2018 (2) TMI 1948 - HC - Income Tax

Exemption u/s 11 and 12 - whether the Appellate Tribunal has rightly allowed the respondent's appeal to grant registration under Section 12A despite the fact that before the Commissioner of Income Tax (CIT), the respondent has failed to produce the details of donation received in FY 2012-2013 and from 01.04.2013 till the date of order; details of charitable activities done in FY 2012/2013 and; details of activities done from 01.04.2013 till the date of order? - HELD THAT - The provision contained under Section 12A nowhere empowers the CIT to assess the objects vis-a-vis the donation received in the first year of its establishment. In a given case it may happen that the trust is not able to commence the charitable activities for various reasons, however, that may not be conclusive of the fact that the trust does not intend to carry on the aims and objects for which it is established. If the aims and objects clearly project the activities of the trust to be charitable in nature, it is not the stage for lifting the veil and assessing whether those activities are actually carried on at the first year of establishment of the trust. In the matters of Commissioner of Income Tax vs Vijay Vargiya Vani Charitable Trust ( 2015 (2) TMI 671 - RAJASTHAN HIGH COURT and Fifth Generation Education vs Commissioner Income Tax 1990 (5) TMI 38 - ALLAHABAD HIGH COURT All , it is held that at the stage of Section 12A, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of Section 12A read with Rule 17A and whether Form No.10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At this Stage, it is not proper to examine the application of income. The order passed by the Tribunal has discussed the matter in detail and has assigned justifiable reason as to how the CIT has failed to exercise jurisdiction vested in it at the stage of examining the application under Section 12A. As earlier discussed, the list of donations and the list of charitable activities are not to be looked into at this stage. We are satisfied that the Appellate Tribunal has rightly interfered with the order passed by the CIT. No substantial question of law arises for determination in view of the plain language of Section 12A - Decided against revenue.

Summary

Issues:
- Appeal under Section 260-A of the Income Tax Act, 1961 challenging the order passed by the Income Tax Appellate Tribunal granting registration under Section 12A.
- Whether the Appellate Tribunal rightly allowed the respondent's appeal despite failure to produce required details.
- Interpretation of Sections 11, 12, and 12A of the Income Tax Act, 1961.
- Examination of the trust's charitable activities and donations for registration under Section 12A.

Analysis:
The High Court dealt with an appeal under Section 260-A of the Income Tax Act, 1961, where the Revenue challenged the order of the Income Tax Appellate Tribunal granting registration under Section 12A to the respondent. The key issue was whether the Tribunal correctly allowed the appeal despite the respondent's failure to provide details of donations and charitable activities as requested by the Commissioner of Income Tax (CIT). The CIT had rejected the registration application due to the trust's non-compliance with document submission. However, the Tribunal held that the CIT was not required to demand such details at the Section 12A stage, focusing on the trust's charitable objectives instead.

The Court emphasized the provisions of Sections 11, 12, and 12A of the Act, which provide for income exemption for charitable trusts. Section 12A outlines conditions for applying Sections 11 and 12, requiring registration within one year of trust creation. The trust in question had applied timely but failed to submit donation and activity details, leading to the CIT's rejection. The Tribunal disagreed with the CIT, stating that assessing donations and activities was not within the CIT's purview at the Section 12A stage, especially when trust objectives were charitable in nature.

Referring to previous judgments, the Court highlighted that the CIT's role under Section 12A is limited to verifying application compliance and charitable trust objectives, not income assessment. The Tribunal's detailed reasoning showed the CIT's failure to exercise jurisdiction correctly at the registration stage. The Court concluded that no substantial legal question arose, affirming the Tribunal's decision to dismiss the appeal. This comprehensive analysis underscores the importance of trust objectives over immediate charitable activities for Section 12A registration, aligning with legal precedents and statutory provisions.