2012 (2) TMI 579 - AT - Income Tax

Registration under Section 12AA and approval under Section 80G - Held that - By sub-clause(3) incorporated in section 12AA vide which if after granting registration it is found by the ld. CIT that the activities of the Trust are not carried out in furtherance of its charitable objects he can cancel the registration granted to the Trust. So when these provisions are read in conjunction and a harmonious interpretation is given to them we find that the view taken by the Coordinate Benches in numerous successive cases some of which we have mentioned herein above is very logical and the same we are bound to follow. Accordingly we cannot sustain the order of ld. DIT(E) in refusing to grant registration and consequent refusal to grant approval u/s 80G of the Act. No fruitful purpose will be served by restoring the issue to the file of ld. DIT(E). Consequently we set aside the finding of the DIT(E) and direct him to grant registration u/s 12AA and also to grant approval u/s 80G to the assessee-Trust. Appeal filed by the assessee stands allowed

Summary

Issues Involved:
1. Denial of registration under Section 12AA of the Income-tax Act, 1961.
2. Denial of approval under Section 80G of the Income-tax Act, 1961.

Detailed Analysis:

1. Denial of Registration under Section 12AA of the Income-tax Act, 1961:

Facts and Arguments:
- The assessee filed applications on 3.5.2010 for registration under Section 12AA and approval under Section 80G of the Income-tax Act.
- The Director of Income Tax (Exemptions) [DIT(E)] denied the applications, stating that the Trust had not started any significant activity, thus the genuineness of the activities could not be verified.
- The assessee argued that the objects of the Trust were purely charitable and that the denial of registration was unjustified as the activities had not yet commenced.
- The Revenue contended that an assessee could not claim registration as a matter of right before starting its activities.

Tribunal's Findings:
- The Tribunal noted that there is no provision in the Act preventing an assessee from applying for registration under Section 12AA immediately upon its formation.
- The Tribunal referenced the Karnataka High Court's decision in DIT(E) v. Meenakshi Amma Endowment Trust, which held that the activities of the Trust are relevant only if registration is sought long after the formation of the Trust.
- The Tribunal emphasized that the DIT(E) did not dispute the charitable nature of the Trust's objects.
- The Tribunal concluded that the assessee was eligible for registration under Section 12AA based on the charitable nature of its objects, despite the Trust not having commenced its activities.

2. Denial of Approval under Section 80G of the Income-tax Act, 1961:

Facts and Arguments:
- The DIT(E) also denied approval under Section 80G for the same reason: the Trust had not started any significant activity.
- The assessee relied on judicial precedents to argue that the commencement of activities is not a pre-condition for registration or approval under the relevant sections of the Act.

Tribunal's Findings:
- The Tribunal observed that the issue of non-commencement of activities had been addressed in multiple judicial decisions, which consistently held that the application of funds or carrying on activities is not relevant at the stage of granting registration or approval.
- The Tribunal cited several cases, including M.L. Meyyappan Charitable Trust v. DIT(E), Women Development & Educational Trust vs CIT, and others, which supported the view that the genuineness of the activities could be examined later during regular assessments.
- The Tribunal reiterated that the objects of the Trust being charitable in nature were sufficient grounds for granting approval under Section 80G.

Conclusion:
- The Tribunal directed the DIT(E) to grant registration under Section 12AA and approval under Section 80G to the assessee, emphasizing that the non-commencement of activities should not be a barrier to such grants.
- The Tribunal quashed the order of the DIT(E) and allowed the appeal filed by the assessee.

Pronouncement:
- The order was pronounced in the Court on 9th February 2012.