Tax tribunal restores trust registration under Section 12AB, holds yoga is charitable under Section 2(15), remands matter

ITAT Bangalore set aside the order cancelling the assessee-trust's registration u/s 12AB and provisional registration. ITAT held that promoting yoga falls within "charitable purpose" u/s 2(15) and noted that receipt of yoga class fees and commencement of activities were evident from the financial statements, contradicting CIT(E)'s finding that activities had not begun. The rejection of the registration application was therefore held improper. The matter was remanded to CIT(E) to re-examine genuineness of activities on merits after granting the assessee an opportunity of hearing. The appeal was allowed for statistical purposes.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether promotion of yoga by the assessee-trust constitutes a "charitable purpose" within the meaning of section 2(15) of the Act.

1.2 Whether the assessee-trust had commenced its activities towards attainment of its objects so as to warrant registration under section 12AB of the Act.

1.3 Whether the Commissioner (Exemptions) was justified in rejecting the application for registration under section 12AB and cancelling provisional registration on the ground of non-commencement of activities.

1.4 Scope of remand to the Commissioner (Exemptions) for fresh examination of the genuineness of activities while considering the application under section 12AB.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Charitable nature of objects - promotion of yoga under section 2(15)

Legal framework: The Court referred to section 2(15) of the Act, which defines "charitable purpose" and includes, inter alia, activities relating to yoga.

Interpretation and reasoning: The Court noted that the stated objective of the assessee-trust is promotion of yoga practices. Such objective squarely falls within the ambit of "charitable purpose" as defined under section 2(15).

Conclusions: The Court held that the objects of the assessee-trust, being promotion of yoga, are charitable in nature within the meaning of section 2(15) of the Act.

Issue 2: Commencement of activities and satisfaction of basic condition for section 12AB registration

Interpretation and reasoning: The Commissioner (Exemptions) had rejected the application on the ground that the assessee had not commenced its activities, relying on minimal expenditure towards objects and absence of debits from the bank account. The Court examined the financial statements extracted in the impugned order and noted that fees for conducting yoga classes had been received by the assessee for multiple years, including significant yoga fees in the year ended 31.03.2024. The receipt of yoga fees itself established that activities in line with the stated objects had commenced. The Court observed that even the findings of the Commissioner (Exemptions) acknowledged such fee receipts.

Conclusions: The Court held that the observation of the Commissioner (Exemptions) that the assessee had not commenced its activities is factually incorrect. The assessee had commenced activities towards attainment of its objects, as evidenced by the yoga fees received.

Issue 3: Validity of rejection of section 12AB registration and cancellation of provisional registration

Interpretation and reasoning: The rejection of the application and cancellation of provisional registration were founded primarily on the conclusion that activities had not commenced. In light of the Court's finding that activities had in fact commenced, that basis was held to be untenable. The Court therefore found that the rejection of the application on this ground was not proper.

Conclusions: The Court concluded that the rejection of the assessee's application for registration under section 12AB and the cancellation of provisional registration solely on the ground of alleged non-commencement of activities could not be sustained.

Issue 4: Remand for examination of genuineness of activities under section 12AB

Legal framework: While not elaborating the detailed statutory scheme, the Court proceeded on the premise that the Commissioner (Exemptions) is required, at the stage of considering an application under section 12AB, to examine whether the activities of the trust are genuine and in accordance with its objects.

Interpretation and reasoning: Having held that the assessee had commenced activities and that the trust's objects are charitable, the Court considered it appropriate to restore the matter to the Commissioner (Exemptions) for a fresh decision on the merits. The Court directed that the assessee be allowed to substantiate its activities and that the Commissioner (Exemptions) consider whether the activities are genuine, after affording an opportunity of hearing.

Conclusions: The Court set aside the rejection order to the limited extent of its foundation on non-commencement of activities and remanded the matter to the Commissioner (Exemptions) to re-examine the application under section 12AB on merits, specifically to assess the genuineness of the activities, after granting due opportunity to the assessee. The appeal was allowed for statistical purposes.

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