2025 (9) TMI 694 - AT - Income Tax

Tribunal allows registration under s.12AB/12AA, finding income-tax denial unsupported despite RPT Act non-registration; ledger entries, TDS proved genuineness

Trehan Seva Bharti Charitable Trust, Jaipur Versus CIT Exemption, Jaipur

ITAT JAIPUR - AT allowed the appeal, setting aside the CIT(E)'s refusal to grant registration under s.12AB/12AA. The Tribunal held that non-registration ... Rejection of application u/s 12A(1)(ac)(iii) - as per AO assessee is not registered under Rajasthan Public Trust Act, 1959 and genuineness of activities has not been proved - HELD THAT:- Both the statutes, i.e. The Income Tax Act, 1961 and RPT Act, 1959, all the authorities relied upon by the assessee are w.r.t. educational institutions, where context is different, i.e. students at large and issues like capitation fee, allocation of seats, pay scale of teachers and curriculum of the syllabus etc. are in focus. For public benefit and reasonability, such regulations are there, specifically the states where big institutions are indulged in imparting education in the field of Medical, Engineering and Managements etc. There is no law which is required to be complied with for achieving the objects of the assessee trust. Section 17 of the RPT Act, 1959 requires that trustees of the trust has to apply for registration of a public trust, however, there is no section in the RPT Act, 1959 which prohibits a trust to carry out its objects if it is not registered under the RPT Act, 1959. In our considered opinion, both the statutes have their own provisions and implications and none of them have overriding effect. Even if, the assessee trust is not registered with the RPT Act, 1959 and the concerned officials under the RPT Act, 1959 deems it necessary to get the entity registered u/s 17 of the RPT Act, 1959, appropriate action can be taken and against the trustees of the trust. But this issue can’t be a hurdle in getting registration before the Income Tax Department u/s. 12AB From the ledger account of construction, it can be noted that most of the payments are through cheque, tax is deducted at source wherever applicable and the details are mentioned in the ledger account. On Ram katha expenditure was incurred during F.Y. 2022-23 for which bill is provided on which tax is deducted at source. In respect of Sita rasoi expenses incurred during F.Y. 2022-23 complete details of expenses are mentioned in the ledger account and most of the expenditure is by cheque. The salary expenses are not huge as stated by the Ld. CIT(E), Jaipur. Otherwise also, the Ld. CIT(E), Jaipur is required to verify the genuineness of the activities and if he has any doubt about the same, he should have carried out the physical verification/inspection to ascertain about the same What else a newly established society/trust can furnish in response to the letter of Ld. CIT (E), Jaipur. Rather, observations on genuineness of the trust observations, made by the Ld. CIT (E), Jaipur are either wrong or self-contradictory in nature. On the one hand the Ld. CIT (E), Jaipur is claiming that no I/E accounts for the F.Y. 2023-24 furnished by the assessee, on the other hand he is commenting on various aspects, which can be fetched only from the financials of the assessee. The copy of the financials were produced before us also as discussed (supra) and the same was placed before the Ld. CIT (E), Jaipur also. Observations of the Ld. CIT(E), Jaipur are baseless and can’t be used against the assessee to refuse registration u/s. 12AA of the Act. In the result, it is found that the observations of the Ld. CIT (E), Jaipur has no legs to stand and the activities of the assessee are not under any challenge, which warrants rejection of registration. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether registration under the Rajasthan Public Trust Act, 1959 (RPT) is a mandatory prerequisite for grant of registration under section 12AB(1)(b)(ii)(B) of the Income Tax Act, 1961. 2. Whether the tax authority properly applied the statutory requirement of satisfaction as to the genuineness of activities under section 12AB(1)(b)(ii)(B) when rejecting the Form No.10AB application - including adequacy of documents furnished, need for physical verification, and whether observations in the order were permissible without giving further opportunity. 3. Whether the provisional registration earlier granted under section 12A(1)(ac)(vi) could be validly cancelled on the grounds relied upon by the authority. 4. Whether approval under section 80G(5) (clause (iii) of first proviso) can be denied where registration under section 12AB is absent, and whether a trust with religious elements is ineligible for section 80G approval if its objects/activities also have charitable elements. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Necessity of RPT registration for 12AB registration Legal framework: Section 12AB(1)(b)(i)-(ii) requires the Commissioner to call for documents to satisfy himself about (A) the genuineness of activities and (B) 'the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects.' The statutory text conditions compliance with other laws only where such compliance is material for achieving objects. Precedent treatment: Authorities relied upon by the revenue (Aurora Educational Society; New Noble Educational Society) concern educational institutions regulated by state statutes that materially govern the institution's functioning (e.g., seat allocation, curriculum, statutory prohibitions). Tribunal relied on decisions (Kids-R-Kids; Paramount) and principles from Apex Court decisions distinguishing contexts where state-law compliance is material. Interpretation and reasoning: The Court reasoned that RPT registration under section 17 is not shown to be material to achieving the objects of the assessee trust because RPT imposes registration obligation but does not prohibit carrying out objects without registration; consequently, non-registration under RPT is not, per se, a valid ground to deny registration under section 12AB. The provisions of section 12AB must be read to require compliance with other laws only where such compliance is material to the objects; educational cases are not analogous unless state law regulates core functioning of the entity. Ratio vs. Obiter: Ratio - compliance with state trust registration is required for 12AB only if non-compliance is material to achieving the trust's objects; distinguishing educational-institution precedents is part of the operative reasoning. Obiter - general comments about the independent operation of statutes where enforcement can be pursued under the state Act. Conclusion: Registration under the RPT Act is not a mandatory prerequisite for grant of registration under section 12AB absent a demonstrated material nexus between RPT compliance and the achievement of the assessee's objects; the revenue's objection on this ground was dismissed. Issue 2 - Genuineness of