2019 (9) TMI 772 - AT - Income Tax

Rejection of Registration u/s. 12AA - trust has not commenced its activities - whether CIT (E) has erred in not granting sufficient and reasonable opportunity to the appellant and grievously erred in rejecting application under section 12AA ? - HELD THAT - CIT(E) has denied the registration under section 12AA before the Trust starts realizing its objects. It is undisputed fact that the assessee-trust filed an application for registration u/s. 12AA - Trust was constituted by indenture of Trust Deed and it was registered with the Charity Commissioner, Ahmedabad. It is also an undisputed fact that the Trust has at the commencement stage and no activities were carried on, however, the object of the Trust were clearly established. Thus, it is premature to decide or conclude the activities of the Trust. As such, it is settled law that the denial of registration u/s 12AA is not proper when the trust is yet to start its charitable activities. The Pr. CIT (E) cannot examine the objects of the trust, which is at premature stage. Registration of the trust does not involve enquiry into the actual activities or application of funds, etc. Therefore, at this stage, the only enquiry required to be conducted was with respect to the object of the trust alone. The details called for by the Pr.CIT (E) pertained to matters that may be examined at the stage of assessment. At that stage, if the assessee were to be found to have actually engaged in any noncharitable activity, the benefit of exemption may be denied at that stage in the manner provided by the Act. In the light of above, we are of the opinion that the matter of registration under section 12AA should be set-aside to file of the Pr. CIT(E) for examination the basic facts and pass fresh order - Pr. CIT (E) would give a proper opportunity of being heard and allow the assessee to furnish any material in support of its claim. Assessee's appeal allowed for statistical purposes.

Summary

Issues:
1. Rejection of Registration u/s. 12AA
2. Denial of Approval u/s. 80G(5)

Rejection of Registration u/s. 12AA:
The case involved two appeals by the Assessee against the order of the Principal Commissioner of Income-Tax-(Exemption)- Ahmedabad. The Assessee, a Trust, applied for registration under section 12AA of the Income Tax Act, 1961. The Principal Commissioner rejected the application citing lack of charitable activities and corpus. The Assessee contended that as a nascent Trust, it had not started functioning fully. The Tribunal held that denial of registration before the Trust initiated its activities was premature. It referred to the Allahabad High Court's decision emphasizing that registration should focus on the genuineness of the Trust's objects, not activities. The Tribunal set aside the denial, directing a fresh examination by the Principal Commissioner, allowing the Assessee to provide supporting material.

Denial of Approval u/s. 80G(5):
The denial of approval under section 80G(5) mirrored the rejection of registration under section 12AA. The Tribunal, in line with its findings on the registration issue, set aside the denial of approval as well. It directed the Principal Commissioner to re-examine the facts and issue a fresh order after considering the details provided by the Assessee, ensuring a fair opportunity for the Assessee to present their case. Both appeals by the Assessee were allowed for statistical purposes.

In conclusion, the Tribunal's judgments in both issues highlighted the importance of focusing on the Trust's objects during the registration process, especially for nascent Trusts yet to commence activities. The decisions emphasized the need for a fair opportunity for the Assessee to present their case and for the authorities to consider the relevant details before making a determination on registration and approval under the Income Tax Act.