Trust registration under section 12AB cannot be rejected for community-specific activities; section 13(1)(b) applies only during assessment

The ITAT Ahmedabad allowed the appeal challenging rejection of registration under section 12AB. The CIT (Exemption) had rejected registration claiming the Trust's objects were confined to Chhasath Prajapati Community, attracting section 13(1)(b) provisions. The ITAT held that section 13(1)(b) applies at assessment stage for determining section 11 exemption, not at registration stage, following SC precedent in Dawoodi Bohara Jamat case. The Trust's activities including scholarships, hostels, and social reform programs served public at large, not just specific community. Registration under section 12AB merely recognizes charitable status.

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Issues:
Registration under section 12AB of the Income Tax Act - Rejection of application based on Trust's activities benefiting a particular community - Noncompliance with document submission requirement.

Analysis:
The appeal was filed against the rejection of the registration application under section 12AB of the Income Tax Act by the Commissioner of Income Tax (Exemption), Ahmedabad. The rejection was based on the grounds that the Trust's objectives primarily benefited the "Chhasath Prajapati Community," invoking section 13(1)(b) of the Act, which disallows exemption for trusts benefiting a specific community. Additionally, the Commissioner noted that the assessee failed to provide certain requested details during the registration process. The assessee contended that its aims were charitable in nature and included a wide range of activities serving the public at large, such as educational programs, scholarships, social initiatives, and economic activities for the Trust's development.

The Departmental Representative argued that the rejection was justified due to the alleged noncompliance with document submission requirements, reflecting poorly on the genuineness of the Trust's activities. However, the assessee's Authorized Representative countered this argument by stating that all necessary documents were uploaded online as per the notices issued and that no specific deficiency was highlighted by the Commissioner. The Tribunal examined the Trust's activities and found them to be diverse and inclusive, serving various sections of society beyond the Chhasath Prajapati Community.

The Tribunal referred to the judgment in the case of CIT vs. Dawoodi Bohara Jamat, which clarified that section 13(1)(b) of the Act applies at the stage of granting exemption under section 11, not during the registration process under section 12AB. The Tribunal emphasized that the application of section 13(1)(b) would be relevant at the assessment stage based on the Trust's actual income and activities. Citing the judicial precedents and the Trust's broad charitable objectives, the Tribunal held that the rejection of the registration application was erroneous. Consequently, the order of the Commissioner was set aside, and the Commissioner was directed to grant registration to the assessee Trust as applied for.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the registration under section 12AB is a recognition of the Trust's charitable status, and the application of section 13(1)(b) would be considered at the assessment stage. The judgment was pronounced in open court on 16th October 2024 at Ahmedabad.

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