other relevant documents and the judgments of the Hon’ble Madhya Pradesh and Gujarat High Courts and the Special Bench order of the Hon’ble Mumbai Tribunal in support of his arguments. The Ld.AR further submitted that the reasons stated by the Ld.CIT(E) that the assessee had not registered with the Registrar of Societies / Trust as required under Income Tax Rule 17A(2)(c) and all the benefits are given to a particular religious community are also not in accordance with the Act and Rules and also against the orders of the Tribunals as well as the High Courts.
Page 4 of 10 ITA No. 402/Coch/2024
The Ld.DR relied on the orders of the Ld.CIT(E) and prayed to dismiss the appeal filed by the assessee.
We have heard the arguments of both sides and perused the materials available on record.
On perusal of the rejection order passed by the Ld.CIT(E), the following reasons were stated in his order dated 26/03/2024. “1. The applicant failed to produce copy of its bye law registered with Registrar of Societies/ Trusts. Even though the applicant has prepared its bye-law, they failed to get it registered with Registrar of Societies/ Trusts as required under Income Tax Rule 17A(2)(c).
2. As per the beneficiaries submitted by the applicant, all the beneficiaries belong to a particular religious community. In reply to the show cause notice, the applicant has not denied this fact. Since the applicant had applied its income for the benefit of a particular religious community alone, they have committed specified violation given Explanation (d) to section 12AB(4).
Further, it is submitted by the applicant vide its reply dated 12/12/2023 that “Bye-law is registered with Karayogam Registrar, Nair Service Society.” The applicant's basis for registration of bye-law is not acceptable as the Nair Service Society is a private community based organisation and its Registrar is not a recognised authority competent to grant registration to any association and has no legal basis. In other words, such registration is not supported by any statutory law in place. Hence, it is not treated as valid registration for the purpose of granting registration u/s. 12A of the Act.”
From the above said reasons, the Ld.CIT(E) had not accepted the byelaw produced by the assessee for the reason that the assessee had not registered with Registrar of Societies / Trust for which the Ld.CIT(E) had relied on Rule 17A(2)(c) of Income Tax Rules. We have also perused the provisions which deal with the registration of trust in the Income Tax Act in which nowhere the Act prescribed a condition that the trust / society should be a registered one with the Registrar of Trusts / Societies. When the main
Page 5 of 10 Statute has not stated anything about the registration of the institutions and when the rule requires such as formality, in our view the same is not correct for the simple reason that the Rule cannot override the provisions of the Act. For the sake of clarity, we have extracted Rule 17A(2). “Application for registration of charitable or religious trusts, etc. 17A. (1) An application under sub-clause (i) or sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) of clause (ac) of sub- section (1) of section 12A for registration of a charitable or religious trust or institution (hereinafter referred to as 'the applicant') shall be made in the following Form, namely:— (i) Form No. 10A in case of application under 53[sub-clause (i) or item (A) of sub-clause] (vi) of clause (ac) of sub-section (1) of section 12A to the Principal Commissioner or Commissioner authorised by the Board; or (ii) Form No. 10AB in case of application under sub-clause (ii) or (iii) or (iv) 54[or (v) or item (B) of sub-clause (vi)] of clause (ac) of sub-section (1) of section 12A to the Principal Commissioner or Commissioner under the said clause.
