2020 (3) TMI 54 - HC - Income Tax

Exemption u/s 11 - registration u/s 12AA - verification of genuineness of activity a condition precedent for granting registration under Section 12AA - whether the trust should show some activities undertaken by it before registration to the Commissioner to satisfy him or is the Commissioner required to be satisfied that the intended activities of the trust after registration are genuine? - HELD THAT - On creation of the trust the trustees apply for registration under Section 12AA. In that case, they would have to demonstrate the genuineness of the objects of the trust, only, before the Commissioner. Secondly, the other situation where the trustees carry on activities for sometime and then apply for registration. In that case, the genuineness of the objects as well as the genuineness of its activities have to be proved to the Commissioner. In the second situation, practically speaking, any activity of the trust carried out without registration and without any tax benefit would likely to be insignificant. Every word in a statute has meaning and application. The legislature does not waste words. Nor does it indulge in surplussage. Hence, every word in Section 12AA has to be given its meaning and effect. In my opinion, when the statute refers to the objects of the trust and the genuineness of its activities to be investigated by the Commissioner, the words have to be given a proper and purposive construction. The Commissioner has to see that the constitution of the trust, its objects, its trustees and proposed activities are prima facie genuine. On that basis he has to consider registering the trust. If the activities are found not to be genuine at a later point of time, he always has the option of cancelling its registration under Section 12AA(3) of the said Act. The tribunal has appreciated the law correctly. The question in this appeal is answered in the negative, against the Revenue and for the assessee. As per other Judge too If a trust registered under Indian Trust Act and Registration Act as a charitable trust, does not get itself registered before the Principal Commissioner of Income Tax it loses certain benefits both for itself and for those who donate to it. Since by definition a charitable trust is not one which makes profits and if we accept the interpretation of the Revenue that first the activities of the trust must commence and its genuineness ascertained before the Principal Commissioner registers it, we would be asking the trust to carry on activities perhaps at a loss to the corpus or by compromising on the quality of such activities if the expenditure is done from the interest on the corpus because no one will donate money to a trust knowing that it is not tax deductable. In such view of the matter, the interpretation offered by the Revenue appears to be one which perhaps defeats Section 12A/12AA of the said Act of 1961 and its very purpose and, therefore, also it cannot be accepted. -Decided in favour of assessee

Summary

Issues:
Interpretation of Section 12AA of the Income Tax Act, 1961 regarding the registration of a trust based on its activities and genuineness.

Analysis:
The High Court of Calcutta addressed the substantial question of law regarding the interpretation of Section 12AA of the Income Tax Act, 1961. The key issue was whether the genuineness of the activities of a trust is a condition precedent for granting registration under Section 12AA. The court examined whether the trust needed to demonstrate activities undertaken before registration to satisfy the Commissioner or if the Commissioner should be satisfied that the intended activities of the trust post-registration are genuine. The tribunal had allowed the appeal of a trust by remanding the matter to the Commissioner of Income Tax (Appeals) for reconsideration. The Revenue appealed against this decision, leading to a detailed analysis by the High Court.

The court referred to various legal precedents to support its decision. The Karnataka High Court in a specific case emphasized that registration under Section 12AA should not be denied solely based on the lack of charitable activities at the initial stage of the trust's formation. The Delhi High Court and Allahabad High Court also echoed similar views, highlighting that the focus should be on the genuineness of the trust's objects rather than its activities at the registration stage. The Kerala High Court introduced the concept of the genuineness of the trust as a vital consideration in such matters.

The judgment delved into the practical implications of the registration process under Section 12AA. It highlighted the significance of registration for a trust to avail substantial tax benefits and attract donations. The court emphasized that the Commissioner must ensure the genuineness of the trust's objects and proposed activities before registration. However, it also noted that if the activities are found to be non-genuine later, the Commissioner has the authority to cancel the registration under Section 12AA(3) of the Act.

In conclusion, the High Court upheld the tribunal's decision, ruling against the Revenue and in favor of the trust. Justice I. P. Mukerji and Justice Protik Prakash Banerjee concurred on the interpretation of Section 12AA, emphasizing the practical implications and the importance of genuineness in trust registrations. The judgment highlighted the balance between demonstrating genuine intent and ensuring practicality in the registration process for trusts seeking tax benefits and donor support.