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2024 (7) TMI 286 - HC - Income TaxCancellation of registration u/s 12AA - application denied on the ground that the respondent trust is yet to start charitable activities as defined in Section 2(ii) - ITAT has set aside the order of the CIT(E) and held Trust cannot claim exemption unless it is registered us. 12AA of the Act and thus at that initial stage the test of genuineness of the activities cannot be a ground on which the registration can be refused - HELD THAT - In matters where the trust recently came into existence and application for registration under Section 12AA (1) of the Act, 1961 is filed by the trust before the Principal Commissioner or Commissioner of Income Tax, then at that stage the Principal Commissioner or Commissioner of Income Tax has to satisfy himself that the objects and activities of such trust or institution are genuine and that its activities are in furtherance of the objects of the trust. Therefore, at the very initial stage i.e. immediately after the trust or institution came into existence and applies for registration u/s 12A, the Commissioner is required to satisfy himself that the objects of the Trust are genuine. If the trust or institution has started its activities then he shall also satisfy himself that the activities of such trust or institution are in furtherance of the objects of the trust. The application for registration u/s 12AA cannot be refused by the Principal Commissioner or Commissioner of Income Tax solely on the ground that such trust or institution has not yet started its activities. For all the reasons aforestated, we do not find any merit in this appeal. Decided against revenue.
Issues Involved:
1. Whether there were fit grounds for cancellation of registration of the assessee under Section 12AA of the Income Tax Act, 1961. 2. Whether the order of the tribunal was perverse in setting aside such cancellation of registration made by the authorities below. Issue-wise Detailed Analysis: 1. Grounds for Cancellation of Registration under Section 12AA of the Income Tax Act, 1961: Facts: The respondent, a trust established on 29.04.2016, applied for registration under Section 12AA and Section 80G of the Income Tax Act, 1961 on 17.11.2016. The Commissioner of Income Tax (Exemption) [CIT(E)] rejected the application on 01.05.2017, citing that the trust had not yet commenced its charitable activities. Consequently, the application for registration under Section 80G was also rejected on 11.07.2018. The respondent appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the appeal on 11.07.2018. The revenue then filed the present appeal. Discussion & Findings: The High Court noted that the CIT(E) did not dispute the charitable nature of the trust’s objectives as defined in Section 2(15) of the Act. The sole ground for rejection was the non-commencement of activities. The ITAT ruled that the CIT(E) should only verify the genuineness of the objectives and not the commencement of activities when considering registration under Section 12AA. The ITAT emphasized that the trust's objectives were clearly charitable, and the registration should not be refused merely because the trust had not yet started its activities. Relevant Judgments: - Director of Income Tax vs. Ophthalmic and Optometry Research Education Centre: The Delhi High Court held that the Commissioner is not required to examine whether the trust has actually commenced charitable activities while considering an application under Section 12AA. - M/s. Hardayal Charitable and Educational Trust vs. CIT, Agra: The Allahabad High Court supported the view that the genuineness of the objectives, not the commencement of activities, should be the focus. - M/s. Ananda Social and Educational Trust vs. The Commissioner of Income Tax & Anr.: The Supreme Court held that the Commissioner should consider the genuineness of the trust’s objectives and proposed activities, not just the actual commencement of activities. Conclusion: The High Court, aligning with the ITAT and supported by precedents, concluded that the application for registration under Section 12AA cannot be refused solely on the ground that the trust has not started its activities. The Commissioner must focus on the genuineness of the objectives and proposed activities. 2. Perverse Order of the Tribunal: Discussion & Findings: The High Court reviewed the ITAT's decision and found it consistent with legal precedents and the statutory requirements under Section 12AA. The ITAT correctly interpreted that the Commissioner’s role at the registration stage is to verify the genuineness of the objectives and proposed activities, not the actual commencement of activities. This approach is supported by the Supreme Court and various High Courts. Conclusion: The High Court found no infirmity in the ITAT's order. The appeal by the revenue was dismissed, and the substantial question of law was answered in favor of the assessee, affirming that the ITAT's decision was not perverse. Final Judgment: The High Court dismissed the appeal (ITA/111/2019) of the revenue, upholding the ITAT's order and confirming that the refusal of registration solely on the ground of non-commencement of activities was not justified. The substantial question of law was resolved in favor of the assessee and against the revenue.
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