Calcutta High Court
Commissioner Of Income Tax (Exemption) vs Harnarayan Rajdulari Devi Taparia ... on 1 July, 2024
O - 27 A. F. R.
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
ITA/111/2019
COMMISSIONER OF INCOME TAX (EXEMPTION), KOLKATA
VS
HARNARAYAN RAJDULARI DEVI TAPARIA CHARITABLE TRUST
BEFORE :
THE HON'BLE JUSTICE SURYA PRAKASH KESARWANI
AND
THE HON'BLE JUSTICE AJAY KUMAR GUPTA
Date : 1s July, 2024.
Appearance:
Ms. Smita Das De, Advocate
... for the appellant.
1. Heard Ms. Smita Das De, learned senior standing counsel for the
appellant/Income Tax Department. None appears for the respondent.
2. This appeal was admitted by this Court by order dated 20.08.20196
on the following substantial question of law:-
"Whether on facts and in the circumstances of the case, there
were fit grounds for cancellation of registration of the
assessee under Section 12AA of the Income Tax Act,
1961 and the order of the tribunal was perverse in setting
aside such cancellation of registration made by the authorities
below ?
Facts :
3. Briefly stated, facts of the present case are that the respondent is a
trust which came into existence on 29.04.2016. The trust filed an
application in Form-10A on 17.11.2016 for grant of registration under
Section 12AA of the Income Tax Act, 1961 (hereinafter referred to as 'the
Act, 1961') and also submitted an application of even date for granting
registration under Section 80G of the Act, 1961. The Commissioner of
Income Tax (Exemption) examined the application of the respondent for
grant of registration under Section 12A(1) of the Act,1961 and rejected it
by the order dated 01.05.2017 on the ground that the respondent trust
is yet to start charitable activities as defined in Section 2(ii) of the Act,
1961. Consequently, the application for registration under Section 80G
of the Act, 1961 was also rejected by a separate order dated 11.07.2018.
Aggrieved with the aforesaid orders, the respondent preferred two
separate appeals being ITA Nos.1366 & 1367/Kol/2017 before the
Income Tax Appellate Tribunal, "A" Bench, Kolkata. The ITAT allowed
the appeal by the impugned order dated 11.07.2018. Aggrieved with the
aforesaid order of the ITAT, the revenue has filed present appeal which
was admitted on the afore-noted substantial question of law.
Submission :
4. Learned Counsel for the appellant submits that the order passed by
the CIT(E) was correct and the Tribunal has committed a manifest
error of law to interfere with it. No other submission has been
advanced before us by learned counsel for the appellant.
Discussion & Findings :
5. We have carefully considered the submission of the learned Counsel
for the appellant and perused the paper book.
6. Before we proceed to examine the impugned order and the submission
of learned counsel for the appellant, it would be appropriate to
reproduce Section 12A(1) of the Act as under:
12AA. Procedure for registration.-(1) The [***] [Principal
Commissioner or Commissioner), on receipt of an application for
registration of a institution made under clause (a) for clause (aa) (or
clause (ab)] trust or 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."
7. The CIT(E) while refusing to grant registration under Section 12A of
the Act, 1961 has neither doubted nor recorded his dis-satisfaction
with regard to the objects of the trust. In other words, the CIT(E) has
neither held nor doubted the objects of the respondent trust to be not
charitable. Thus, there is no dispute that the objects of the
respondent trust is charitable as defined in Section 2(15) of the Act,
1961.
8. The only ground on which the CIT(E) rejected the application of the
respondent trust for registration under Section 12AA of the Act, 1961
is that the trust has not yet started its activities. The ITAT has set
aside the order of the CIT(E) holding as under:
"4. We have heard rival submissions and gone through the
facts and circumstances of the case. We note that the issue
before us is as to whether it is essential for a trust to commence
charitable activity before it can be considered eligible for
registration u/s. 12AA of the Act We note that the objects of the
assessee trust are relief of the poor, education, medical relief and
advancement of objects of general public utility, to establish
support, maintain and/or grant aid or other assistance financial
or otherwise to schools, colleges, vidyapiths, libraries, read
rooms, lecture halls and other establishments and institutions for
the advancement of education and diffusion of knowledge in art,
humanities, science, commerce, industry. agriculture and any
other objects of similar nature pertaining to education, grant
scholarship, stipends, prizes, rewards allowance or other
financial assistance ete., to establish support and/or maintain
hostels, boarding houses etc. From the reading of the objectives
of the Trust, it is clear that these are charitable objects and are
supported by other ancillary objects to which a detailed
reference is not necessary.
