2022 (2) TMI 49 - HC - Income Tax

Exemption u/s 11 - application u/s 12AA - charitable activity u/s 2(15) - HELD THAT - Section 12AA of the Act provides for procedure for registration. The Commissioner of Income Tax is required to satisfy himself about the objects of the Trust and genuineness of its activities and has to grant registration only if it is so satisfied. The scope of examination is confined in ascertaining whether the Trust is constituted genuinely for carrying on charitable activities or whether it has the capacity to carry out its professed objects. It is also well settled legal proposition that at the time of grant of registration, Commissioner of Income Tax is not required to examine the application of income and has to examine whether the objects of the Trust are charitable and whether the application is made in consonant with requirements of Section 12A of the Act read with Rule 17F of the Income Tax Rules. The genuineness of the activities of the Trust is not a matter to be looked into at the time of dealing with the issue of registration of the Trust u/s 12AA. From conjoint reading of the aforesaid clauses of the Trust Deed, it is axiomatic that primary purpose / objects of the assessee enumerated in the Trust Deed are charitable in nature. The other clauses of the Trust Deed had to be necessarily read in the context of the aforesaid clauses. The Tribunal, after taking into account the relevant clauses of the Trust Deed has recorded a finding of fact that the primary object of the Trust is charitable in nature. Even otherwise, the activities of the assessee as set out in the Trust Deed are covered within the ambit of charitable purpose being primarily for education. The aforesaid finding by the Tribunal has not been assailed as perverse in this appeal. Therefore, the issue with regard to the activity of the assessee being commercial or business in nature, cannot be gone into at the time of consideration of the application under Section 12AA of the Act. Even otherwise, at the time of grant of registration the Commissioner of Income Tax, in the facts of the case could not have examined the genuineness of the activities of the assessee as its activity had not commenced. The issue regarding the satisfaction of genuineness of activity of a Trust is not a matter which can be looked into at the time of grant of registration under Section 12AA of the Act. Substantial questions of law Nos.1 to 3 involved in this appeal are answered against the revenue and in favour of the assessee. Grant of exemption or renewal as not automatic in character - HELD THAT - As the decision of the High Court in 'GANJAM NAGAPPA SONS TRUST Vs. DIRECTOR OF INCOME TAX' 2004 (1) TMI 29 - KARNATAKA HIGH COURT has no application to the facts of the case and therefore, aforesaid question is also answered against the revenue.

Issues Involved:
1. Whether the Tribunal was right in directing the Commissioner of Income Tax to grant registration under section 12A and consequently under section 80G of the Act.
2. Whether the Tribunal correctly appreciated the assessee's financial statements and activities as charitable under Rule 11AA(3) of the Rules, 1962.
3. Whether the Tribunal considered the necessity of satisfaction on the part of the authority granting approval for recognition under section 12A and 80G.
4. Whether the Tribunal erred in not following the jurisdictional High Court's decision in the case of Ganjam Nagappa & Son Trust regarding the non-automatic nature of exemption or renewal.

Detailed Analysis:

Issue 1: Tribunal's Direction to Grant Registration under Section 12A and 80G
The Tribunal directed the Commissioner of Income Tax to grant registration under Section 12A and 80G of the Income Tax Act, despite the Commissioner’s rejection based on the trust's primary objective being commercial rather than charitable. The Tribunal found that the primary object of the Trust was charitable and that no material evidence indicated otherwise. The Tribunal's decision was based on a holistic reading of the Trust Deed, concluding that the Trust's activities were genuinely charitable.

Issue 2: Appreciation of Financial Statements and Activities
The Tribunal did not find any evidence to suggest that the Trust's activities were not charitable. It noted that the Commissioner of Income Tax had misinterpreted the Trust Deed and failed to consider the charitable nature of the Trust's objectives. The Tribunal held that the financial statements and activities, as presented, were consistent with the charitable purposes outlined in the Trust Deed.

Issue 3: Necessity of Satisfaction by the Authority Granting Approval
The Tribunal emphasized that the Commissioner of Income Tax is required to satisfy himself about the objects of the Trust and the genuineness of its activities at the time of registration. However, it clarified that this does not extend to examining the application of income at that stage. The Tribunal reiterated that the genuineness of the Trust’s activities is not a matter to be scrutinized during the registration process under Section 12AA of the Act.

Issue 4: Non-Automatic Nature of Exemption or Renewal
The Tribunal did not follow the High Court's decision in Ganjam Nagappa & Son Trust, which stated that the grant of exemption or renewal is not automatic. The Tribunal found that the facts of the present case differed significantly from those in Ganjam Nagappa & Son Trust, rendering the precedent inapplicable. It concluded that the primary object of the Trust was charitable and education-focused, thus justifying the registration under Section 12AA and 80G.

Conclusion:
The High Court upheld the Tribunal's decision, dismissing the revenue's appeal. It affirmed that the primary objects of the Trust were charitable, and the Tribunal had correctly interpreted the Trust Deed. The Court also clarified that the genuineness of the Trust’s activities should not be examined at the registration stage. All substantial questions of law were answered against the revenue, and the appeal was dismissed.

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