2025 (6) TMI 46 - AT - Income Tax

Trust registration cancellation overturned due to overly technical approach ignoring genuine charitable objectives and intent

Shri Siwanchi Oswal Jain Bhavan Trust Versus The Commissioner of Income Tax (Exemptions), Bengaluru

Shri Siwanchi Oswal Jain Bhavan Trust Versus The Commissioner of Income Tax (Exemptions), Bengaluru - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:- Whether the learned Commissioner of Income Tax (Exemptions) was justified in rejecting the application for registration of the trust under section 12AB(1) of the Income Tax Act, 1961 ('the Act').- Whether the rejection of registration under section 12AB(1) was based on valid legal grounds or was arbitrary, violative of principles of natural justice, and unsupported by evidence.- Whether the charitable activities of the trust had genuinely commenced, and whether the discrepancies between provisional and audited financial statements justified denial of registration.- Whether the principles and precedents governing registration under section 12AB(1) were properly applied by the authorities below.- Whether the rejection of registration under section 80G(5) of the Act, which was made on similar grounds as under section 12AB, was justified.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of rejection of registration under section 12AB(1)Relevant legal framework and precedents:Section 12AB(1) of the Act mandates that the Principal Commissioner or Commissioner must be satisfied about (i) the genuineness of the activities of the trust and (ii) compliance with applicable laws material to achieving the trust's objectives before granting registration. The Hon'ble Supreme Court in Ananda Social and Educational Trust vs. CIT clarified that 'the term 'activities' includes 'proposed activities'' and that the Commissioner must consider whether the objects and proposed activities are genuinely charitable in nature. Registration refusal at this stage must be based on genuine non-compliance or non-genuineness, not on mere suspicion or surmise.The Allahabad High Court in CIT vs. Red Rose School held that the Commissioner is not to act as an Assessing Officer at the registration stage and must only examine the genuineness of objects and activities based on the material before him, without rejecting registration on mere presumptions or apprehensions. The Karnataka High Court in Director of Income Tax (Exemptions) vs. Garden City Educational Trust emphasized that the initial stage of a trust's activities and administrative expenses cannot be grounds for refusal, and that the intention to carry out charitable activities reflected in the trust deed and initial steps is relevant.Court's interpretation and reasoning:The Tribunal observed that the trust was established with clearly charitable objects such as building and maintaining places of worship, pilgrimage sites, and community service facilities, and organizing worship and charity activities. The trust had obtained provisional registration and applied for regular registration under section 12AB.The authorities below rejected registration primarily because the trust had not demonstrated actual charitable activities commenced, and due to unexplained discrepancies between provisional and audited financial statements, including significant changes in corpus fund, loans and liabilities, and fixed asset values.The Tribunal noted that the acquisition of fixed assets worth Rs. 9.74 crores indicated an intention to create infrastructure for charitable activities, supporting genuineness of purpose. The Tribunal emphasized that minor discrepancies in financial statements, especially at the initial stage, do not fundamentally alter the charitable nature or intention of the trust.It held that the learned CIT(E) adopted a 'highly technical and pedantic approach' focusing on mode of expenditure rather than the genuineness of objectives and the nascent stage of activities. The Tribunal reiterated that issues related to actual application of income and expenditure are to be examined during assessment proceedings, not at the registration stage.Key evidence and findings:- Trust deed evidencing charitable objectives.- Provisional registration under section 12A.- Acquisition of immovable property for charitable purposes.- Discrepancies between provisional and audited financial statements not explained but considered minor and rectifiable.- No material to suggest objects were non-charitable or activities were not genuine.Application of law to facts:The Tribunal applied the settled legal principles that registration under section 12AB is to be granted if the trust's objects are charitable and activities are genuine or proposed. The Tribunal found that the trust met these criteria and that the authorities below erred in rejecting registration based on financial discrepancies and lack of extensive activities at the initial stage.Treatment of competing arguments:The learned Departmental Representative argued that the charitable activities had not commenced and that land acquisition did not justify commencement. The Tribunal rejected this narrow view, holding that acquisition of property for charitable purposes evidences commencement or bona fide intention. The learned Authorized Representative's submission that discrepancies in financial statements were rectified and did not warrant adverse inference was accepted.Conclusions:The Tribunal set aside the order rejecting registration under section 12AB and remanded the matter to the learned CIT(E) for fresh adjudication in accordance with law, emphasizing that registration cannot be refused on technical or procedural grounds unrelated to genuineness of objects or bona fide intention.Issue 2: Rejection of registration under section 80G(5)Relevant legal framework and precedents:Section 80G(5) of the Act deals with registration for the purpose of donation deduction. The provisions for registration under section 80G(5) are pari materia with section 12AB, requiring satisfaction about genuineness of activities and compliance with law.Court's interpretation and reasoning:The Tribunal noted that the rejection of registration under section 80G was on the same basis as under section 12AB, and since the Tribunal had allowed the appeal on section 12AB registration for statistical purposes, the same reasoning applies to section 80G registration.Key evidence and findings:The same evidence and findings relating to genuineness and compliance under section 12AB were relevant here.Application of law to facts:The Tribunal applied the principle of parity and consistency in treatment of registration applications under both sections.Treatment of competing arguments:No separate arguments were advanced on this issue beyond those on section 12AB.Conclusions:The Tribunal allowed the appeal against rejection of registration under section 80G for statistical purposes, following the decision on section 12AB registration.3. SIGNIFICANT HOLDINGS- 'Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term 'activities' in the provision includes 'proposed activities'. That is to say, a Commissioner is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust.'- 'The Commissioner is not to act as an Assessing Officer and is only required to examine the objects and genuineness of activities based on materials placed before him. On mere presumptions and on surmises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made.'- 'Registration cannot be refused merely because at the initial stage the trust has not carried out large-scale activities or only incurred administrative expenses. What is relevant is the intention to carry out charitable activities as reflected from the trust's objects and initial activities.'- 'The learned CIT(E) has adopted a highly technical and pedantic approach by focusing on the mode of expenditure rather than evaluating the genuineness of the objectives and the growing stage of the trust's activities.'- The final determination was to set aside the rejection orders under sections 12AB and 80G and remit the matter for fresh adjudication, allowing the appeals for statistical purposes.