2018 (3) TMI 1181 - AT - Income Tax

Tribunal Overturns Tax Exemption Rejection Based on Charitable Trust's Objects Over Activities

Vijay Sudha Smarak Trust Versus CIT (Exemption), Lucknow

The Tribunal reversed the Commissioner of Income Tax (Exemptions)'s rejection of the assessee society's registration application under section 12AA. The ... Rejection of application for registration u/s 12AA (1)(b)(ii) - test of the genuineness of the activity at initial stage when the trust has not yet commenced the charitable activity - Held that:- The assessee society objected to the ld CIT(E) observation as regards his non-satisfaction about ‘genuineness of activities as no activities were started by the assessee trust since, it was incepted on 01/07/2016 and being the first year of the trust no activities could be conducted during the year. On fact, in the absence of activities, any enquiry of the nature would amount putting the cart before the horse. At this stage, only the genuineness of the objects has to be tested and not the activities, which have not commenced. We find that on the facts, the findings of the Ld. CIT(E) regarding the ‘genuineness of activities’ is in direct conflict with the law laid down by Hon’ble jurisdictional High Court in the case of ‘CIT(E) vs. SheedharSewa Trust Asharfi Bhawan, [2017 (10) TMI 386 - ALLAHABAD HIGH COURT]. Thus, at the initial stage when the trust has not yet commenced, the test of the genuineness of the activity cannot be the ground for the rejection of the registration of the assessee trust. In view above, we accept the grievance of the assessee is justified. Therefore, reverse the findings recorded by the CIT(E) and direct to issue Certificate granting registration under section 12AA in the name of the applicant society, forthwith from the financial year in which application was filed. - Decided in favour of assessee. Issues Involved:1. Rejection of application for registration under section 12AA(1)(b)(ii) of the Income Tax Act, 1961.2. Examination of the genuineness of the activities and objects of the trust.3. Requirement of evidence and material to prove charitable purpose.4. Legal precedents and interpretations regarding registration under section 12AA.Issue-wise Detailed Analysis:1. Rejection of application for registration under section 12AA(1)(b)(ii) of the Income Tax Act, 1961:The assessee society's application for registration under section 12AA was rejected by the Commissioner of Income Tax (Exemptions), Lucknow, on the grounds that the society failed to furnish sufficient evidence of carrying out any charitable activities. The CIT(E) found that the applicant had merely submitted the trust deed without corroborative evidence of genuine charitable activities, leading to the conclusion that the society was not engaged in genuine charitable activities.2. Examination of the genuineness of the activities and objects of the trust:The assessee argued that at the stage of registration under section 12AA, the Commissioner is not required to look into the activities if they have not commenced. The focus should be on the genuineness of the objects, not the activities. The assessee cited various legal precedents to support this argument, including decisions from the Allahabad High Court and ITAT Chandigarh Bench, which held that the genuineness of the objects should be tested at the initial stage, not the activities.3. Requirement of evidence and material to prove charitable purpose:The assessee provided several documents to support its application, including the trust deed, objectives of the trust, list of members, PAN card, IT returns, and details of donations and assets. Despite this, the CIT(E) rejected the application, citing insufficient material to form satisfaction regarding the charitable purpose. The assessee contended that non-production of books of accounts and vouchers should not be a reason for rejecting the registration, as supported by various ITAT decisions.4. Legal precedents and interpretations regarding registration under section 12AA:The assessee relied on several legal precedents to argue that the CIT(E) should only examine the objects of the trust at the stage of registration, not the activities. The Allahabad High Court in 'CIT(E) vs. Sheedhar Sewa Trust Asharfi Bhawan' and 'CIT vs. R.S. Bajaj Society' held that the test of the genuineness of the activity cannot be a ground for rejecting registration if the activities have not commenced. The ITAT Delhi Bench in 'Vidyadayani Shiksha Samiti vs. CIT (Exemption)' and 'Aasho Charitable Trust vs. CIT (E)' also supported this view, stating that the Commissioner should focus on the objects of the trust and not the application of income at the stage of granting registration.Conclusion:The Tribunal found that the CIT(E)'s enquiry into the genuineness of activities was misdirected, as the assessee had not conducted any activities during the relevant year. The Tribunal noted that the assessee had provided sufficient material to prove that the objects of the society were charitable in nature. The Tribunal concluded that the rejection of registration on the ground that no activities were started was in direct conflict with the law laid down by the jurisdictional High Court and various ITAT benches. Therefore, the Tribunal reversed the CIT(E)'s findings and directed the issuance of the registration certificate under section 12AA from the financial year in which the application was filed. Both appeals of the assessee were allowed.