2025 (4) TMI 323 - AT - Income Tax

Supreme Judicial Body Overturns Tax Authorities' Decision, Mandates Fair Hearing and Proper Evaluation of Trust's Registration Claim

Maa Sidheshwari Charitable Trust Versus The C.I.T (E), Delhi

The SC found that the CIT(E) improperly rejected the trust's registration under Section 12A and approval under Section 80G(5) without providing adequate ... Rejecting the application for registration u/s 12A and approval u/s 80G(5) - As per CIT(A) assessee does not conclusively prove the genuineness of the activities and rejected the registration. HELD THAT:- The assessee has furnished several documents and evidences which were furnished before the CIT(E) before us to establish the genuineness of the activities of the trust. Be that as it may, we are of the view that the CIT(E) has not given sufficient time to assessee to present its case. We are of the considered view that the CIT(E) ought to have given a reasonable and adequate opportunity of being heard to the assessee. Therefore, we deem it fit to restore the issue of registration u/s 12A to the file of the CIT(E). CIT(E) is directed to rehear and consider all the documents submitted along with the application after affording a reasonable and adequate opportunity of being heard to the assessee. The ground of the appeal is allowed for statistical purposes. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment were: Whether the CIT(Exemption) was justified in rejecting the application for registration under Section 12A of the Income Tax Act, 1961, on the grounds that the assessee trust did not conclusively prove the genuineness of its activities. Whether the CIT(Exemption) was justified in not granting approval under Section 80G(5) of the Income Tax Act, 1961, given the unresolved issue of the trust's registration under Section 12A.ISSUE-WISE DETAILED ANALYSISIssue 1: Registration under Section 12A of the Income Tax Act, 1961 Relevant legal framework and precedents: Section 12A of the Income Tax Act, 1961, requires a trust or institution to apply for registration to avail the benefits of tax exemption on its income. The registration is contingent upon the trust proving the genuineness of its activities and its charitable nature as per Section 12AA. Court's interpretation and reasoning: The Court observed that the CIT(Exemption) rejected the application for registration on the basis that the trust did not conclusively prove the genuineness of its activities. However, the Court noted that the CIT(E) did not provide adequate time for the assessee to present its case fully. Key evidence and findings: The assessee had submitted several documents to the CIT(E) to establish the genuineness of its activities. Despite acknowledging the presence of charitable activities, the CIT(E) found the evidence insufficient without providing specific reasons. Application of law to facts: The Court applied the principles of natural justice, emphasizing the need for the CIT(E) to provide a reasonable opportunity for the assessee to be heard and to present its evidence adequately. Treatment of competing arguments: The assessee argued that the CIT(E)'s reasons for rejection were vague and that sufficient evidence was provided. The Department Representative supported the CIT(E)'s decision. The Court found merit in the assessee's argument regarding the lack of opportunity. Conclusions: The Court deemed it appropriate to restore the issue of registration under Section 12A to the CIT(E) for a fresh determination, ensuring the assessee is given a fair opportunity to present its case.Issue 2: Approval under Section 80G(5) of the Income Tax Act, 1961 Relevant legal framework and precedents: Section 80G(5) of the Income Tax Act provides for approval of donations to certain funds, charitable institutions, etc., to be eligible for tax deductions. Approval under this section is often contingent upon the institution being registered under Section 12A. Court's interpretation and reasoning: Given that the issue of registration under Section 12A was set aside for reconsideration, the Court found it logical to also set aside the issue of approval under Section 80G(5) for fresh consideration. Key evidence and findings: The Court did not delve into specific evidence regarding Section 80G(5) approval, as it was intrinsically linked to the Section 12A registration issue. Application of law to facts: The Court recognized that the determination of the trust's registration status under Section 12A would directly impact the decision on Section 80G(5) approval. Treatment of competing arguments: The arguments regarding Section 80G(5) were not separately addressed, as they were dependent on the outcome of the Section 12A registration issue. Conclusions: The Court set aside the issue of approval under Section 80G(5) to the CIT(E) for reconsideration, contingent upon the fresh determination of the Section 12A registration.SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: 'In view of the above factual position, we are of the considered view that the CIT(E) ought to have given a reasonable and adequate opportunity of being heard to the assessee.' Core principles established: The principles of natural justice require that an assessee be given a fair opportunity to present its case, especially in matters of registration and approval under tax exemption provisions. Final determinations on each issue: Both issues, the registration under Section 12A and the approval under Section 80G(5), were set aside to the file of the CIT(E) for a fresh determination, ensuring that the assessee is afforded a reasonable and adequate opportunity to be heard.