TaxTMI 
TaxTMI 
2026 (3) TMI 690
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....ursuance of its objects, the assessee trust had acquired land parcels admeasuring 17.3 acres at Varadharajapuram, Kundrathur, in the years 2006 & 2007, with an intent to set up an educational institution. The acquisition of land was financed by loans obtained by the assessee. According to the assessee, due to restriction on the usage of land, pending conversion and also due to lack of financial resources, no further activity took place. Further, due to the old age of the Trustees, who had formed the trust in 2006 and certain incompatible clauses contained in the registered trust deed, a supplementary deed was executed on 26.11.2022 to make it consistent with the provisions of the Income Tax Act, 1961 ['the Act'] and also the erstwhile trustees resigned and the younger generation of trustees were inducted in 2022. Subsequent thereto, the assessee trust had applied for the conversion of land in 2023, which was approved in 2026 and the assessee trust intended to operate a para-medical institution on the said land. In light of these developments, the assessee trust had filed Form 10AB seeking registration u/s 12AB of the Act and approval u/s 80G of the Act on 23.01.2025. After consider....
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....ommencement of charitable activities cannot be held to be a non-genuine activity or activity being carried out contrary to the objects of a Trust. The Ld. AR submitted that, the trustees were making every endeavor to raise funds by way of donations for setting up the medical institution and showed us that they had also taken necessary steps to obtain approvals/clearances from the local authorities and that, once the registrations u/s 12AB / 80G of the Act is issued, it would enable the Trustees to promote the charitable objects of the assessee trust. The Ld. AR thus submitted that, the CIT(E) had erred in holding that, the assessee trust was not genuine. 5. The Ld. AR further pointed out that, the details of fixed assets held by the assessee trust were disclosed on the face of the financials which were submitted along with Form 10AB filed with the Ld. CIT(E) and that the omission to give separate disclosure in the column of Form 10AB was an inadvertent error. He showed us that, when the Ld. CIT(E) had called for the details of fixed assets, the assessee had duly complied with the requisition and it is not a case that, the fixed assets were found to be bogus or non-genuine. Likew....
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....eing in force by the trust or institution as are material for the purpose of achieving its objects; (ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A) and compliance of the requirements under item (B), of sub-clause (i),- (A) pass an order in writing registering the trust or institution for a period of five years; or (B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its registration after affording a reasonable opportunity of being heard; (c) where the application is made under sub-clause (vi) of the said clause, pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought, and send a copy of such order to the trust or institution. ..... (4) Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,- ....
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....ny particular religious community or caste; or (e) any activity being carried out by the trust or institution-(i) is not genuine; or(ii)is not being carried out in accordance with all or any of the conditions subject to which it was registered; or (f) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality. ..." 8. It is seen that, the Ld. CIT(E) had invoked Explanation (e)(i) of Section 12A(1)(ac)(iii) of the Act and held that the activities of the assessee trust were not genuine. According to us, the Ld. CIT(E)'s interpretation of the Explanation (e)(i) of Section 12A(1)(ac)(iii) suffered from fundamental infirmity. If the activities of a charitable trust are yet to commence, it cannot be straight away alleged that the activities are not genuine. So long as the proposed activities of the assessee trust to achieve its objects are found to be charitable in nature, mere non- commencement of t....
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....sioner cannot assess whether such activities are genuine and therefore, the Commissioner is bound to refuse the registration of such a trust. 11. We have given our anxious consideration to the above submissions made by Ms. Aishwarya Bhati, learned Senior Counsel appearing for the appellant - Director of Income-tax and find that it is not possible to agree with the same. The purpose of section 12AA of the Act is to enable registration only of such trust or institution whose objects and activities are genuine. In other words, the Commissioner is bound to satisfy himself that the object of the Trust are genuine and that its activities are in furtherance of the objects of the Trust, that is equally genuine. 12. Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term 'activities' in the provision includes 'proposed activities'. That is to say, a Commissioner is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the ....
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....o claim exemption under Sections 10 and 11 respectively of the Act, as the case may be. Therefore, before seeking registration, it is essential that the Trust should adduce cogent material to the satisfaction of the Commissioner that the activities are genuinely charitable in nature. 15. To the aforesaid extent there is no problem. We may only say that mere registration under Section 12AA automatically does not entitle any charitable trust to claim exemption under Sections 10 and 11 respectively of the Act, 1961. When a return is filed by any trust claiming exemption it is for the assessing officer to look into all the materials and satisfy itself whether the exemption has been claimed genuinely or not. If the assessing officer is not convinced it is always open for him to decline grant of exemption." 10. Having taken note of the provisions and the position of law, we revert back to the case before us. From the facts placed on record it is observed that, the assessee is a registered public charitable trust which was formed on 12.04.2006 with the following objects: "5. OBJECTS a. Educational - to run, maintain or assist any educational or other or to gr....
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....erved that, the trustees at that material time comprised of senior medical professionals, well known educationalists and reputed social workers. These trustees had obtained loans from the entities of their close relative to finance the acquisition of the land. Since the land was agricultural in nature, unless zonal conversion was done, assessee trust could not have proceeded to construct an educational institution on such land. The Ld. AR explained to us that, due to old age of the trustees and lack of patronage being received from the public for setting up an educational institution, the activities of the assessee trust got stalled. It was in 2022, when there was a change in trustees, whereby Mrs. D Sindhu, a young medical professional, Mrs. M Jayakumari, teacher by profession having several years of experience and Mr. D Harish Kumar, an engineering professional, came on board, that the trust recommenced the activities, applied for conversion of land in 2023, obtained approval in 2026 etc. The assessee is thus noted to have demonstrated that it had indeed undertaken activities towards achievement of its charitable objects. Having taken note of these facts, we hold that the Ld. CIT....
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....mission to describe this asset in column no. 14 could not be stated to be reason for disputing the genuineness of the trust. 14. Further, as noted earlier, the land parcels were acquired out of the loans arranged by the trustees from their close relative. The Ld. CIT(E) however disputed the genuineness of the outstanding loan due to non- repayment and non-charging of interest. Having regard to the facts discussed above, we find that the financials of the assessee trust show that, it did not have any liquidity to repay the loan or discharge any interest thereon and therefore it cannot be said that the non-repayment of such loan or interest thereon was unusual or not genuine. 15. The case of the assessee is also squarely supported by the decision of the ITAT, Hyderabad in the case of Ujwal Foundation vs CIT(E) (175 taxmann.com 276). In this case also, the Ld. CIT(E) had rejected the application u/s 12AB of the Act on the ground that there was non- commencement of activities at the time of filing of application/ passing of the order. The Tribunal had reversed the findings of the Ld. CIT(E) by observing as under:- "7. If the activities are yet to be commenced, then it ca....