2012 (8) TMI 777 - HC - Income Tax

High Court Upholds ITAT Decision: No Obligation to Start Charitable Activities for Trust Registration

The Delhi High Court affirmed the ITAT's decision, ruling that the Commissioner/Director is not obligated to assess whether a Trust has initiated ... Denial of registration as charitable trust under Section-12AA (1)(B) - no charitable activity had in fact taken place since the society was a newly established one - Held that:- Considering the procedure for registration as lead in Section 12AA the statute does not prohibit or enjoin the Commissioner from registering Trust solely based on its objects, without any activity, in the case of a newly registered Trust. The statute does not prescribe a waiting period, for a trust to qualify itself for registration. When the society/trust of assessee itself was formed on 30.05.2008 with the money available with the trust, one cannot expect them to do activity of charity immediately and because of that situation the authority cannot come to a conclusion that trust was not intending to do any activity of charity. In such a situation the objects of the trust have to be taken into consideration by the authority and the objects of the trust could be read from the trust deed itself - in favour of the assessee Issues Involved:1. Whether the Income Tax Appellate Tribunal (ITAT) was correct in holding that the Commissioner/Director is not required to examine whether the Trust has actually commenced and carried on charitable activities while considering an application under Section 12AA(1)(b) read with Section 12A of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Examination of Charitable Activities for Registration under Section 12AABackground:The Revenue was aggrieved by the ITAT's decision to allow the assessee's claim for registration as a charitable trust under Section 12AA(1)(b) of the Income Tax Act, 1961. The core issue was whether the Commissioner/Director is required to examine if the Trust has commenced and carried out charitable activities when considering the application for registration.Assessee's Position:- The assessee, a society incorporated on 30.05.2008, applied for registration under Section 12AA on 10.07.2008.- The objects of the society included educational and medical activities, such as arranging courses in Optometry and Ophthalmic Education, conducting seminars, and creating new hospitals.- The DIT (Exemption) refused registration on the grounds that no charitable activity had taken place, relying on the Kerala High Court judgment in Self Employers Service Society v. Commissioner of Income Tax.ITAT's Reasoning:- The ITAT highlighted that the main objects of the assessee society were charitable.- Citing the Allahabad High Court decision in Fifth Generation Education Society, the ITAT noted that non-commencement of charitable activity cannot be a ground for rejection of the application.- The ITAT emphasized that the Commissioner is not required to examine the application of income at the registration stage, only whether the objects of the trust are charitable.Revenue's Argument:- The Revenue contended that without actual functioning and activities, a society cannot claim to be charitable and thus should not be granted registration under Section 12AA.Assessee's Counter-Argument:- The assessee argued that there is no statutory bar denying the benefit of registration due to non-commencement of activities.- They referenced the Karnataka High Court decision in Director of Income Tax (Exemptions) v. Meenakshi Amma Endowment Trust, which held that the objects of the trust should be considered for registration, not the commencement of activities.Court's Analysis:- The Court examined the provision of Section 12AA, which outlines the procedure for registration, emphasizing that the Commissioner should examine the genuineness of activities and the charitable nature of the objects.- The Court noted that the statute does not impose a waiting period or require the trust to have commenced activities before applying for registration.- The Court rejected the Revenue's argument, stating that introducing such a condition would lead to subjectivity and varied interpretations by different authorities.Conclusion:- The Court followed the interpretation given by the Karnataka High Court in Meenakshi Amma Endowment Trust, holding that the Commissioner is not required to examine whether the Trust has commenced charitable activities at the registration stage.- The question of law was answered in favor of the assessee, and the Revenue's appeal was dismissed.Summary:The Delhi High Court affirmed the ITAT's decision, stating that the Commissioner/Director is not required to examine whether a Trust has commenced and carried on charitable activities when considering an application for registration under Section 12AA(1)(b) read with Section 12A of the Income Tax Act, 1961. The Court emphasized that the statute does not impose a waiting period or require the commencement of activities for registration, thus rejecting the Revenue's contention and dismissing the appeal.