Introduction: In a landmark ruling, the Income Tax Appellate Tribunal (ITAT) of Mumbai has made its stand clear regarding the rejection of applications for charitable trust registrations. The case in focus is that of “Surti Modh Vanik Jagruti Mandal Vs ITO (E)”, where the ITAT found that the Commissioner of Income Tax (Exemptions) [CIT(E)] had rejected the Trust’s application without sufficient ‘application of mind’. In this article, we’ll delve into the details of the ruling and what it means for charitable trusts in India.
Why the Trust’s Application Was Rejected by CIT(E): The CIT(E) had rejected the application for registration under sections 12A and 80G of the Income Tax Act, 1961. The primary reason for the rejection was that the Trust seemed to serve only a specific community – the Surti Modh Vanik Samaj. The CIT(E) cited that the aims and objectives were not ‘genuine’ and for the broader public but catered to a specific community, making it ineligible for the tax exemptions under the cited sections.
Lack of ‘Application of Mind’ by CIT(E): The ITAT found that the CIT(E) had not properly applied his mind in rejecting the applications. The ITAT pointed out that the CIT(E) had taken note of provisions from Section 80G when discussing the rejection under Section 12AB and vice versa. The overlapping references revealed a lack of thoroughness and raised questions about the validity of the rejection.
Past Track Record of the Trust: Another key point raised by the ITAT was the trust’s longstanding history. The Trust has enjoyed tax-exempt status since 2001 and had filed for re-registration under new rules. ITAT emphasized that the CIT(E) should have considered the Trust’s history of charitable activities, which were not limited to a specific community but had a broader societal impact.
Opportunity for Proper Hearing: The ITAT argued that if the CIT(E) had any concerns or doubts, he should have clarified these with the Trust, rather than rejecting the application summarily. The absence of this fundamental step further undermined the legitimacy of the CIT(E)’s actions.
Conclusion: The ruling by ITAT is not just a victory for the Surti Modh Vanik Jagruti Mandal but also sets an important precedent for other charitable trusts facing similar issues. It emphasizes the need for authorities to apply proper reasoning and offer adequate opportunities for clarification before taking drastic actions like rejecting applications for tax exemptions. The case has been sent back to CIT(E) for reconsideration, providing a fresh chance for the Trust to make its case.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These are appeals preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Exemptions), Mumbai dated 27.09.2022 rejecting the registration u/s 12A & 80G of the Income Tax Act, 1961 (hereinafter “the Act”).
2. At the outset, the Ld. AR of the assessee pointed out that a mere perusal of the impugned orders of the Ld. CIT(E) would reveal that there was no application of mind by the Ld. CIT(E) while rejecting the assessee’s application for registration u/s 12A of the Act; wherein the Ld. CIT(E) has held as under: –
“1. During processing of your form 10AB it is seen that the assessee has filed Form 10AB on 31.03.2022 and requested for registration u/s 80G, under sub clause (iii) of clause (ac) of sub- section (1) of section 12A. In the Nature of activities column assessee has filed “Charitable”.
2. Notice vide DIN no. ITBA/EXM/F/EXM43/2022-23/104452443(1) dated 05.08.2022 was issued and served on the assessee for submitting Form 10AC for 12A issued by the department (CPC).
3. The applicant assessee has responded to the said notice and submitted Form 10AC for 12A.
4. Further a Notice vide DIN no. ITBA/EXM/F/EXM43/2022-23/10444660265(1) dated 16.08.2022 was issued and served on the assessee for which assessee has not responded.
5. A show cause Notice vide DIN no. ITBA/EXM/F/EXM43/2022-23/1045802979(1) dated 1.09.2022 was issued and _served on the assessee. The above show cause notice stated as under:
“Please refer to your application in Form 10AB for registration u/s 12AB filed on 31/03/2022 and also your application in Form 10AB for approval u/s 80G of the Act filed on 31.03.2022. On verification of objects of the company as evident from your trust deed it is observed that the clauses benefit a particular community. In view of the above you are hereby show cause as to why you application in Form 10AB for registration u/s 12AB &approval u/s 80G should not be denied as it is violation of section 80G(5)(ii). Your reply in writing may be sent within 3 days of receipt of this notice failing which it will be deemed that you have no objection to the proposed rejection.”
6. On verification of the Trust Deed submitted by the applicant assessee it is seen that the aims and objectives of the trust are for the social, educational, economical and cultural development of the members of the mandal who are from the Surati Modh Vanik samaj/ community only. Any child born in the Surti Modh Vanik Samaj automatically becomes a member of the trust. Since it is purely a community based trust, it does not satisfies the genuineness of the activities of the trust u/s 12AB(1)(a)(i)(A) of the IT Act.
Also Section 13(1)(b) of the Act states as under:
Section 13(1) Nothing contained in section 11 [or section 12] shall operate so as to exclude from the total income of the previous year of the persons in receipt thereof-
(b) ‘in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste:”
7. In view of the above, application in Form 10AB for approval u/s 80G of the Act is not valid hence rejected.”
3. And thereafter he also drew our attention to the order of the Ld. CIT(E) rejecting application for approval u/s 80G of the Act which is as under: –
“4, During processing of form 10AB It is seen that the applicant assessee has filed Form 10AB on 31.03.2022 and requested for registration u/s 12AB, under sub clause (iii) of first proviso to sub-section (5) of section 80G. In the Nature of activities column assessee has filed “Charitable”.
