Registration of Charitable Trust u/s 12AA which have not undertaken any activity prior to application for registration

Ananda Social and Educational Trust Vs CIT & Anr. (Supreme Court); Civil Appeal No(S). 5437-5438/2012; 19/02/2020

Relates to : Registration of Charitable Trust u/s 12AA which have not undertaken any activity prior to application for registration.

Brief details about the case:

Ananda Social and Educational Trust (herein referred to as the ”Assessee”) was formed as a society on 30.05.2008 and applied for registration under the Income Tax Act, 1961 on 10.07.2008 i.e. within a period of 2 months from its formation. No activities were undertaken by the Trust before the date of registration.

The application for registration was rejected by the Commissioner of Income Tax solely on the ground that no charitable activity or other activities have been undertaken by the assesse before the date of application. The assessee aggrieved by an order of the Commissioner of Income Tax made an appeal before the Income Tax Appellate Tribunal (herein referred to as the “Tribunal”) in which the orders of the Commissioner of Income Tax Appeal was reversed. The high court upheld the orders of the Tribunal. The issues that arose before the Supreme court were :

1. Whether the assessee who has not conducted/initiated any charitable activity before applying for registration is eligible for registration u/s 12AA?

2. Whether the term “Activities” refereed under clause (a) of Sub-section (1) of Section 12AA of Income Tax Act, 1961 includes “proposed activities”?

3. Whether the commissioner is required to check the genuineness of the proposed activities for granting registration u/s 12AA?

Extract of Section 12AA of Income Tax Act, 1961 :

Procedure for registration.

12AA. (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) or clause (ab) of sub-section (1) of section 12A, shall—

(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about,—

(i) the genuineness of activities of the trust or institution; and

(ii) 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 inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, as required under sub-clause (i) of clause (a) and compliance of the requirements under sub-clause (ii) of the said clause, he—

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant :

Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.

Decision of Honorable Supreme Court:

The supreme court was of the view that section 12AA of Income Tax Act, 1961 mandates that the commissioner of Income tax or the principal commissioner, as the case may has to satisfy his/her conscious that the activities under taken by the Trust are genuine and are eligible charitable activities.

In case where the trust has not undertaken any activities in the past, the commissioner is only required to check that the objectives as stated by the trust are genuine. That is to say if the trust has not undertaken any activity but the objects of the trust are genuine and the trust will undertake such activities in the future, the trust would be eligible for registration u/s 12AA. Thus, the court was of the view that the term “activities” as referred in clause (a) of Sub-section (1) of Section 12AA of Income Tax Act, 1961 also includes “proposed activities”.

In cases where the activities undertaken by the trust before applying for registration were not in consonance with the objects laid down by the trust, the commissioner of Income tax may consider the rejection of application under sub-section 3 of Section 12AA of Income Tax Act, 1961 after satisfying his/her conscious.

Answer to the above 3 questions :

Q 1. Whether the assessee who has not conducted/initiated any charitable activity before applying for registration is eligible for registration u/s 12AA?

Ans. Yes, if the activities/objects to be undertaken are genuine. Also, the “proposed activities” will be tested for genuineness before granting registration.

Q 2. Whether the term “Activities” refereed under clause (a) of Sub-section (1) of Section 12AA of Income Tax Act, 1961 includes “proposed activities”?

Ans. Yes, the Supreme court in its order has clearly mentioned that the term “Activities” refereed under clause (a) of Sub-section (1) of Section 12AA of Income Tax Act, 1961 includes “proposed activities”.

Q 3. Whether the commissioner is required to check the genuineness of the proposed activities for granting registration u/s 12AA?

Ans. Yes, the commissioner is required to check the genuineness of the proposed activities before granting registration.