Case in reference: M/s Ananda Social and Educational Trust (Appellant) Vs. The Commissioner of Income Tax & Anr. (Respondent) with Civil Appeal No. 4702/2014; Civil Appeal No. (@SLP(C) No. 25761/2015); Civil Appeal No(s). 5437-5438/2012 dated February 19, 2020, at New Delhi.
Preamble: In the budget 2020-2021, the government has proposed to insert section 12AB after section 12AA with effect from 1st. day of June 2020. The idea of inserting this section is to monitor and control the activities of charitable institutions with respect to their genuineness and compliance with the applicable provisions of law. The Principal Commissioner or Commissioner has been delegated powers to issue provisional registration and/or permanent registration after satisfying himself about the objects of the institution, genuineness of its activities and the compliance of such requirements under any other law for the time being in force to achieve its objectives. Before, satisfying the Principal Commissioner or Commissioner is authorized to call for such documents or information from the Institution or make such inquiries as he thinks necessary in order to satisfy himself. In such cases where the Principal Commissioner or Commissioner is not satisfied, he is empowered to reject the application for registration, in case of fresh applicants, or cancel the existing registration but before doing so the applicant has to be provided reasonable opportunity of being heard.
One of the most important shifts from the existing system of granting registration under section 12AA is that timelines have been pre-defined for fresh registration and renewal of registration thereof. Only two types of registration will exist:
Provisional Registration with a validity of three years.
Permanent Registration for Five years.
There will be no lifetime registration under section 12AB. Applications for fresh registration or for renewal of existing registration will only be considered in case submitted as per the timelines provided in the section itself.
Apprehension: The powers of registration under section 12AA have been delegated to the Commissioner of Income Tax. The Commissioner has to satisfy himself about the genuineness of the activities of the trust or institution and is fully empowered to call for any information and/or records and the compliance of such requirements under any other law for the time being in force to achieve its objectives before granting registration under section12AA.
The question raised here is how a Commissioner will be able to stratify himself about the above requirements in the case of newly formed trusts having no history of activities. The answer lies in the above-mentioned case which has gone through the complete legal process from the commissioner of income tax and ITAT, High Court and finally the Hon’ble Supreme Court of India.
Facts of the case: The trust was formed on May 30, 2008, under The Societies Registration Act, 1860. On July 10, 2008, the society applied for registration under section 12AA. During this period the society had not carried out any activity or spent any money to achieve the objects for which the society was created.
The jurisdictional Commissioner of Income-tax after examining the application rejected the same with sole ground that since no activities have been carried by the trust, under such circumstances granting registration to the trust is not possible. Commissioner was of the view that in the absence of verification of activities the trust is supposed to carry, it not possible to satisfy whether the activities are genuine as required under the act and without self-satisfaction of the commissioner grant of registration is not possible.
Aggrieved by order the appellant filed an appeal before the Income Tax Tribunal against the order of the commissioner. The appellate authority turned down the order of the commissioner which was later upheld by the Hon’ble High Court and the Supreme Court.
The reason behind the reversing of the Commissioner’s rejection order was based on the following facts.
- Undoubtedly the satisfaction of Commissioner with respect to objects of the trust or institution and genuineness of its activities is an essential requirement for the grant of registration.
- The said section requires the Commissioner to be so satisfied in order to ensure that the object of the trust and activities are charitable in nature.
- The registration is mandatory for claiming benefits under sections 11 and 12 of the Income Tax Act 1961.
- There can be two types of applications for registration under section 12AA i.e. fresh applications and the application for renewal of existing registration.
The department’s argument based on the above conditions was that the duty of the commissioner before granting registration to any trust or institution is to verify that the objects of the trust which need to be charitable in nature and to ascertain that its activities are genuine. In the present case, the first part was verifiable but in the absence of any activity, the verification as to the genuineness of activities was not possible thus the application was rejected.
The Hon’ble Supreme Court commented as: “Since section 12AA pertains to the registration of the Trust and not to assess what 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.”
Thus, the above comments made by the Hon’ble Supreme Court make it clear that unless there are genuine reasons, not the verification of activities where no such activity has been undertaken by a trust or institution, the commissioner cannot reject the application to grant first time registration.
The author can also be reached at dilip@rklegal.org
Judgment downloaded from http://itatonline.org
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