Case Law Details
Brief of the Case
ITAT Delhi held In the case of Jaipal Singh Sharma Trust vs. CIT that it is well settled that at the stage of grant of registration, the non-commencement of the activities by the Trust cannot be a ground for refusal of registration u/s 12AA.
On the observations made by the CIT, on the alleged inadequacy of the evidences brought on record to show the capacity of the lenders from whom the assessee trust had borrowed loans, it is clear that such comments cannot be a ground for refusal of grant of registration u/s 12AA of the Act. The aspect regarding examination of the source and application of the funds are in the domain of the Assessing Officer and not in that of the CIT, while processing the application u/s 12AA.
Facts of the Case
The assessee is a Trust and was established on 22.10.2013. The main objects of the Trust are “to provide health education including technical education, water conservation and environmental awareness and to establish medical colleges and hospitals etc.” It filed an application in form no.10A under Rule 17A of the I.T. Rules, 1962 on 13.3.2014, for grant of registration u/s 12AA. The CIT rejected the said application on the ground that the assessee trust has not taken any steps in pursuance of its aims and objects, except acquisition of land and hence the genuineness of the activities of the Trust cannot be verified. He also stated that the evidence brought on record to show the capacity of the lenders who have advanced loans to the assessee trust, are not sufficient. Hence he rejected the application for grant of registration u/s 12AA by concluding that the registration cannot be granted to the Trust at this stage.
Held by ITAT
In our view the CIT action of refusing to grant registration to the assessee u/s 12AA of the Act, is not in accordance with law for the following reasons – Firstly the CIT does not dispute that the aims and objectives of the Trust are charitable in nature and secondly The reason given by the CIT for refusing the registration is that, “the second limb i.e. genuineness of the activities of the Trust, could not be verified, for the reason that the assessee has not taken steps in pursuance of its aims and objects, except for acquiring land” is not legally tenable. This ground taken for refusal of registration is not correct for the reason that the assessee had commenced activities by acquiring land. It was also pointed out that the State Government had exempted the assessee trust from payment of stamp duty on purchase of land, in view of the charitable aims and objectives of the Trust. Also otherwise it is well settled that at the stage of grant of registration, the non-commencement of the activities by the Trust cannot be a ground for refusal of registration u/s 12AA.
In the case of CIT, Varanasi vs. Varanasi Welfare Trust, Varanasi in ITA no. 227 of 2014 dt. 12.11.2014 the Hon’ble Allahabad High Court held that at the time of registration u/s 12AA of the Act, which is necessary for claiming exemption u/s 11 and 12 of the Act, the CIT is not required to look into the activities, where such activities have not or are in the process of its initiation. Where a trust, set up to achieve its objects of enabling educational institution, is in the process of establishing such institutions, and receives donations, the registration u/s 12AA cannot be refused, on the ground that the Trust has not yet commenced the charitable or religious activity. Any enquiry of the nature would amount to putting the cart before the horse. At this stage only the genuineness of the objects has to be tested and not the activities, which have not commenced. The enquiry of the CIT at such preliminary stage should be restricted to genuineness of the objects and not the activities unless such activities have commenced.
The Delhi G Bench of the ITAT in ITA 5501/Del/12 in Sai Ashish Charitable Trust vs. DIT (E) held that registration u/s 12A cannot be denied on the ground that the genuineness of the charitable activities cannot be held to be established in absence of any genuine charitable activity. Further in the case of the Hon’Ble Punjab & Haryana High Court in CIT-II, Chandigarh vs. Surya Educational & Charitable Trust (2011) 15 Taxmann.com 123 (P&H), it was held that Section 12AA requires satisfaction in respect of the genuineness of the activities of the trust, which includes the activities which the trust is undertaking at present and also which it may contemplate to undertake. The insertion – of sub-section (3) to section 12AA clarifies the said fact, when it empowers the Commissioner to cancel the registration If the activities of the trust are not carried out in accordance with such objects.
As far as the observations made by the CIT, on the alleged inadequacy of the evidences brought on record to show the capacity of the lenders from whom the assessee trust had borrowed loans, we hold that the comments are vague and not conclusive. Such comments cannot be a ground for refusal of grant of registration u/s 12AA of the Act. The aspect regarding examination of the source and application of the funds are in the domain of the Assessing Officer and not in that of the CIT, while processing the application u/s 12AA. In the case of CIT vs. Saint Kabir Education Trust/Baba Deep Singh Educational Society (2012) 21 Taxmann.com 38 (P&H), under similar circumstances the Hon’b;e Punjab & Haryana High Court held that “The Commissioner while processing the application u/s 12AA of the Act was not to act as an Assessing Authority and thus, the Tribunal has rightly allowed the appeal filed by the society in the facts and circumstances of the present case”.
Accordingly, appeal of the assessee allowed.
