2015 (2) TMI 671 - HC - Income Tax

Registration under section 12AA denied - Tribunal allowed the claim - Held that - Object of section 12AA is to examine the genuineness of the objects of the trust but not the income of the trust for charitable or religious purpose. The Commissioner cannot sit in the chair of the Assessing Officer to look into the amount spent on charitable activities at the time of creation of the trust. The stage for reviewing the application of income has not arrived at when such trust or institution files application for registration of the trust/society. The only thing to be looked into at the time of granting of registration is that the object of the trust for which it was formed have to be seen and examined, the Commissioner of Income-tax's satisfaction about the genuineness of the activities of the trust is not a criteria as the trust is yet to commence activities. Asking about charitable activities at the nascent stage would amount to putting a cart before the horse. Tribunal rightly directed the Commissioner for granting registration under section 12AA of the Act. - Decided in favour of assessee.

Summary

Issues:
Registration under section 12AA of the Income-tax Act - Charitable activities of a trust - Advertisement receipts - Commercial activities - Predominant objects of a trust - Grant of registration - Commissioner's discretion - Questions of law - Genuineness of trust's activities - Purpose of section 12AA - Review of income of a trust - Timing of application for registration.

Analysis:
The appeal before the Rajasthan High Court involved the issue of registration under section 12AA of the Income-tax Act. The case revolved around a public charitable trust formed to carry out charitable activities, specifically focusing on a magazine distributed for free but generating advertisement receipts. The Commissioner raised concerns about the trust's activities and rejected the registration application, leading to an appeal before the Tribunal. The Tribunal allowed the appeal, emphasizing that the predominant charitable objects of the trust should determine registration eligibility, not ancillary activities like land acquisition. The Tribunal directed the Commissioner to grant registration, prompting further challenge before the High Court.

The Revenue argued that the trust failed to demonstrate expenditure towards charitable activities, and certain clauses in the trust deed, such as land acquisition and magazine publication, were not charitable. The Revenue contended that the trust's advertisement receipts constituted commercial activities, undermining its claim of charitable work. The Revenue raised substantial questions of law regarding the Tribunal's decision.

The High Court, after reviewing the orders and arguments, found no substantial question of law in the Tribunal's decision. It clarified that the statute does not require trust activities to have commenced for registration, emphasizing the need for the Commissioner to assess the trust's genuine charitable objectives. The Court highlighted that the purpose of section 12AA is to scrutinize trust objectives, not income spent on charitable activities during registration. Prematurely demanding proof of charitable activities at the trust's inception was deemed improper.

The Court underscored that the Commissioner's role is not to act as an Assessing Officer regarding trust income during registration. Trusts can seek registration immediately after formation, with the Commissioner evaluating the trust's objectives rather than current activities. The Court upheld the Tribunal's decision, stating that no substantial question of law arose, and dismissed the appeal.

In summary, the High Court's judgment clarified the criteria for registration under section 12AA, emphasizing the importance of trust objectives over current activities, rejecting premature demands for proof of charitable work at the trust's inception, and affirming the Tribunal's decision based on the plain language of the statute.