activities under section 12AB(1)(b)(ii)(A): sufficiency of documentary evidence, need for inspection and procedural fairness Legal framework: Section 12AB requires the Commissioner to satisfy himself about the objects and genuineness of activities; jurisprudence distinguishes consideration of proposed activities for newly formed trusts from scrutiny of actual activities where cancellation is proposed. Procedural fairness requires opportunity to furnish additional particulars if documents are unsatisfactory. Precedent treatment: The Court relied on Apex Court and tribunals: Ananda Social & Educational Trust (section 12AA requires satisfaction about objects and genuineness); DIT v. Foundation of Ophthalmic & Optometry Research (no waiting period; proposed activities permissible); Rural Education and Women Welfare Society (assets/corpus created from donations do not per se impugn genuineness). These cases were followed to the extent they emphasize limited scope of inquiry and the need for cogent material to deny registration. Interpretation and reasoning: The Tribunal examined the record and found ledgers, vouchers, bank statements, agreements, photographs, salary details and balance sheet were filed. Where the authority remained unsatisfied, he should have given a specific opportunity to produce further details or carried out physical verification; general or self-contradictory objections (e.g., complaining of missing FY accounts while relying on same-year observations) do not satisfy statutory mandate. For new or proposed activities, documentary proof of planned/ongoing expenditures (with traceable payment modes, TDS where applicable) suffices unless the revenue adduces contrary material. Ratio vs. Obiter: Ratio - rejection for lack of genuineness requires tangible evidence contradicting the trust's asserted objects/activities; mere skepticism or non-specific observations is insufficient, and the authority must provide an opportunity to furnish additional particulars or conduct inspection. Obiter - remarks on what more might be sought in different factual matrices (e.g., older trusts with contested actual activities). Conclusion: The materials produced were adequate to meet statutory threshold for registration; the assessing authority's observations were baseless/self-contradictory and should have prompted further opportunity or verification rather than outright rejection. The objection on genuineness was therefore disallowed and registration directed to be granted. Issue 3 - Cancellation of provisional registration under section 12A(1)(ac)(vi) Legal framework: Provisional registration may be granted and can be cancelled if satisfaction required under section 12AB is not reached; however, cancellation must rest on substantiated findings and follow statutory safeguards including opportunity to be heard. Precedent treatment and interpretation: The Court treated cancellation as intertwined with the two prior issues: since the rejection reasons (absence of RPT registration, insufficiency of proofs) failed, cancellation could not be sustained. Jurisprudence requires cogent findings before cancellation, particularly where documentary evidence of bona fide activities exists and no adverse material was produced. Ratio vs. Obiter: Ratio - cancellation based on the same flawed grounds must be set aside; cancellation without adequate basis or procedural fairness is impermissible. Obiter - none beyond application to facts. Conclusion: Provisional registration cancellation was unsustainable and was effectively set aside by the direction to grant registration under section 12AB. Issue 4 - Interplay between section 12AB registration and section 80G(5) approval; eligibility of trusts with religious elements for 80G Legal framework: Section 80G approval (first proviso) requires registration/approval processes in line with the Act; section 12AB registration is a precondition for many tax benefits but the Tribunal first resolved registration under 12AB in favour of the trust. Substantive eligibility under section 80G must consider whether the trust's objects are exclusively religious or also charitable, and whether section 13 exclusions apply. Precedent treatment: The Tribunal relied on the Apex Court's decision in CIT v. Dawoodi Bohra Jamat which analyzed trusts with composite religious and charitable objects, held that objects must be tested from trust deed and legal effect, and that composite objects can qualify for exemption unless section 13(1)(b) (charitable trusts for benefit of particular religious community) is attracted. Interpretation and reasoning: Applying Dawoodi Bohra, the Tribunal held that the presence of religious elements does not automatically render a trust ineligible for section 80G; where objects and activities extend benefit to public at large or a sufficiently identifiable public class, charitable character coexists with religious purpose and exemption/approval is allowable subject to section 13 analysis. Because registration under 12AB was ordered, and the facts did not establish exclusive, restricted religious benefit or applicability of section 13(1)(b), the authority's objection that religious trusts are ineligible was rejected. Ratio vs. Obiter: Ratio - trusts with composite religious and charitable objects may be eligible for section 80G approval if objects/activities confer general public utility and do not fall within the exclusion in section 13(1)(b); prior requirement of 12AB registration being satisfied, 80G approval should not be denied solely due to religious elements. Obiter - application to specific factual indicators of public benefit (e.g., free food to public) illustrated but not exhaustively framed. Conclusion: Section 80G approval cannot be denied merely because the trust contains religious elements; having ordered registration under section 12AB and on the facts showing charitable outreach not limited to a specific community, the Tribunal directed grant of 80G approval. Cross-references and procedural observations All statutory determinations under section 12AB must be fact-sensitive: (a) compliance with other laws is required only when materially relevant to objects; (b) genuineness inquiry for newly formed trusts contemplates proposed activities supported by documentary evidence; (c) authorities must afford opportunities to supply particulars or inspect premises before rejecting applications or cancelling provisional registrations. Overall Conclusions The Tribunal allowed the appeals: (i) held RPT registration is not an automatic bar to 12AB registration absent material nexus, (ii) found documentary proof furnished suf?cient and the authority's objections unsustainable without specific contrary material or procedural steps, (iii) set aside cancellation of provisional registration, and (iv) directed grant of section 80G approval on the basis that composite religious-charitable objects do not preclude 80G where section 13 exclusions are not attracted.