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Income Tax Appellate Tribunal, CIRCUIT BENCH, VARANASI
Before: SHRI.VIJAY PAL RAO & SHRI RAMIT KOCHAR
PER VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 23.05.2019 of CIT(E) passed under section 12AA(1)(b)(ii) of the Income Tax Act, whereby the application of the assessee for registration under section 12A was rejected. The assessee has raised the following grounds:- “1. Because the CIT(E) has erred in law and on facts in holding that; a) in the absence of any demonstrable act of charity on the part of the applicant, the persistent engagement of its members in commercial activities and its malafide intention (as alleged) of transferring the capital asset of the said trust to the trustees themselves; b) the appellant trust is not carrying on any activity of charitable nature; c) genuineness of activities could not be verified; d) on perusal of the material available on record it is found that the applicant is doing a mere pretence of charity; e) the appellant trust failed to provide sufficient material to corroborate the charitable nature of the objects and genuineness of the activities; and on such grounds (and so also other observations made by him), in rejecting the application for registration.
2. Because the registration had been denied to the appellant trust on the basis of erroneous and incorrect consideration made by the CIT(E) in the impugned appellate order dated 23.05.2019.
3. Because all the requisite ‘material’ and ‘information’ as has been placed on record (alongwith the application for registration itself conclusively went on to show that; a) the appellant trust had come into existence for charitable activities and it gave primacy to “medical relief” which falls in the category of ‘charitable purposes’ as defined in section 2(15) of the Act; b) for the said purpose appellant trust began to construct a hospital in the name of “Surya Trauma Center & Hospital” at Village Aurai, Tehsil Aurai (which had even started its functioning on 19.06.2019); c) more that sum of rupees 2 crores had been invested towards the aforesaid hospital (which was yet to commence) at the time of filing the application of the Act and the same was duly verifiable from the very face of the balance sheets; and rejection of application for registration under section 12A(1) was wholly erroneous, based on extraneous consideration and even beyond the scope of the authority of CIT(E) in this respect.
4. Because the charitable intent of the appellant trust, as was expressed in the trust deed dated 10.12.2015, got fully established with the commencement of the “Surya Trauma Center & Hospital”, and due recognition for the same was obtained from Chief Medical Officer, Bhadohi, on 19.06.52019 (Annexure-I).
5. Because the case laws referred to by the CIT(E), in support of his order rejecting the claim for registration of the impugned order, either stood over ruled and / or are not applicable on the facts of the case.
6. Because the CIT(E) has erred in law and on facts in rejecting the application for registration, as had been filed by the appellant trust under section 12A(1) of the Income Tax Act, without giving sufficient opportunity of being heard before passing the order dated 23.05.2019.
7. Because the order appealed against is contrary to the facts, law and principles of natural justice.”
The learned AR of the assessee has submitted that the assessee-trust was created for providing medical relief which is a charitable activity as defined in section 2(15). At the time of filing the application for registration under section 12A of the Income Tax Act on 29.11.2018, the construction work of hospital and Trauma Centre at Village Aurai was in progress and finally the Trauma Centre and hospital in the name of Surya Trauma Centre & Hospital started functioning on 19.06.2019. The CIT(E) rejected the application basically on the ground that 2 the assessee was not able to produce the books of accounts, bank statement and vouchers in respect of the expenses claimed by the assessee for verification of objects and activities of the trust. The learned AR has submitted that since the construction of Trauma Centre and Hospital was going on and as such the activities of the assessee-trust was yet to commence therefore, the registration under section 12A was to be granted by considering the charitable objects of the assessee trust and the existence of the assessee-trust for achieving the objects. Alternatively, the learned AR has submitted that due to the shortage of time, the assessee could not produce the relevant record sought by the CIT(E) and subsequently the registration was allowed to the assessee under section 12A, vide order dated 27.5.2021. Thus the learned AR has submitted that when the assessee-trust was found to be charitable and satisfying all the requirements for registration under section 12A, vide order dated 27.5.2021, then the matter is required to be reconsidered by the Pr. CIT(E), so that the assessee can produce all the requisite material and record for the examination of the CIT(E). Hence, he has pleaded that the impugned order may be set aside and the matter may be remanded to the record CIT(E) after considering the relevant record as well as subsequent registration granted to the assessee.
