2019 (3) TMI 288 - HC - Income Tax

Charitable activity - registration under Section 12AA eligibility - Commissioner not satisfied in terms of Section 12AA(1)(a) - proof of objects of the trust are bona fide - non-speaking order - Lack of factual finding in Tribunal order - only the objects as stated in the trust deed and other matters should be examined only at the time of making regular assessment - HELD THAT - If Tribunal was of the view that the order passed by the Commissioner needs to be reversed, then the Tribunal requires to give a factual finding as to how the Commissioner erred in appreciating the materials placed before him and how the Commissioner erred while recording his satisfaction in terms of Section 12AA(1)(a) of the Act. Burden is heavily on the assessee to prove that the objects of the trust are bona fide and there is bona fide charitable activity being done. It is true that the definition of charitable purpose as defined under Section 2(15) is an inclusive definition to qualify for a registration under Section 12AA of the Act. The Commissioner should be satisfied about the genuineness of the activities of the trust or the institution, and is entitled to make such an enquiry, as he deems necessary in this behalf. In the opinion of the Commissioner, the assessee did not satisfy the requirements. The proviso to Section 2(15) of the Act provides that advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Therefore, in our considered view, the Tribunal failed to properly examine the contentions advanced by the Revenue and by a non-speaking order, allowed the appeal filed by the assessee. Therefore, we are of the considered view that the matter requires to be re-considered by the Tribunal. - Appeal filed by the Revenue is allowed, the impugned order passed by the Tribunal is set aside, and the matter is remanded to the Tribunal to decide the same afresh

Summary

Issues:
1. Registration under Section 12AA of the Income Tax Act.
2. Examination of trust deed and activities for charitable status.
3. Commissioner's rejection of registration application.
4. Tribunal's direction to grant registration to the trust.
5. Interpretation of "charitable purpose" under Section 2(15) of the Act.
6. Tribunal's failure to properly examine Revenue's contentions.
7. Consideration of Circular No.14/2015 for grant of approval.
8. Remand of the matter to the Tribunal for fresh consideration.

Analysis:
1. The appeal concerned the Revenue challenging the Tribunal's order directing the Commissioner of Income Tax to grant registration to a trust under Section 12AA of the Income Tax Act. The Tribunal had set aside the Commissioner's rejection of the registration application based on the trust deed and activities analysis.

2. The Commissioner, in rejecting the application, scrutinized the trust's objects, activities, fee collection, and concluded that the trust's activities were not charitable. The Tribunal's decision to grant registration was based on the view that examination of objects should occur at the registration stage, with detailed scrutiny postponed to regular assessment.

3. The High Court noted that the Tribunal failed to provide factual findings on how the Commissioner erred in his assessment under Section 12AA(1)(a) of the Act. The Court disagreed with the Tribunal's view that running a nursing college alone constitutes charitable activity, emphasizing the need for genuine charitable objectives.

4. The definition of "charitable purpose" under Section 2(15) was discussed, highlighting that education is included but must meet the genuineness criteria for registration. The Court emphasized the Commissioner's role in verifying the trust's activities and the need for a bona fide charitable purpose.

5. The Court pointed out the proviso to Section 2(15), stating that activities resembling trade, commerce, or business for consideration may not qualify as charitable. It criticized the Tribunal for not adequately addressing the Revenue's arguments and remanded the matter for reconsideration.

6. The Court acknowledged the relevance of Circular No.14/2015 on approval and exemption issues under Section 10(23C)(VI) and allowed the assessee to present it for the Tribunal's fresh consideration.

7. Ultimately, the Court allowed the Revenue's appeal, set aside the Tribunal's order, and remanded the case for a comprehensive review, urging the assessee to provide all relevant materials for registration under Section 12AA.

8. The Court clarified the distinction between Section 10(23C) and Section 12AA proceedings, highlighting the need for the Tribunal to be convinced of the trust's charitable activities and income allocation for a successful registration.