2020 (2) TMI 1293 - SC - Income Tax

Exemption u/s 11 - entitled for registration under section 12AA - Charitable activity u/s 2(15) - HELD THAT - The purpose of section 12AA of the Act is to enable registration only of such trust or institution whose objects and activities are genuine. In other words, the Commissioner is bound to satisfy himself that the object of the Trust are genuine and that its activities are in furtherance of the objects of the Trust, that is equally genuine. Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term activities in the provision includes proposed activities . That is to say, a Commissioner is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust. In contrast, the position would be different where the Commissioner proposes to cancel the registration of a Trust under sub-section (3) of section 12AA of the Act. There the Commissioner would be bound to record the finding that an activity or activities actually carried on by the Trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found to have undertaken activities contrary to the objects of the Trust. We therefore find that the in view FOUNDATION OF OPHTHALMIC OPTOMETRY RESEARCH EDUCATION CENTRE 2012 (8) TMI 777 - DELHI HIGH COURT that a newly registered Trust is entitled for registration under section 12AA on the basis of its objects, without any activity having been undertaken is correct and liable to be upheld. Registration u/s 12AA - found not to have spent any part of its income on charitable activities - object of the provision in question is to ensure that the activities undertaken by the Trust are not contrary to its objects and that a Commissioner is entitled to refuse registration if the activities are found contrary to the objects of the Trust. In the present case, what has been found is that the Trust had not spent any amount of its income for charitable purposes. This is a case of not carrying out the objects of the Trust and not carrying on activities contrary to its object. These circumstances may arise for many reasons including not finding suitable circumstances for carrying on activities. Undoubtedly the inaction in carrying out charitable purposes might also become actionable depending on other circumstances; but we are not concerned with such a case here. In these circumstances, we leave it upon the Commissioner of Income Tax to consider the issue by exercising his powers under sub-section (3) of section 12AA, if the facts justify such actions.

Summary

Issues involved:
1. Interpretation of section 12AA of the Income Tax Act, 1961 regarding registration of a newly formed trust without any activities undertaken.
2. Assessment of whether a trust is entitled to registration under section 12AA based solely on its objects without any activities being carried out.
3. Consideration of whether the term "activities" in section 12AA includes proposed activities for a trust seeking registration.
4. Analysis of the Commissioner's discretion to refuse registration if a trust has not spent any income on charitable activities.

Analysis:

Issue 1: Interpretation of section 12AA regarding registration of a newly formed trust without any activities undertaken:
The Supreme Court considered a case where a newly registered trust applied for registration under section 12AA without having undertaken any activities. The Commissioner rejected the application based on the absence of activities, leading to an appeal. The Court examined the purpose of section 12AA, emphasizing that the Commissioner must ensure the trust's objects and activities are genuine for charitable purposes. The Court clarified that the term "activities" includes proposed activities, allowing registration even if no actual activities have been conducted before the application.

Issue 2: Assessment of trust's entitlement to registration based solely on its objects without activities:
The Court highlighted that section 12AA requires the Commissioner to assess the trust's objects and activities for genuineness before granting registration. It was argued that without activities, the Commissioner cannot evaluate their genuineness. However, the Court held that the focus is on the genuineness of proposed charitable activities aligned with the trust's objects, not on past activities. Registration is contingent on satisfying the Commissioner about the trust's charitable nature and proposed activities.

Issue 3: Consideration of whether "activities" in section 12AA includes proposed activities for a trust seeking registration:
The Court clarified that the term "activities" in section 12AA encompasses both ongoing and proposed activities of a trust. The Commissioner must ensure the trust's objects and proposed activities are genuinely charitable to grant registration. The Court upheld the Delhi High Court's decision that a newly registered trust can be considered for registration under section 12AA even without prior activities.

Issue 4: Commissioner's discretion to refuse registration if a trust has not spent income on charitable activities:
In a separate case, the Court addressed a situation where a trust failed to spend any income on charitable purposes, leading to the Commissioner's refusal of registration. The Court emphasized that the Commissioner can refuse registration if the trust's activities are contrary to its objects. In this case, the trust's failure to spend income on charitable activities was not deemed as contrary to its objects, leaving the decision to the Commissioner to take further action if necessary.

In conclusion, the Supreme Court dismissed the appeals, upholding the interpretation of section 12AA, emphasizing the need for trust objects and proposed activities to be genuinely charitable for registration, even if no prior activities have been undertaken. The Court affirmed the Commissioner's discretion to refuse registration if trust activities are inconsistent with its objects.