2017 (8) TMI 247 - HC - Income Tax

Grant registration u/s 12AA - decline of claim as charitable activities had not still been commenced - Held that - At the time of registration under section 12AA of the Income-tax Act, which is necessary for claiming exemption under sections 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. Any enquiry of the nature would amount to putting the cart before the horse. At this stage, only the genuineness of the objects has to be tested and not the activities, which have not commenced. The enquiry of the Commissioner of Income-tax at such preliminary stage should be restricted to the genuineness of the objects and not the activities unless such activities have commenced. The trust or society cannot claim exemption, unless it is registered under section 12AA of the Act and thus at that such initial stage the test of the genuineness of the activity cannot be a ground on which the registration may be refused. SEE Hardayal Charitable & Educational Trust Versus Commissioner of Income Tax-II, Agra 2013 (3) TMI 377 - ALLAHABAD HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Appeal under Section 260A of Income Tax Act, 1961 against the order of Income Tax Appellate Tribunal directing grant of registration under Section 12AA.
2. Interpretation of Section 12AA regarding registration for claiming exemption under sections 11 and 12 of the Act.
3. Comparison of Division Bench judgment in Hardayal Charitable & Educational Trust case with judgments of Kerala High Court and Punjab and Haryana High Court.
4. Consideration of the genuineness of objects versus activities while granting registration under Section 12AA.

Analysis:
The appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal directing the Commissioner of Income Tax (Exemption) to grant registration under Section 12AA of the Income Tax Act, 1961. The issue raised in the appeal was found to be covered by a Division Bench judgment of the High Court, which emphasized that at the time of registration under Section 12AA, the focus should be on the genuineness of the objects of the trust rather than the commencement of charitable activities. The Tribunal's decision was based on the precedent set by the Division Bench, which highlighted that registration cannot be refused solely on the grounds of activities not being initiated yet. The Tribunal directed the Commissioner to grant registration under Section 12AA as the rejection was deemed contrary to the law as laid down by the Division Bench.

The judgment in the Hardayal Charitable & Educational Trust case was compared with judgments from the Kerala High Court and Punjab and Haryana High Court. The Kerala High Court case involved a society that had not engaged in charitable work and was primarily focused on generating income for its members. In contrast, the Punjab and Haryana High Court case highlighted delays in the application process and misuse of funds, making these cases distinguishable from the present matter. The appeal was dismissed as it did not raise any substantial question of law, and costs were not awarded.

Overall, the judgment emphasized the importance of assessing the genuineness of the trust's objects during the registration process under Section 12AA, rather than focusing on the commencement of charitable activities. The decision was in line with established legal principles and previous court rulings, ensuring a consistent approach to granting registration for tax exemptions under the Income Tax Act, 1961.