5. Time and again we have been reiterating that at the
time when the assessee applies for registration u/s. 12AA
of the Act, the Ld. CIT(E)'s jurisdiction is only to verify the
objects of the Institution/Trust and look into the
genuineness of the activities, meaning thereby that he has
to satisfy himself that the objects are charitable in nature
and the activities being carried on or to be carried on are
genuine, meaning thereby that they are in consonance for
achieving the charitable object and nothing else. The Ld.
CIT(E) while discharging his duty for grant of registration u/s.
12AA of the Act has to restrict himself in the field which we have
stated above. We note that where a Trust is set up to
achieve its objectives for establishing educational
institution and is in the process of establishing such
Institutions, the registration us. 12AA of the Act cannot be
refused on the ground that the Trust has not yet
commenced the charitable activity. Any enquiry of this
nature would amount to putting the cart before the horse. As
stated above, when the application far registration under section
12AA of the Act is considered by the Ld. Commissioner only the
genuineness of the objectives has to be tested and not the
activities which have not commenced. The enquiry of the
Commissioner of Income-tax as such is at a preliminary stage
should be restricted to genuineness of the objectives and not the
activities unless the activities have commenced. Since the
assessee Trust came into existence vide Deed ofTrust dated
29.04.2016 and the Trust had applied for registration on
17.11.2016 it is at the initial stage only. It has to be noted that
the 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 and for that we rely on the
decision of the Hon'ble Allahabad High Court in the case
of Hardayal Charitable & Educational Trust Vs. CIT-2,
Agra (2013) 32 Taxman.com 341 (All). Therefore, the action of
the Ld. CIT(E) cannot be countenanced for the reasons stated
above and, therefore, we are inclined to set aside the order of the
Lit CIT(E) for both the appeals and remand the matter back to the
file of the Ld. CII(E) and direct him to pass a fresh order on the
assessee's application for registration u/s: 12AA and approval
u/s. 80G of the Act keeping in view the law governing the subject
and pass a speaking order after hearing the assessee trust.
6. In the result, both the appeals of assessee are allowed for
statistical purposes."
9. In Director of Income Tax vs. Ophthalmic and Optometry
Research Education Centre reported in 2013 ITR (355) 361 the
Delhi High Court considered substantial question of law "whether the
Income Tax Appellate Tribunal was right in holding that while
examining the application under Section 12AA(1)(b) read with Section
12A of the Income Tax Act, 1961, the concerned
Commissioner/Director is not required to examine the question
whether the Trust has actually commenced and has, in fact, carried
on charitable activities ?" and answered this question in favour of the
assessee and against the revenue. Similar view was also taken by the
Allahabad High Court in M/s. Hardayal Charitable and Educational
Trust vs. CIT, Agra reported in [2013] 32 taxmann.com 341
(Allahabad) .
10. In M/s. Ananda Social and Educational Trust vs. The
Commissioner of Income Tax & Anr. reported in AIR 2020 SC 1189
: 2020 (17) SCC 254, the Hon'ble Supreme Court considered similar
issue and held as under:
8. No activities had been undertaken by the respondent Trust
before the application was made. The Commissioner rejected
the application on the sole ground that since no activities have
been undertaken by the trust, it was not possible to register it,
presumably because it was not possible to be satisfied about
whether the activities of the trust are genuine. The Income Tax
Appellate Tribunal, Delhi (for short, the Tribunal') reversed the
orders of the Commissioner. The Revenue Department
approached the High Court by way of filing an appeal. The High
Court upheld the order of the Tribunal and came to the
conclusion that in case of a newly registered trust even
though there was no activities, it was possible to consider
whether the trust can be registered under section 12AA of
the Act. This judgment is assailed before us.
