2025 (4) TMI 1350 - AT - Income Tax

Cancelling the application u/s 12AB(1)(b)(ii)(B) for permanent registration and also cancelling the provisional approval u/s 12A(1)(ac)(vi) - application for recognition u/s. 80G was rejected on the ground that the assessee was not granted registration u/s 12AB and therefore recognition u/s 80G was also rejected - only reason in rejection of the registration of the applicant-assessee trust was that the assessee was not registered under RPT Act and therefore the application for registration u/s 12AB of the Act was rejected HELD THAT - Bench noted that since the assessee has already applied for registration under RPT Act and thereby the reasons advance for rejecting the registration of the applicant-assessee trust are curable in nature. Bench feels that the issue of registration u/s 12AB of the be decided a fresh based on the registration under RPT Act to be produced by the assessee. Therefore we restore the matter of the registration u/s 12AB of the Act to the file of the ld. CIT(E) be decided afresh. Bench also noted that recognition u/s 80G of the Act was denied because the applicant-assessee trust was not registered u/s 12AB of the Act. Since we have restored the matter of registration u/s 12AB to the file of the ld. CIT(E) and therefore we also deem it a fit case to restore the matter of recognition u/s 80G of the Act to the file of the ld. CIT(E). Both the matters are restored back to the file of the ld. CIT(E). We may make it clear that our decision to restore the matter back to the file of the ld. CIT(E) shall in no way be construed as having any reflection or expression on the merits of the dispute which shall be adjudicated by the CIT(E) independently in accordance with law.

Issues Presented and Considered

The core legal questions considered by the Tribunal are:

1. Whether the Learned Commissioner of Income Tax (Exemption) [CIT(E)] was justified in rejecting the application for registration under section 12AB of the Income Tax Act, 1961, on the ground that the assessee trust was not registered under the Rajasthan Public Trust Act, 1959 (RPT Act).

2. Whether the rejection of recognition under section 80G of the Income Tax Act, 1961, was valid given that the registration under section 12AB was denied.

3. Whether the assessee should be granted an opportunity to produce proof of registration under the RPT Act and have the applications under sections 12AB and 80G reconsidered afresh.

Issue-wise Detailed Analysis

Issue 1: Validity of rejection of registration under section 12AB of the Income Tax Act, 1961

Relevant Legal Framework and Precedents: Section 12AB of the Income Tax Act, 1961, provides the procedure and conditions for registration of charitable or religious trusts or institutions. Registration under this section is a prerequisite for availing certain tax benefits. The Rajasthan Public Trust Act, 1959, governs the registration of public trusts in the State of Rajasthan. Registration under the RPT Act is generally a mandatory requirement for trusts seeking recognition under the Income Tax Act.

Court's Interpretation and Reasoning: The Tribunal noted that the sole ground for rejection of the application under section 12AB was the absence of registration under the RPT Act at the time of filing the application. The CIT(E) had relied on this non-registration to deny the application.

Key Evidence and Findings: The assessee had filed the application for registration under section 12AB on 18.03.2024. Subsequently, the assessee submitted partial replies to the CIT(E)'s queries but failed to produce proof of registration under the RPT Act. However, during the appellate proceedings, the assessee produced proof of application for registration under the RPT Act dated 07.02.2025, indicating that the trust had initiated the registration process post the initial rejection.

Application of Law to Facts: The Tribunal observed that the reason for rejection was curable since the assessee had applied for registration under the RPT Act, and the absence of such registration at the time of initial application did not preclude reconsideration. The Tribunal emphasized that the registration under the RPT Act is a condition precedent, but the assessee's subsequent compliance with that requirement warranted a fresh consideration of the application under section 12AB.

Treatment of Competing Arguments: The Revenue contended that since the assessee was not registered under the RPT Act at the time of application, the CIT(E)'s order should be sustained. The Tribunal, however, found merit in the assessee's contention that the defect was curable and that a fresh adjudication was warranted once the registration under the RPT Act was obtained or proof thereof submitted.

Conclusion: The Tribunal held that the matter of registration under section 12AB should be restored to the file of the CIT(E) for fresh consideration based on the proof of registration under the RPT Act to be produced by the assessee.

Issue 2: Validity of rejection of recognition under section 80G of the Income Tax Act, 1961

Relevant Legal Framework and Precedents: Section 80G of the Income Tax Act provides for deduction of donations made to certain funds or charitable institutions. Recognition under section 80G is contingent upon the trust being registered under section 12AB of the Act.

Court's Interpretation and Reasoning: The Tribunal noted that the recognition under section 80G was denied solely on the ground that the assessee was not registered under section 12AB. Since the application for registration under section 12AB was being restored for fresh consideration, it was logical and consistent to also restore the matter of recognition under section 80G.

Key Evidence and Findings: The rejection of recognition under section 80G was directly linked to the denial of registration under section 12AB. No independent grounds for rejection under section 80G were recorded.

Application of Law to Facts: The Tribunal applied the principle of interdependence between registration under section 12AB and recognition under section 80G, concluding that since the former was to be reconsidered, the latter must also be restored for fresh adjudication.

Treatment of Competing Arguments: The Revenue did not advance separate arguments on the merits of recognition under section 80G, relying instead on the denial of registration under section 12AB. The Tribunal found this approach appropriate for restoration rather than dismissal.

Conclusion: The Tribunal restored the matter of recognition under section 80G to the file of the CIT(E) for fresh consideration after the decision on registration under section 12AB.

Significant Holdings

"The only reason in rejection of the registration of the applicant-assessee trust was that the assessee was not registered under RPT Act and therefore, the application for registration u/s 12AB of the Act was rejected."

"Since the assessee has already applied for registration under RPT Act and thereby the reasons advance for rejecting the registration of the applicant-assessee trust are curable in nature."

"Considering that aspect of the matter, the Bench feels that the issue of registration u/s 12AB of the be decided a fresh, based on the registration under RPT Act to be produced by the assessee."

"We also deem it a fit case to restore the matter of recognition u/s 80G of the Act to the file of the ld. CIT(E)."

"Our decision to restore the matter back to the file of the ld. CIT(E) shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the ld. CIT(E) independently in accordance with law."

Core Principles Established:

1. Registration under the State Public Trust Act is a necessary but curable precondition for registration under section 12AB of the Income Tax Act.

2. The absence of registration under the State Public Trust Act at the time of application for section 12AB registration does not preclude the assessee from seeking fresh consideration upon subsequent registration.

3. Recognition under section 80G is intrinsically linked to registration under section 12AB; hence, the reconsideration of one necessitates reconsideration of the other.

4. Procedural fairness requires that an assessee be given an opportunity to cure defects in registration before denial of tax benefits.

Final Determinations:

Both appeals challenging the rejection of registration under section 12AB and recognition under section 80G were allowed for statistical purposes by restoring the matters to the file of the CIT(E) for fresh adjudication in light of the assessee's application for registration under the Rajasthan Public Trust Act.

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