This matter was to be argued by learned CIT-DR on behalf of the Department. However, due to non availability of the learned CIT-DR, we had no privilege to hear the stand of the Department to counter the arguments advanced by the learned AR. 4. We have considered the submissions of learned AR as well as relevant material on record. The application filed by the assessee on 29.11.2018 for grant of registration under section 12A was rejected by the CIT(E), vide impugned order by giving the reasons in para 4 as under:-
“4. I have considered the material available on record. The applicant trust has not been able to produce the books of accounts, Bank statement and vouchers in respect of expenses claimed by the applicant for verification of objects and activities of the trust. On perusal of material available on record, it is seen that the applicant trust is not carrying out any activities of charitable nature. In light of the above facts that the applicant trust could not produce the books of accounts and vouchers, the genuineness of activities could not be verified. As per provision of section 12AA(1)(b) of the Act, two factors namely the object of charitable purpose and the genuineness of activities have to be proved before granting the registration. However, the applicant failed to prove the same. Hence, the applicant trust has not made a case for granting the registration u/s 12AA(1)(b). In the case of CIT vs National Institute of Aeronautical Engineering Education Society 2009, 181 Taxman 205 (Uttarakhand) it was held that Clause (a) of sub-section (1) of section 12AA empowers the CIT to call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or institution and may also make such inquiries, as he may deem necessary in this behalf. Said provision in section 12AA makes it clear that CIT is not supposed to allow registration with blind eyes. On perusal of the material available on record it is found that the applicant is doing a mere pretence of charity. 'Charity' is the soul of the expression 'charitable purpose'. Mere declaration of objects is not sufficient for according registration u/s 12A(1) of the Income-tax Act, 1961. Genuineness of the activities of the society is an essential ingredient for formation of satisfaction mandated by law. The applicant society has failed to prove the genuineness of the activities which it claims to be carrying out. In the light of the above facts, the applicant has not made a case for granting registration u/s 12A(1) of the Income-tax Act, 1961.”
The CIT(E) has then placed reliance on the various case laws on the point that at the time of granting the registration under section 12A, the Competent Authority is required to satisfy itself from the evidences placed before it about the charitable nature of the objects of the trust / institution and genuineness of the activities. There is no quarrel on the point that at the time of granting registration under section 12A, the Competent Authority has to satisfy itself about the charitable nature of the objects and genuineness of the activities of the trust. The Competent Authority may call for relevant record and documents for its verification and examination, so as to satisfy itself about the charitable objects and the genuineness of the activity. Hence, the assessee is required to produce 4 the relevant record and the documents including the books of accounts, if any, for verification of the CIT(A), so as to satisfy about the charitable nature of the objects and the genuineness of the activity. It is relevant to quote the provisions of section 12AA(1) for ready reference as under:- [Procedure for registration. 12AA. (1) The 2[***] 2a[Principal Commissioner or] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) 99[or clause (aa) of sub-section (1)] of section 12A, shall— (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he— (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.”
Thus, the procedure provided for granting registration under section 12A of the Act contemplates that the Competent Authority shall call such documents or information from the trust or institution, as he think necessary in order to satisfy himself about the genuineness of the activity of the trust being carried out for the purpose of achieving its object as well as about the objects of the trust being charitable. Since the assessee was subsequently granted the registration under section 12A vide order dated 27.5.2021 and thereby the Competent Authority was satisfied about the charitable objects of the assessee trust as well as the genuineness of the activity. Therefore, in view of the facts and circumstances of the case, the matter is required to be considered afresh by the CIT(E) to satisfy itself about the objects of the trust as well as genuineness of the activity, after taking into consideration the subsequent registration granted 5 under section 12A and the relevant record to be produced by the assessee. Accordingly, in view of the facts discussed above and in the interest of justice, we set aside the impugned order and remanded the matter to the record of the CIT(E) for deciding the same afresh after taking into consideration the subsequent registration granted to the assessee under section 12A as well as the relevant record to be filed by the assessee. Needless to say, the assessee be given an appropriate opportunity of hearing before passing a fresh order.
In the result, the appeal of the assessee is allowed for statistical purpose. Order pronounced in the open Court after conclusion of hearing on 06.07.2022. However, the same is reduced in writing and signed on the date given below.