2025 (10) TMI 415 - AT - Income Tax

Registration under Section 12AA restored where trust's activities provide public benefit, not commercial, and genuineness upheld

ITAT (Jaipur) set aside the rejection of registration under section 12AA, holding the trust's activities benefit a cross-section of the public (not merely ... Rejection of claim of registration u/s 12AA - as per revenue Assessee trust meant for the benefit of its members and not for public at large & violation of Section 13(1)(c) & 12AA, engaged in Business / Commercial activities and Non-Genuineness of activities - Grievance of CIT(E) is that it is for the students passing out from the two institutions and, therefore, it is not for public at large - HELD THAT:- The expression 'public' includes cross section of public. It is well settled that for satisfying the requirements of Section 2(15), it is not necessary that the benefit should reach each and every poor person in the state or country. The court in the case of Girijan Co-operative Corporation Ltd. [1989 (2) TMI 68 - ANDHRA PRADESH HIGH COURT] held that it is sufficient if it reaches a sizable number of members of public. As in the case of Parul University Alumni Association [2024 (4) TMI 1051 - ITAT AHMEDABAD] has allowed the grant of registration u/s 12AA holding that the Alumni Association cannot be said to be working for the benefit of its members only and the same will amount for the benefit of public at large. Otherwise also it is meant for the students passing from the two education institutions which both institutions have been granted registration u/s 12AA. Activities of the Assessee Appellant are having elements of business/commercial nature - As no fees is charged from the Members. The activities are carried out in the premises of the two educational institutions using their infrastructure. The volume of activities is also very minimal. Out of the four preceding year there has been deficit in two years. Therefore, we don’t see any element of business/commercial nature in the activities of the Appellant Trust. Non-genuineness of activities the Assessee had placed sufficient evidences before ld. CIT(E) to explain and substantiate the activities it had carried out. Requiring the mobile number of beneficiaries is not an appropriate way to ascertain the genuineness of activities and lack of such mobile number of beneficiaries will not make the activities non genuine particularly when other evidences are not disputed. The Ld. CIT(E) has also observed that it is not clear whether any activity is done or not in the absence of any expenses related to any charitable activity. Probably the ld. CIT(E) has failed to appreciate the activities which the alumni associations do undertake. The activities are in the nature of connecting old students with the present students as well old students of different batches. Such meetings are meant for exchange of experiences so that theoretical knowledge can be combined with practical experiences to make the education wholesome. Such activities do not require incurring of expenses because infrastructure of the parent educational institutions is used. We, therefore, feel that the ld. CIT(E) was not correct in observing the activities to be non-genuine. As considering the fact the assessee has filed the additional evidence in support of its contention CIT(E) shall consider these additional evidence after giving proper opportunity of being heard to the assessee and decide the issue in accordance with law. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether an alumni association whose membership comprises alumni of specified educational institutions qualifies as an institution 'meant for the benefit of the public at large' within the meaning of section 2(15)/section 12AA, or whether it is disqualified as being for the benefit of its members and thus falling under section 13(1)(c). 2. Whether alleged elements of business/commercial nature in the memorandum of association and activities justify rejection of registration under section 12AA, particularly in light of legislative and judicial treatment of commercial activities and the provisions introduced by amendment (section 13(8)). 3. Whether the activities of the applicant are genuine for the purposes of registration under section 12AA, taking into account evidentiary requirements, the nature of alumni activities, and the scope of enquiries the Commissioner may make; and whether additional evidence (including post-order audited accounts and a prior registration certificate of the promoter) should be admitted under rule 29 of the ITAT Rules for proper adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Public at Large vs. Benefit of Members (section 2(15), section 12AA, section 13(1)(c)) Legal framework: Section 2(15) defines 'charitable purpose' and permits benefit to a section of the public; section 12AA governs registration of charitable institutions; section 13(1)(c) disqualifies exemption where benefits accrue to persons referred therein (e.g., trustees/members) or to defined private beneficiaries. Precedent treatment: The Tribunal relied on established authorities holding that objects need not benefit all mankind but may benefit a section of the public (citing Girijan Co-operative Corporation principle and Indian Sugar Mills Association). The Bench also noted a coordinate decision granting registration to an alumni association (Parul University Alumni Association) and recent authority recognizing that a 'section of the public' suffices for charitable purpose. Interpretation and reasoning: The Bench accepted that 'public' includes a cross section and that it is sufficient if the intention is to benefit a section of the public identifiable by an impersonal/common quality. The Tribunal observed that alumni associations formed for students of named educational institutions constitute an identifiable section and, given that promoter institutions themselves have been registered, the alumni association's objects cannot be summarily treated as restricted to private individuals. The Tribunal criticized the Commissioner's rejection as premised on the mere fact of membership and absence of documentary proof (which could have been verified from departmental records) rather than a substantive finding that the beneficiaries lack an impersonal/common characteristic or that benefits were confined to specified individuals. Ratio vs. Obiter: Ratio - An alumni association composed of graduates of recognized educational institutions can qualify as serving a section of the public under section 2(15)/12AA where the section is identifiable by an impersonal/common quality; mere identity of beneficiaries as