Trust registration denial overturned after evidence of school construction and substantial investments ignored under section 12AB

ITAT Bangalore allowed the appeal challenging rejection of registration under section 12AB. The assessee trust, established for educational purposes, was denied registration by CIT(E) who held that charitable activities had not commenced. ITAT found that CIT(E) failed to consider substantial evidence including lease deed for land acquisition with deposit paid, bank overdraft facility of Rs. 10 crores, bank statements from multiple banks showing activities, construction bills for school building, and purchase bills for building materials. The tribunal held that when a trust with educational objects constructs a school and makes substantial investments, its activities have already commenced and such evidence cannot be ignored. ITAT quashed CIT(E)'s order and remanded the matter with directions to examine the reply filed by assessee and decide the application in accordance with law after proper consideration of all submitted details.

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ISSUES:

Whether the rejection of registration under section 12AB of the Income-tax Act, 1961, on the ground that the trust has not commenced its activities, is justified.Whether the administrative authority is required to consider all relevant material, including provisional financial statements and evidence of ongoing activities, before rejecting registration under section 12AB.Whether mere insufficiency of donations and lack of expenditure towards the objects of the trust in one financial year justifies rejection of registration under section 12AB.

RULINGS / HOLDINGS:

The rejection of registration under section 12AB on the basis that the trust "has not commenced its activities" was held improper where substantial evidence showed ongoing activities, including lease of land, construction work, and financial transactions indicating operational commencement.The administrative authority failed to consider "the provisional balance sheet for FY 2024-25," bank statements, lease deeds, and construction bills, which collectively demonstrated that the trust had commenced its activities, rendering the rejection unsustainable.The court held that "mere considering the Income & Expenditure for FY 2023-24" and concluding insufficient donations and lack of expenditure towards the objects does not justify rejection when other substantial activities and investments are evident.The order rejecting registration was quashed and the matter was remanded with a direction to the authority to consider all submitted replies and evidence before deciding the application in accordance with law.

RATIONALE:

The court applied the statutory framework of section 12AB of the Income-tax Act, 1961, which governs registration of trusts for exemption purposes, requiring that the trust should have commenced its activities in furtherance of its objects.The court emphasized the necessity for the administrative authority to examine all relevant materials submitted by the applicant, including provisional financial statements and supporting documents evidencing commencement of activities.The decision reflects a doctrinal insistence on a holistic and fact-based inquiry rather than a narrow focus on income-expenditure accounts of a single financial year.No dissent or concurring opinions were noted; the judgment underscores the principle that registration under section 12AB must not be denied on incomplete or selective consideration of facts.

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