(2) The application under sub-rule (1) shall be accompanied by the following documents, as required by Form No.10A or 10AB, as the case may be, namely:— (a) where the applicant is created, or established, under an instrument, self-certified copy of such instrument creating or establishing the applicant; (b) where the applicant is created, or established, otherwise than under an instrument, self-certified copy of the document evidencing the creation or establishment of the applicant; (c) self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be; (d) self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010 (42 of 2010), if the applicant is registered under such Act; (e) self-certified copy of existing order granting registration under section 12A or section 12AA or section 12AB, as the case may be; (f) self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA or section 12AB, as the case may be, if any; (g) where the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the applicant relating to such prior year or years (not being more than three years
Page 6 of 10 immediately preceding the year in which the said application is made) for which such accounts have been made up;”
On going through the above said rules, in sub-clause (b), it was stated that even a trust can be created without an instrument for which the assessee should produce some evidences for the creation or establishment of the said trust in order to get registered u/s. 12A, 12AA or 12AB of the Act. Therefore, it is very clear that a trust can be created without any document and the Act and Rules recognised such trusts, eligible for getting registration if some other documents were furnished to prove that the trust has been created. Even though the Trusts could not be registered without a deed, the I.T.Rule permits such trust also to get it registered under the provisions of the Income Tax Act.
From the above said reasoning, we have to see sub-clause (c) of the Rule 12A(2) and on that basis, we can presume that if the trust is created without registration with the Registrar of public trust or firms or companies, can also be eligible for getting registration under the provisions of the Income Tax Act. When the trust is not having instrument or not registered with the Registrar, there is no possibility for getting the registered copy of the byelaw. If the legislature had intended not to grant registration for the trust which have no instruments / documents, clause (b) would not be in the provisions and therefore clause (c) would not be made applicable to the assessees whose trust was not registered with the authorities.
Admittedly, in this case, it was established by the assessee that they are a registered society which was registered in the year 1100 under the Travancore Company Regulations Act. To that effect, the head office of the Nair Service Society issued a certificate to show that the assessee is also a member of the society. Further, the assessee also produced the copy of the sale deed through which a property was purchased by the assessee during the year 2022 in which the purchaser has been mentioned as the assessee.
Page 7 of 10 The assessee also filed copies of the payment of property tax made to the Adoor Municipality to show that the assessee is in existence and own a property at the Adoor Municipality. The assessee also filed the copies of the byelaws approved by the head office and also the proposed amendments made to the existing clauses as per the earlier directions issued by the Ld.CIT(E).
We have also gone through the judgment of the Hon’ble Madhya Pradesh High Court in the case of Laxminarayan Maharaj vs. CIT reported in 150 ITR 465 in which the Hon’ble High Court had decided about the creation of the trust under an instrument and the finding given by the said High Court is extracted as below: “6. When the trust is a trust created under an instrument, Rule 17 requires filing of "the instrument in original" and when the trust is created otherwise than under an instrument, "the document evidencing the creation of the trust" has to be filed. An analysis of Section 12A(a) and Rule 17A(a) will show that the fact to be established is the creation of the trust and this fact is required to be established by producing constitutive and evidential documents. When the trust is created under an instrument, the rule requires the production of the constitutive document itself, i.e., the instrument which created the trust. When the trust is not created under an instrument, it is impossible to produce any constitutive document and, hence, the rule requires production of evidential documents, i.e., the documents evidencing the creation of the trust. The evidential documents cannot be limited to documents which directly prove the creation of the trust, they will embrace all documents which afford a logical basis of inferring creation of the trust and all such documents can be described to be "documents evidencing the creation of the trust" within the meaning of Rule 17A(a). A document directly evidencing the creation of the trust is normally the constitutive document which cannot be produced when the trust is not created by an instrument and if the words "documents evidencing the creation of the trust" are construed as limited to documents directly evidencing the creation of the trust, it will be nearly impossible to have a trust registered which was not created under an instrument. This could never have been the intention of the framers of the rule. In our opinion,
Page 8 of 10 these words embrace all evidential documents, i.e., all documents which afford a logical basis for inferring the creation of a trust. The Revenue papers produced by the petitioners consisted of Jamabandis of 1910-11, 1929-30, patta issued in 1931 and Jamabandi of 1954-55. In all these documents, the petitioner-trust is entered as a tenant or Bhumiswami and the name of the Sarbarakhar is also mentioned. The assessment orders relating to property tax for 1967-68 to 1974-75 were filed. AH these documents, though not directly evidencing the creation of the trust, afford a logical basis for inferring the creation of the trust prior to 1910-11 and can be described as documents evidencing the creation of the trust for purposes of Rule 17A. In our opinion, the Commissioner was not right in taking a very narrow view of Rule 17A and in holding that the petitioner-trust has not complied with that rule.”
