2025 (4) TMI 1553 - AT - Income Tax

Rejection of registration u/s 12AA and also not granting approval u/s 80G(5) - Trust do not conclusively prove the genuineness of the activities of the Trust in absence of such documents it could not be determined whether the applicant is genuinely carrying out activities as per its objects - HELD THAT - We find that the CIT(E) has rejected the application u/s 12AB of the Act cryptically and vaguely that Trust do not conclusively prove the genuineness of the activities of the Trust. In absence of such documents it could not be determined whether the applicant is genuinely carrying out activities as per its objects which is factually incorrect. CIT(E) has not issued any show-cause notice before passing the order of rejection of assessee s application which is in violation of the principles of natural justice as per settled law. Revenue could not controvert the factual position brought on record by the assessee s learned counsel. Thus we deem it fit and proper to remand the matter back to the CIT(E) regarding grant of registration u/s 12AB of the Act to the file of the CIT(E) with the directions to examine the issues of genuineness of the activities of the trust in consonance to the objects of the assessee s trust. CIT(E) is directed to grant reasonable opportunity of being heard to the assessee. Appeals of the assessee are allowed for statistical purpose.

Summary

The core legal questions considered in this judgment revolve around the rejection of registration and approval applications filed by a trust under the Income Tax Act, 1961. Specifically, the issues are:

1. Whether the Commissioner of Income Tax (Exemption) [CIT(E)] complied with the principles of natural justice by providing a reasonable opportunity of being heard before rejecting the applications under Section 12AA and Section 80G(5) of the Act.

2. Whether the CIT(E) correctly applied the legal provisions relating to registration under Section 12AA/12AB and approval under Section 80G(5), particularly regarding the genuineness of the trust's activities in consonance with its objects.

3. Whether the rejection order by CIT(E) was based on proper appreciation of facts and evidence submitted by the trust.

Issue-wise Detailed Analysis

Issue 1: Compliance with Principles of Natural Justice

Legal Framework and Precedents: Section 12AB(1)(b)(ii)(B) of the Income Tax Act mandates that before rejecting an application for registration or approval, the authority must afford a reasonable opportunity of being heard to the applicant. This principle is grounded in the broader legal doctrine of natural justice, requiring fair hearing before adverse action.

Precedents cited include judgments from various High Courts and Tribunals emphasizing that rejection without a show-cause notice or hearing violates natural justice (e.g., Mujanl BCU Centre of Innovation and Entrepreneurship vs. CIT(E), Ananda Social & Educational Trust vs. CIT).

Court's Interpretation and Reasoning: The Court found that the CIT(E) rejected the applications summarily and cryptically, without issuing any show-cause notice or providing an opportunity to the trust to respond to alleged deficiencies. The rejection was on the ground that the trust "do not conclusively prove the genuineness of the activities," yet no prior notice or hearing was given to address this concern.

Key Evidence and Findings: The assessee had filed replies and affidavits, complied with notices, and even sought adjournments, demonstrating willingness to cooperate. The Departmental Representative could not dispute these facts.

Application of Law to Facts: The Court held that the failure to provide a reasonable opportunity of being heard before rejection amounted to violation of Section 12AB(1)(b)(ii)(B) and principles of natural justice.

Treatment of Competing Arguments: The Revenue relied on the impugned order, but could not justify the absence of a show-cause notice or hearing opportunity. The Court favored the assessee's contention that natural justice was not observed.

Conclusion: The rejection order was set aside on grounds of violation of natural justice, and the matter was remanded for fresh consideration after affording due opportunity.

Issue 2: Correct Application of Legal Provisions Regarding Registration and Approval

Legal Framework and Precedents: Section 12AA (now replaced by Section 12AB) governs registration of charitable trusts, requiring satisfaction about the genuineness of activities and compliance with applicable laws. Section 80G(5) and Rule 11AA relate to grant of approval for donations to be eligible for tax deduction.

Precedents emphasize that the authority must examine documents and evidence to ascertain whether the trust's activities are genuine and aligned with its objects before granting or rejecting registration/approval.

Court's Interpretation and Reasoning: The CIT(E) rejected the application on the ground that genuineness of activities was not conclusively proved, but did not specify what documents or evidence were lacking or deficient. The rejection was vague and did not rebut the submissions made by the trust.

Key Evidence and Findings: The trust had submitted detailed replies and affidavits, and there was no adverse finding on the charitable objects as per the trust deed. The Court observed that the rejection was cryptic and factually incorrect.

Application of Law to Facts: The Court directed the CIT(E) to examine the genuineness of the trust's activities in consonance with its objects, considering all submissions and documents filed, and to decide the matter afresh.

Treatment of Competing Arguments: The assessee argued for fresh consideration with proper opportunity, while the Revenue relied on the impugned order without addressing procedural lapses or evidentiary deficiencies. The Court aligned with the assessee's position.

Conclusion: The matter was remanded for fresh adjudication on merits, ensuring compliance with procedural and substantive legal requirements.

Issue 3: Adequacy of Factual Appreciation by CIT(E)

Legal Framework and Precedents: The authority must base its order on proper appreciation of facts and evidence on record. Arbitrary or vague orders without factual basis are liable to be set aside.

Court's Interpretation and Reasoning: The CIT(E)'s order was found to be vague and cryptic, lacking detailed reasoning or factual analysis. The Court noted the absence of any adverse findings regarding the trust's objects and activities.

Key Evidence and Findings: The assessee's submissions and documents were on record, but the CIT(E) did not engage with them substantively.

Application of Law to Facts: The Court emphasized that rejection cannot be based on mere conjecture or absence of conclusive proof without specifying deficiencies or giving opportunity to explain.

Treatment of Competing Arguments: The Revenue failed to justify the cryptic rejection or demonstrate proper factual appreciation.

Conclusion: The order was set aside for lack of proper factual and legal reasoning.

Significant Holdings

"The CIT(E) has rejected the application under Section 12AB of the Act cryptically and vaguely that 'Trust do not conclusively prove the genuineness of the activities of the Trust. In absence of such documents, it could not be determined whether the applicant is genuinely carrying out activities as per its objects' which is factually incorrect."

"The Ld. CIT(E) has not issued any show-cause-notice before passing the order of rejection of assessee's application which is in violation of the principles of natural justice as per settled law."

"The matter is remanded back to the Ld. CIT(E) with the directions to examine the issues of genuineness of the activities of the trust in consonance to the objects of the assessee's trust. The Ld. CIT(E) is directed to grant reasonable opportunity of being heard to the assessee and consider the submissions filed on record and may be filed during the course of proceeding."

Core principles established include the mandatory requirement to afford a reasonable opportunity of hearing before rejecting applications under Sections 12AA/12AB and 80G(5), the necessity for clear and reasoned orders based on proper appreciation of facts and evidence, and adherence to the objects of the trust in examining genuineness of activities.

Final determinations on each issue are that the impugned orders rejecting registration and approval were set aside for violation of natural justice and inadequate factual appreciation, and the matters were remanded for fresh adjudication in accordance with law and after affording due opportunity to the trust.