2025 (9) TMI 20 - AT - Income Tax

Return for reconsideration under s.12AB: verify trust's genuine objects, proposed activities, property purchase and address before registration decision

M/s. Budugunte Lakshmaiah Setty Versus CIT (Exemptions) Bangalore

M/s. Budugunte Lakshmaiah Setty Versus CIT (Exemptions) Bangalore - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the cancellation/refusal of registration under section 12AB can be sustained where the assessing authority concluded that the trust had not carried out charitable activities and had neither received donations nor undertaken activities in furtherance of its objects. 2. Whether the taxing authority complied with principles of natural justice in disposing of the Form No.10AB application - specifically, whether the trust was given an opportunity to make submissions on adverse observations and whether requisite documents were called for and verified. 3. Whether a single donation and steps towards acquisition/arrangement of premises (purchase of building using proceeds of sale of trust corpus and filing of Form No.10 for accumulation) can be treated as 'activities' or 'proposed activities' in furtherance of the objects for the purpose of registration under section 12AB. 4. What is the scope of the Commissioner's inquiry under section 12AB (genuineness of objects and activities, and verification of compliance with other laws) and the standard to be applied in registration proceedings (distinction between proposed activities for registration and actual activities when cancellation is under consideration). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of cancellation/refusal of registration under section 12AB on finding of no charitable activity Legal framework: Section 12AB requires satisfaction as to genuineness of objects and activities of a trust/institution for registration. Registration is for trusts whose objects and activities are genuine; the authority must be satisfied about such genuineness. Precedent treatment: The Court follows the principle in Ananda Social & Educational Trust (Apex Court) that section 12AB (and earlier section 12AA) contemplates registration where objects and activities are genuine, and the term 'activities' includes 'proposed activities' in registration proceedings; cancellation proceedings under the corresponding provision require proof of activities actually carried out contrary to objects. Interpretation and reasoning: The Tribunal held that the assessing authority's conclusion - that the trust had not carried out any charitable activities except a single donation - did not, by itself, establish non-genuineness. The correct approach under section 12AB is to examine genuineness of activities (including proposed activities) and not to assess quantum of expenditure. The record showed sale of corpus land, deposit of sale proceeds, payment of advance for purchase of building, acquisition of a building, filing of Form No.10 for accumulation of funds to purchase site and building, and a donation of Rs.5,00,000 for educational purposes. These facts amount to steps in furtherance of objects and cannot be summarily equated to non-activity. Ratio vs. Obiter: Ratio - For registration under section 12AB, 'activities' include proposed activities; the Registrar/Commissioner must assess genuineness and not merely quantity of charitable disbursements. Obiter - Observations on the sufficiency of a single donation as activity are contextual but support the main ratio that non-expenditure alone is not determinative. Conclusion: Cancellation/refusal on the ground of absence of activities was incorrect without proper verification of genuineness; the Tribunal disagreed with the CIT(E)'s conclusion that no activity had been commenced. Issue 2 - Compliance with principles of natural justice and adequacy of enquiry/documentary verification Legal framework: Administrative action under section 12AB must be preceded by such enquiries and requests for documents as are necessary to satisfy the authority regarding genuineness; an opportunity of hearing must be afforded before adverse action. Precedent treatment: The Tribunal relied on the procedural expectation implicit in Ananda Social & Educational Trust and in established principles that registration officers must call for documents or make enquiries necessary to form satisfaction; failure to do so warrants further enquiry/remand. Interpretation and reasoning: The CIT(E) rejected the registration chiefly because the trust did not furnish copy of sale deed and the trust had not filed returns earlier. The Tribunal found that the assessee had placed before the CIT(E) a paper book containing sale deed, trust deed, activity report and audit report, and that the CIT(E) had not properly verified or made enquiries regarding genuineness of activities after purchase of the building. The Tribunal emphasized that the authority should have specifically called for documents or made targeted enquiries (for example, verifying the donee trust's objects, status of the building, activities at the premises, and current registered office address) before cancelling registration. Ratio vs. Obiter: Ratio - Failure to conduct necessary verification and to give a reasonable opportunity of hearing is a procedural infirmity warranting remand. Obiter - Specific documents listed for verification in the present case are remedial directions tailored to the facts. Conclusion: The CIT(E) did not comply with required enquiries or afford adequate opportunity; the matter must be remitted for verification and fresh decision in accordance with law, with reasonable opportunity to the trust to produce evidence. Issue 3 - Status of single donation, sale and purchase transactions, and filing of Form No.10 as 'activities' or 'proposed activities' for registration purpose Legal framework: Registration inquiry covers genuineness of objects and activities; proposed activities fall within the meaning of 'activities' for registration, whereas cancellation requires proof of actual activities contrary to objects. Precedent treatment: Following Ananda Social & Educational Trust, the Tribunal treated proposed activities (such as acquisition/arrangement of premises and resolutions to accumulate funds for future activities) as relevant to the registration inquiry. Interpretation and reasoning: The record established (i) sale of corpus land and deposit of proceeds, (ii) payment of advance and subsequent purchase of a building for trust activities, (iii) filing of Form No.10 for accumulation of funds to purchase site and building, and (iv) payment of donation to a donee for educational purposes. The Tribunal held these to be evidence of proposed and initial activities in furtherance of objects; mere fact that most funds remained unexpended did not render such steps non-genuine. The Tribunal noted that the CIT(E) had not examined the donee-trust's objects or the current status and use of the purchased building, matters material to assessing genuineness. Ratio vs. Obiter: Ratio - Proposed activities and preparatory acts (purchase of premises, resolutions to accumulate funds, and bona fide donations towards objects) are relevant and can suffice to demonstrate genuineness in registration proceedings. Obiter - The sufficiency of any particular transaction depends on verification of ancillary facts (e.g., donee's objects, actual use of property). Conclusion: The single donation together with documented preparatory steps for carrying out activities could not be dismissed as non-activity; these matters require verification rather than summary rejection. Issue 4 - Scope of remand and directions for further enquiry Legal framework: Where prima facie evidence suggests genuineness but the authority has not made adequate enquiries, remand with specific directions is appropriate; authorities must verify matters material to satisfaction under section 12AB. Precedent treatment: The Tribunal exercised its supervisory power to remit for further verification consistent with the legal standard in registration matters and the need to afford the assessee opportunity to support its case. Interpretation and reasoning: The Tribunal specified verification steps the CIT(E) must undertake: verify the object clause of the donee trust to confirm educational objects; examine present status and use of the building purchased and activities carried out therein since acquisition; verify the current registered office/address; and conduct any other enquiry deemed fit to establish genuineness. The Tribunal further directed that a reasonable opportunity of hearing be afforded and all relevant documents be produced. Ratio vs. Obiter: Ratio - Remand with precise lines of enquiry is the appropriate remedy where the initial decision is based on insufficient verification and procedural shortcomings. Obiter - The enumerated specific verifications flow from the facts but serve as illustrative rather than exhaustive requirements. Conclusion: Matter remitted to CIT(E) for fresh decision after verification of identified aspects and after affording reasonable opportunity to the trust; appeal partly allowed for statistical purposes.