9. Section 12AA undoubtedly requires the Commissioner to
satisfy himself about the objects of the trust or institution and
genuineness of its activities and grant a registration only if he
is so satisfied. The said section requires the Commissioner to
be so satisfied in order to ensure that the object of the trust
and its activities are charitable since the consequence of such
registration is that the trust is entitled to claim benefits under
sections 11 and 12 of the Act. In other words, if it appears that
the objects of the trust and its activities are not genuine that is
to say not charitable the Commissioner is entitled to refuse and
in fact, bound to refuse such registration.
10. It was argued before us that the Commissioner is required
to be satisfied about two things firstly that the objects of the
trust and secondly, its activities are genuine. If there have been
no activities undertaken by the trust then the Commissioner
cannot assess whether such activities are genuine and
therefore, the Commissioner is bound to refuse the registration
of such a trust. We have given our anxious consideration to
the above submissions made by Ms. Aishwarya Bhati, learned
Senior Counsel appearing for the appellant - Director of Income
Tax and find that it is not possible to agree with the same.
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.
11. 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.
14. Apparently, a contrary view has been taken by the
Kerala High Court in the case of Self Employers Service
Society vs. Commissioner of Income Tax (2001) Vol.247
ITR 18. That view however does not commend itself.
However, the facts in Self Employers Service Society (Supra)
suggest that the Commissioner of Income Tax had observed
that the applicant for registration as a Trust had undertaken
activities which were contrary to the objects of the Trust."
11. The aforesaid judgment in the case of M/s. Ananda Social and
Educational Trust (supra) and the judgement of Delhi High Court in
the case of Director of Income Tax vs. Foundation of Ophthalmic and
Optometry Research Education Centre (supra) have been affirmed by
the Hon'ble Supreme Court by judgment and order dated 01.09.2022
in Civil Appeal No.5103 of 2012 (Director of Income Tax
(Exemption), Bangalore Etc. Vs. Meenakshi Amma Endowment
Trust Etc.) holding as under:
"Delay condoned.
In view of the judgment of this Court in 'Ananda Social And
Educational Trust v. Commissioner of Income Tax and
Another', [(2020) 17 SCC 254], which judgment has approved
the view taken by the Delhi High Court in 'Director of Income Tax
v. Foundation of Ophthalmic & Optometry Research Education
Centre' [(2013) 355 ITR 361], the question of law raised in these
matters has to be answered against the Revenue and in
favour of the assessee.
Accordingly, the appeals and the special leave
"petitions are dismissed. However, dismissal of these cases
would not bar the Assessing Officer from cancelling the
registration in case he finds that the 'charitable activity' was not
undertaken, set up or established by the assessee.
Pending application(s), if any, shall stand disposed of."
12. Thus, from bare reading of the provisions of sub-Section (1) of Section
12A it is evident that 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, the Principal Commissioner or
Commissioner of Income Tax shall - call for such document or
information from the trust or institution as it thinks necessary in
order to satisfy himself about the genuineness of activities of the
trust or institution; and the compliance of such requirement of any
other law for the time being in force by the trust or institution as are
material for the purposes of achieving its object and may also make
such enquiries as he may deem necessary in this behalf; and after
satisfying himself about the objects of the trust or institution and
genuineness of its activities as required under sub-Clause (i) of
clause (a) and compliance of the requirement of sub-clause (ii) of
clause (a), he shall pass an order in writing registering the trust or
institution or if he is not satisfied then pass an order in writing
refusing to register the trust or institution. Thus 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 under Section 12A of the Act, 1961, 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
under Section 12AA of the Act 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.
13. For all the reasons afore-stated, we do not find any merit in this
appeal. The impugned order of the ITAT does not suffer from any
infirmity. Therefore, the appeal (ITA/111/2019) of the revenue is
dismissed. The substantial question of law is answered in favour of
the assessee and against the revenue.
(SURYA PRAKASH KESARWANI, J.)
(AJAY KUMAR GUPTA, J.)
As.