2. Notice vide DIN no. ITBA/EXM/F/EXM43/2022-23/1044858705(1) dated 23.08.2022 was issued and served on the assessee for submitting Form 10AC of 80G which was not filed with the application in Form 10AB.
3. The applicant assessee has not submitted the requisite document.
4. Further a reminder Notice vide DIN no. ITBA/EXM/F/EXM43/202223/1044984189(1) dated 27.08.2022 was issued and served on the assessee for submitting Form 10AC of 80G which was not filed with the application in Form 10AB.
5. The applicant assessee has submitted the requisite document.
6. On perusal of the activities. of the trust it is seen that the assessee is having the objectives of the trust related to members of the community of Surati Modh Vanik only as person who are by birth are Swrati Modh Vanik can become members of the Trust. In view of the above the assessee was show caused that “as to way your in Form 1048 for approval u/s 80G should not be denied as.it is violation. of section 80G.
In this context the provisions of section 80G(5)(ii) are reproduced as under.
80G(5) (ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose;
7. The trust deed provided by the applicant assesses does not contain aims and objects or activities of the Trust for the specific community. The Trust Deed contains purposes other than charitable, i.e. religious for specific community which renders the assessee not eligible for approval under section 80G of the Act. In absence of requisite documents and absence of explanation to the notice the genuineness of the activities of the assessee could not be ascertained hence, this office has left with no other option than to reject the application for approval u/s 80G of the Act.
8. In view of the above, application in Form 10AB for registration u/s 12AB of the Act is not valid hence rejected.
9. The applicant assessee is at liberty to refile form 10AB on the portal seeking registration/approval along with all required enclosures including Form 10AC.”
4. A perusal of the aforesaid orders would reveal that while processing the assessee’s application for registration u/s 12AB of the Act, the Ld. CIT(E) has taken note of the provisions of Section 80G of the Act and has rejected the application for registration u/s 12AB of the Act whereas has taken note of section 12AB of the Act for rejecting the application for approval under section 80G of the Act. Therefore, ex-facie it is evident that the Ld. CIT(E) has not applied his mind while passing the impugned orders. It has been also brought to our notice that the assessee has been enjoying registration u/s 12A of the Act from 22.04.2001 onwards and had applied for registration u/s 12AB of the Act on 31.03.2022. And the Ld. AR of the assessee drew our attention to objects of the assessee by referring to page no. 15 of PB and submitted that it can be seen from a perusal of objects i.e. [barring item (ii) to (viii)] the objects given therein are philanthropic in nature and not confined to any specific group but for all sections of people dehors any caste; and drew our attention to other objects given therein i.e. items (vii) to feed poor students and to start free student homes and free hostels, (viii) to help and assist poor deserving people in marriage, (x) to make donations to other public charitable trusts/institutions recognized under section 80G of the Act, and (xi) Assistance to hospitals in setting up various facilities such as blood bank, eye bank, Eum centers, etc for the poor patients etc. According to the Ld. AR, assessee has been established for charitable purpose and cannot be said to be only for the benefit of specific group (Mandal i.e, Shri Surati Modh Vanik Jagruti Mandal). According to the Ld. AR, since the assessee is engaged in charitable activities, it has been enjoying registration u/s 12A & 80G of the Act, which should have been allowed (i.e. registration u/s 12AB of the act and approved u/s 80G of the Act) also. According to the Ld. AR, if the Ld. CIT(E) nursed any doubts, he ought to have asked from assessee the requisite details/information/relevant documents rather than hurriedly rejecting the application. Therefore, he pleaded that since there is no application of mind the impugned orders suffers from the vice of arbitrariness and need to be restored back to the file of the Ld. CIT(E) for fresh action in accordance to law. We find force in the plea of the Ld. AR and note from perusal of the impugned orders (supra) that ex-facie there is no application of mind while passing the impugned orders. We note that the assessee has been enjoying registration u/s 12A in the year 2001 onwards and the Ld. CIT(E) while processing the application for registration ought to have given opportunity to the assessee to reply to queries of Ld. CIT(E) if any, regarding the aim/objects of the assessee. The reason given by the Ld. CIT(E) to reject the application for registration u/s 12AB & 80G of the Act cannot be sustained for non-application of mind. Therefore, we are inclined to set aside the impugned orders of the Ld. CIT(E) and restore the application for registration u/s 12AB as well as u/s 80G of the Act back to the file of the Ld. CIT(E) with a direction to process the same in accordance to law after hearing the assessee. And the assessee to file written submission/relevant documents/case laws to support their application for registration u/s 12AB of the Act as well as approval u/s 80G of the Act. And the Ld. CIT(E) to pass orders after hearing the assessee in accordance to law.
5. In the result, the appeal filed by the assessee are allowed for statistical purposes.
Order pronounced in the open court on 27/07/2023.