Registration under section 12A available after its formation even no charitable activity has been commenced by the trust

[Sandeep Rawat]

In this Covid 19 pandemic times, many NGO have been come forward to help the society. They are providing assistance in medical, relief to the poor, food, education, home shelter etc.

They are foundation for this critical time. Many kind hearted people also come forward to donate to NGO so that the NGO can function smoothly.

In the  Income Tax Act, all receipt, income , donation and any other consideration to trust/society has a charitable object  and the same is enforced or applied or to be applied for charitable purpose are taxable at the  maximum marginal rate in hands of the trust /society unless they are  registered under section 12AA.

Every charitable trust, society, and section 8 company of the Companies Act must have taken registration under section 12AA to avail the benefit of the income tax exemption.

This time many newly formed NGOs have come forward to help the society. Every newly formed NGO is always concerned about whether the registration of under section 12AA will be available to them or not. This confusion has been resolved by the interpretation of the section 12A & 12AA and the judgment of high court.

.Section 12A prescribes the conditions as to registration of the NGO such.

• Income from property held for charitable or religious purposes
• Property should be held under Trust, Society and section 8 Company
• Income should be applied for charitable purpose

Procedure for Registration [Section 12AA]

The Principal Commissioner  or Commissioner, on receipt of an application for registration of a  trust or  institution made  under section 12A(1) shall proceed as follows :

1. He would call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about –
   1. the genuineness of activities of the trust or institution and
   2. the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects

and may also make such enquiries as he may deem necessary in this behalf.

2. After satisfying himself about the objects of the trust or institution  and  the genuineness of its activities as required in (i)(a) above and compliance of the requirements under (i)(b) above, he shall pass an order in writing registering the  trust or institution.
3. If he is not satisfied, he shall pass an order in writing refusing to register the trust or institution.
4. A copy of such an order issued under (ii) or (iii) above shall be sent to the applicant. However, an order under (iii) shall not be passed unless the applicant  has  been given a reasonable opportunity of being heard.

Every order granting or refusing registration shall be passed within six months from the end of the month in which the application for registration of trust or institution is received by the Principal Commissioner or Commissioner

As mention in section 12AA, The Principal Commissioner or Commissioner, has to satisfy himself about the genuineness of activities of the trust or institution even  an application under section 12A for registration of the trust can be sought even within a week of its formation. The activities carried on by the trust are to be seen in a case where the registration is sought much later after formation of the trust.

It has been decided in In the DIRECTOR OF INCOME-TAX (EXEMPTIONS) VERSUS MEENAKSHI AMMA ENDOWMENT TRUST [2010 (11) TMI 853 - KARNATAKA HIGH COURT] case, the assessee, being a trust, made an application under section 12A for issuance of registration within nine months of its formation. The registration authority issued a show cause notice to the assessee-trust to furnish its audited accounts as also material indicating the actual activities undertaken by  the  trust.  In response to the said notice, the assessee-trust furnished the details, wherein it  indicated that it has not yet commenced any charitable activity. The concerned registration authority, not being satisfied with the reply, refused to grant registration to the trust on the ground that   it has not commenced any charitable activity.

 The issue under consideration is whether registration under section 12AA can be denied on the ground of non-commencement of charitable activity, where an application for registration has been made within a short-time span after the formation of the trust.

High Court’s Observations: On this issue, the Karnataka High Court opined that an application under section 12A for registration of the trust can be sought even within a week   of its formation. The activities carried on by  the trust are to be seen in case the registration   is sought much later after formation of the trust.

The High Court further observed that, in this case, the corpus fund included contribution made by the trustees only, which indicated that the trustees were contributing the funds by themselves in a humble way and were intending to commence charitable activities. Also, it was not the Revenue’s contention that the assessee-trust had collected lots of donations for the activities of the trust, by the time its application came up for consideration before them. When the application for registration was made, the trust, therefore, did not have sufficient funds for commencement of its activities.

High Court’s Decision: The High Court observed that, with the money available with the trust, it cannot be expected to carry out activity of charity immediately. Consequently, in such a case, it cannot be concluded that the trust has not intended to do any activity of  charity. In such a situation, the objects of the trust as mentioned in the trust deed have to be taken into consideration by the authorities for satisfying themselves about the genuineness of the trust and not the activities carried on by it. Later on,  if  it is  found from  the subsequent returns filed by the trust, that it is not carrying on any charitable activity, it  would be open to the concerned authorities to  withdraw the registration granted or cancel   the registration as per the provisions of section 12AA(3).

Conclusion: Therefore if  a charitable trust applies for issuance of registration under section 12A within   a short time span after its formation,  registration  cannot be denied by the concerned authority on the ground that no charitable activity has been commenced by the trust.

For further clarification and professional assistance, feel free to contact SRT Consultancy & Co.at [email protected]