alumni does not automatically render the institution private under section 13(1)(c). Obiter - Observations comparing facts with other institutions (IIS/Icg) and remarks on departmental verification procedures are ancillary. Conclusion: The Tribunal held that the rejection on the ground that the applicant's objects benefit only its members and therefore are outside the ambit of 'public at large' was unsustainable; the matter requires fresh examination by the Commissioner after considering additional evidence and following the legal tests for a 'section of the public'. Issue 2 - Alleged Business/Commercial Elements in Objects (section 12AA, section 2(15), section 13(8)) Legal framework: Registration under section 12AA requires objects to be charitable; section 2(15) and judicial interpretation determine charitable character. The Finance Act amendment introducing section 13(8) (w.e.f. retrospective operative date as applicable) clarifies that commercial/business activity is relevant for allowance of exemption under section 11 and can be examined at assessment stage, not necessarily as a bar to registration. Precedent treatment: The Commissioner relied on Supreme Court and other decisions (e.g., AUDA and Loka Shikshana Sanshtan) implying that a deed should specify that activities are on a not-for-profit or nominal-cost basis to avoid being characterized as commercial. The Tribunal noted contrary authority where commercial elements do not ipso facto bar registration and cited several decisions recognizing that commercial aspects can be examined at the stage of allowance of benefits (Gujarat Maritime Board, Rajasthan Housing Board, Gujarat Cricket Association, etc.). Interpretation and reasoning: The Tribunal observed that the Commissioner accepted objects to be charitable but then rejected registration on alleged commercial elements without persuasive factual foundation - there was no evidence of fees charged, activities produced negligible income, and the association used promoters' infrastructure. The Tribunal emphasized that presence of a commercial element in objects does not automatically defeat registration under section 12AA, particularly after statutory clarification that taxability/allowability of business-like activities is to be adjudicated during assessment of specific years. Ratio vs. Obiter: Ratio - Allegations of business/commercial nature alone are not a conclusive ground to refuse registration under section 12AA; merits (existence and quantum of commercial activity) are better examined at assessment under section 11/13 as required by law and by the legislative clarification (section 13(8)). Obiter - Discussion of drafting of MOA and the need for express not-for-profit clauses is contextual and did not form the sole basis for decision. Conclusion: The Tribunal found the Commissioner's rejection on commerciality grounds inadequately founded on record and directed reconsideration; commercial aspects, if any, should be addressed with reference to evidence and statute and not be a preclusive reason for denial of registration without proper inquiry. Issue 3 - Genuineness of Activities and Admissibility of Additional Evidence (powers of CIT under section 12AA; ITAT Rule 29 / admission of additional evidence) Legal framework: The Commissioner has power to call for documents and make inquiries to satisfy himself about genuineness of activities when deciding registration under section 12AA. Appellate Tribunal rules permit admission of additional evidence under rule 29 where necessary in the interest of justice, provided the evidence has material bearing and sufficient cause for non-production before the lower authority is shown. Precedent treatment: Reliance was placed on precedent (Text Hundred / rule 29 jurisprudence) permitting admission of additional evidence where it is necessary for proper adjudication and where the party was prevented by sufficient cause from producing it earlier; conversely, additional evidence is not admitted where existing record suffices for a satisfactory judgment. Interpretation and reasoning: The Commissioner held activities non-genuine mainly because audited financials showed minimal expenses, absence of activity-related spending, incomplete activity tables, and failure to furnish beneficiary mobile numbers. The Tribunal reasoned that the nature of alumni activities (meetings/workshops conducted on promoters' premises) may understandably involve negligible outlays and that absence of mobile numbers alone does not render activities non-genuine where other supporting evidence exists. The Tribunal found that the Commissioner did not adequately appreciate the context and documentary material. Further, the Tribunal granted admission in principle of additional evidence (prior registration certificate of promoter and audited accounts for a later year) and directed the Commissioner to consider them and re-decide after giving the assessee opportunity to be heard - invoking rule 29 principles and the interest of equity and justice. Ratio vs. Obiter: Ratio - Genuineness of activities must be determined on holistic appreciation of evidence; absence of significant monetary expenditure is not conclusive of non-genuineness where activities legitimately incur minimal costs. Admission of additional evidence under rule 29 is appropriate where evidence is material, was not available before the authority for sufficient cause, and is necessary for just adjudication. Obiter - Specific suggestions on modes of verification (e.g., contacting beneficiaries by mobile) are illustrative rather than prescriptive. Conclusion: The Tribunal held the Commissioner's negative finding on genuineness unsustainable on the existing record, directed that the additional evidence filed be considered, and remitted the matter for fresh decision on all three grounds (public at large, commerciality, genuineness) after affording reasonable opportunity to the applicant and after such further inquiries/documentary verification as the Commissioner deems necessary; the Tribunal clarified that this remand carries no expression on merits. Cross-references and Procedural Direction The Tribunal cross-referenced its findings on Issues 1-3 to conclude that each ground of rejection suffers from insufficient appreciation of evidence or from erroneous application of legal tests. In the interest of justice, the Tribunal ordered reconsideration by the Commissioner with directions to admit and consider the additional evidence tendered under rule 29 and to decide the registration application afresh in accordance with law and after providing reasonable opportunity of being heard; the remand is procedural and not a merit determination.