2019 (8) TMI 511 - HC - Income Tax

Court clarifies trust must be registered under Section 12AA before seeking approval under Section 80G

THE COMMISSIONER OF INCOME TAX (EXCEMPTIONS) Versus SHREE TAPESHWAR HANUMAJI BAJRANG CHARITY TRUST

The High Court held that the Tribunal erred in directing approval under Section 80G without the trust fulfilling the prerequisite of registration under ... Approval u/s 80G(5) - charitable activity u/s 2(15) - whether registration u/s 12A/12AA is a pre-requisite for grant of approval u/s.80G ? - HELD THAT:- The inquiry for the purpose of grant of approval u/s 80G relates to, whether the trust is registered u/s 12A, whether it is a trust wholly for charitable purpose or religious purpose and whether the income received by it is liable to be considered u/s 11. In the case on hand, indisputably, the assessee has not produced any certificate of registration u/s 12A . In the absence of such a certificate, whether the Appellate Tribunal could have straightway come to the conclusion about the charitable activities of the trust and directed the Commissioner to grant the approval u/s 80G ? - In our opinion, the answer has to be in the negative. Even for the purpose of registration of charitable or religious trust, the application has to be accompanied by self-certified copy of the order granting registration u/s 12A or Section 12AA, as the case may be. At the same time, even if there is an order rejecting the application for grant of registration u/s 12A or Section 12AA, the same has to be annexed along with the application under Rule 17A. The Appellate Tribunal, instead of addressing itself on the aforesaid issue, straightway looked into Section 2(15). Section 2(15) of the Act merely defines the term 'charitable purpose'. The issue in the present case is with regard to the grant of approval u/s 80G in the absence of any valid registration certificate u/s 12A. Once a charitable trust is registered u/s 12A, the question whether the assessee – Trust is for charitable purpose need not be gone into. Indisputably, in the case on hand, the charitable trust is not registered u/s 12A. The order passed by the Appellate Tribunal is not sustainable in law. This Tax Appeal succeeds and is hereby allowed. The impugned order passed by the Income Tax Appellate Tribunal is hereby quashed and set-aside. The two substantial questions of law formulated in the present Tax Appeal are answered in favour of the Revenue and against the assessee. Issues Involved:1. Whether the Appellate Tribunal erred in setting aside the order of the CIT and in directing to pass an order granting approval under Section 80G to the assessee without the assessee fulfilling the conditions laid down for approval under Section 80G(5) read with Rule 11AA(2)(i) of the Income Tax Rules, 1962.2. Whether the Appellate Tribunal erred in not appreciating that the assessee was not registered under Section 12AA of the Act, which is a prerequisite for granting approval under Section 80G.Detailed Analysis:Issue 1: Conditions for Approval under Section 80GThe Revenue contended that the Appellate Tribunal erred in setting aside the order of the CIT and directing the grant of approval under Section 80G to the assessee without fulfilling the necessary conditions. The CIT, Valsad, had rejected the application for approval under Section 80G(5) of the Income Tax Act, 1961, observing that the trust had not obtained registration under Section 12A of the Act, which is essential as per the provisions of Section 80G(5)(vi) read with Rule 11AA(2)(i) of the Income Tax Rules, 1962. The Tribunal, however, allowed the appeal by the assessee, holding that the trust's activities were charitable and directed the CIT to grant approval under Section 80G.Issue 2: Prerequisite of Registration under Section 12AAThe Revenue argued that the Tribunal failed to appreciate that the trust was not registered under Section 12AA of the Act, which is a prerequisite for granting approval under Section 80G. Section 12A and Section 12AA of the Act lay down the conditions and procedures for the registration of a trust or institution. The Tribunal's decision was based on the trust's activities being charitable, as defined under Section 2(15) of the Act, without considering the mandatory requirement of registration under Section 12AA.Tribunal's Findings and Supreme Court PrecedentsThe Tribunal had relied on the Supreme Court's decision in M/s. Queen’s Educational Society vs. CIT, which discussed the charitable purposes defined under Section 2(15) of the Act. The Tribunal concluded that the trust's activities, such as promoting religious scriptures, distributing consecrated food, running a gymnasium, and uplifting economically poorer sections of society, were charitable in nature. However, the Tribunal did not address the prerequisite of registration under Section 12AA for approval under Section 80G.High Court's AnalysisThe High Court analyzed the relevant provisions of the Act and the Rules, specifically Section 80G, Section 12A, Section 12AA, and Rule 11AA. The Court noted that registration under Section 12A is a pre-condition for availing the benefits under Sections 11 and 12 of the Act, which provide for the exemption of income applied for charitable purposes. The Court emphasized that the inquiry for granting approval under Section 80G involves verifying whether the trust is registered under Section 12A, whether it is wholly for charitable purposes, and whether its income is liable to be considered under Section 11.The High Court referred to the Punjab and Haryana High Court's decision in Commissioner of Income-Tax v. Surya Educational and Charitable Trust, which clarified that the benefit of Sections 11 and 12 is available only if the trust or institution is registered under Section 12AA. The Delhi High Court's decision in M.K. Nambyar Saarf Law Charitable Trust v. Union of India was also cited, which highlighted the procedural requirements for registration under Section 12AA.ConclusionThe High Court concluded that the Tribunal's order was not sustainable in law as it failed to consider the mandatory requirement of registration under Section 12AA for approval under Section 80G. The Court allowed the Revenue's appeal, quashed the Tribunal's order, and answered the two substantial questions of law in favor of the Revenue. The Court clarified that the assessee-trust could apply for registration under Section 12AA and, upon obtaining the certificate, could reapply for approval under Section 80G in accordance with the law.