We have also perused the judgment of the Hon’ble Gujarat High Court in the case of PCIT(E) vs. Dawoodi Bohra Masjid reported in 402 ITR 29 in which the Hon’ble Gujarat High Court has held as follows: “7. Clause (a) of rule 17A of the Income Tax Rules requires that the application of registration under section 12A of a charitable or religious trust or institution would be accompanied by the following documents namely, where the trust is created or the institution is established, under an instrument, the instrument in original and where the trust is created or the institution is established, otherwise than under an instrument, the document evidencing the creation of the trust or the establishment of the institution. Thus rule 17A nowhere envisages the existence of a trust deed or its registration. The factum of existence of trust can also be established by producing documents evidencing the creation of the trust. This is precisely what has been done in the present case. The order passed by Wakf board dated 20.11.1999 recognises various Daudi Vora trust and in case of present assessee also enlisted the objects of the trust, who would be the managers of the trust and how such managers would be appointed or removed.”
From the principles laid down by the Hon’ble Madhya Pradesh and Gujarat High Courts, it was clear that the trust need not have an instrument / document but the existence of the trust can be proved by way of other means. If the trust can be established without any instrument /
Page 9 of 10 document, then the judgments gave liberty to the assessees to prove the existence of the trust by some other way and therefore both the judgments had laid down a law that in order to get registration u/s. 12A/12AA/12AB of the Act, the trust need not have any instruments / documents. When the High Courts had held that the trust deeds are not required as an evidence to show that the trust are in existence, then naturally the immediate corollary would be that the same need not be a registered one with the Registrar of Trusts / Societies / Companies and therefore the byelaws could not be a registered byelaw.
In such circumstances, and having found that the main statute does not contain any such provision for registration with the Registrar of Trust / Society / Company, the mere mentioning of Rule would not be a reason to reject the application filed by the assessee. Further, as per the principles laid down by the High Courts also, the necessity of the registered byelaw and the registration of the trust with the Registrar of Trust / Society / Company is not required. In the present case, the assessee had established the fact that the assessee trust has been created and doing the service to the society and also proposed some amendments to the various clauses and therefore we are of the view that the first reason stated by the Ld.CIT(E) will not survive.
Insofar as the second reason stated by the Ld.CIT(E) that the beneficiaries are all a particular religious community, we have considered the submission that the assessee had not selected the particular community for granting the benefits and it is also not the case of the Ld.CIT(E) that the assessee had restrained other communities from availing the benefits. The explanation offered by the assessee that it is a coincidence that the particular religious community had approached the assessee and therefore the assessee had granted the benefits to the needy persons who have approached them. The said explanation also seems to be a plausible explanation since the department had not proved that the assessee
Page 10 of 10 prevented the other communities from availing the benefits. Therefore we are of the view that the reasoning stated by the Ld.CIT(E) is without any basis and liable to be set aside.
Insofar as the reason no. 3 given by the Ld.CIT(E), we have already discussed about the registration of byelaws with the Registrar of Nair Service Society in our preceding paragraphs and therefore the reasons stated by the Ld.CIT(E) that the byelaw approved by the Registrar of Nair Service Society cannot be an acceptable one since the same is not recognised by the Registrar of Trust / Society / Company and therefore has no legal basis, is also not correct.
In view of the above said reasoning given by us, we are setting aside the order of the Ld.CIT(E) and direct the Ld.CIT(E) to grant the registration as sought for by the assessee within a period of 8 weeks from the date of receipt of the copy of this order.
In the result, the appeal filed by the assessee is allowed.