2013 (3) TMI 377 - HC - Income Tax

Charitable/educational trust - Registration u/s 12AA - commencements of activity before registration - ITAT, observed that considering the facts of the case that the assessee Trust is still at the stage of raising construction for schools and colleges and yet to start educational and charitable activities, it is given an opportunity to file fresh application before the ld. Commissioner for grant of registration and approval, when it would actually start educational and charitable activities and in that event, the led. Commissioner shall consider fresh applications of the assessee in accordance with law. Held that - at the time of registration under Section 12AA of the Income Tax Act, which is necessary for claiming exemption under Section 11 and 12 of the Act, the Commissioner of Income Tax is not required to look into the activities, where such activities have not or are in the process of its initiation. Where a trust, set up to achieve its objects of establishing educational institution, is in the process of establishing such institutions, and receives donations, the registration under Section 12AA cannot be refused, on the ground that the Trust has not yet commenced the charitable or religious activity. It is not denied that for subsequent year the appellant has been granted exemption under Section 12AA and has also been approved under Section 80G of the Act, subject to certain conditions. If the Commissioner of Income Tax was satisfied with the genuineness of the objects of the trust for the subsequent assessment year, the refusal of the registration for the previous assessment year 2011-12 was not justified. - Decided in favor of assessee.

Issues Involved:
1. Eligibility of a trust for registration under Section 12AA of the Income Tax Act before commencing charitable/educational activities.
2. Validity of the Tribunal's findings regarding the use of a family concern's logo in the trust's prospectus.
3. Justifiability of the Tribunal's order denying registration under Section 12AA and approval under Section 80G.

Issue-wise Detailed Analysis:

1. Eligibility for Registration under Section 12AA:
The core question was whether a trust must commence charitable/educational activities before being eligible for registration under Section 12AA. The trust, established by a deed on 17.11.2008 and registered on 26.11.2008, applied for registration under Section 12AA with related documents. The Commissioner of Income Tax-II, Agra, refused registration, citing that the trust was still in the process of constructing educational institutions and had not yet commenced activities. The Tribunal upheld this decision, emphasizing the lack of commenced activities and the trust's promotional efforts for a family business.

The High Court, however, referenced multiple judgments (including those from the Karnataka, Delhi, and Punjab & Haryana High Courts) to assert that at the registration stage, the Commissioner should only examine the genuineness of the trust's objects, not its activities. The Court concluded that the refusal of registration on the grounds of non-commencement of activities was unjustified, as the trust's objects were genuine and in line with charitable purposes.

2. Use of Logo in Prospectus:
The Tribunal found that the trust had failed to provide a satisfactory explanation for using a family concern's logo in its prospectus, suggesting a commercial motive. The Commissioner noted that a significant amount of money was spent on advertisements, and the prospectus prominently featured the logo of Hardayal Milk Product (P) Ltd., indicating an intent to promote a family business rather than purely charitable objectives.

The High Court acknowledged these findings but emphasized that such promotional activities should not be the sole basis for denying registration if the trust's objects were genuinely charitable. The Court highlighted that the scrutiny of the trust's activities should occur when the trust files its returns and not at the registration stage.

3. Justifiability of Tribunal's Order:
The Tribunal's order denying registration and approval was challenged on the grounds that it was legally unsustainable. The High Court noted that the Tribunal did not address the issue of the trust deed's registration, which was a significant oversight. The Court also pointed out that the Commissioner granted registration for the subsequent assessment year, indicating that the trust's objects were eventually deemed genuine.

The High Court concluded that the Tribunal's order lacked justification, as the trust's objects were charitable, and the activities had not yet commenced. The Court reiterated that the genuineness of the trust's objects, not the activities, should be the focus at the registration stage.

Conclusion:
The High Court allowed the appeal, deciding all three substantial questions of law in favor of the assessee. It clarified that registration under Section 12AA and approval under Section 80G do not automatically entitle the trust to income exemption for the assessment year 2011-12. The exemption claims would be examined upon filing returns by both the trust and its donors, in accordance with the law.

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