M/S. ANANDA SOCIAL AND EDUCATIONAL TRUST versus THE COMMISSIONER OF INCOME TAX & ANR. on 19 February 2020

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CIVIL APPEAL NO(S).5437-5438/2012

We have heard learned counsel appearing for the parties andEperused the impugned Judgment(s) and Order(s) passed by the HighCourt of Karnataka.

In our considered view, the reasons assigned by the High Court inpassing the impugned judgment(s) and order(s) need no interference asthe same are in consonance with law.

FAccordingly, there is no merit in these appeals and they aredismissed.

CIVIL APPEAL NO.4702/2014

This appeal has been preferred by the appellant - Director ofGIncome Tax against the impugned judgment and order passed by theDelhi High Court holding that a newly registered Trust is entitled forregistration under section 12AA of the Income Tax Act, 1961 (for short,the ‘Act’) on the basis of its objects, without any activity having beenundertaken. Section 12AA of the Act reads as follows :

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“12AA. Procedure for registration. - (1) The [PrincipalCommissioner or] Commissioner, on receipt of an application forregistration 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 orinstitution as he thinks necessary in order to satisfy himself aboutthe genuineness of activities of the trust or institution and mayalso make such inquiries as he may deem necessary in this behalf;and (b) after satisfying himself about the objects of the trust or institutionand the genuineness of its activities, 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 refusingto 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 passedunless the applicant has been given a reasonable opportunityof being heard.

(1A) All applications, pending before the [Principal ChiefCommissioner or] Chief Commissioner on which no order hasbeen passed under clause (b) of sub-section (1) before the 1stday of June, 1999, shall stand transferred on that day to the[Principal Commissioner or] Commissioner and the [PrincipalCommissioner or] Commissioner may proceed with suchapplications under that sub-section from the stage at which theywere on that day.

(2) Every order granting or refusing registration under clause (b)of sub-section (1) shall be passed before the expiry of six monthsfrom the end of the month in which the application was receivedunder clause (a) or clause (aa) or clause (ab) of sub-section (1)of section 12A.

(3) Where a trust or an institution has been granted registrationunder clause (b) of sub-section (1) or has obtained registration atany time under section 12A [as it stood before its amendment bythe Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently the A

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A[Principal Commissioner or] Commissioner is satisfied that theactivities of such trust or institution are not genuine or are notbeing carried out in accordance with the objects of the trust orinstitution, as the case may be, he shall pass an order in writingcancelling the registration of such trust or institution:

BProvided that no order under this sub-section shall be passed unlesssuch trust or institution has been given a reasonable opportunityof being heard.

[(4) Without prejudice to the provisions of sub-section (3), wherea trust or an institution has been granted registration under clauseC(b) of sub-section (1) or has obtained registration at any timeunder section 12A [as it stood before its amendment by the Finance(No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed thatthe activities of the trust or the institution are being carried out ina manner that the provisions of sections 11 and 12 do not apply toexclude either whole or any part of the income of such trust orDinstitution due to operation of sub-section (1) of section 13, then,the Principal Commissioner or the Commissioner may by an orderin writing cancel the registration of such trust or institution:

Provided that the registration shall not be cancelled under thissub-section, if the trust or institution proves that there was aEreasonable cause for the activities to be carried out in the saidmanner.]

The above section provides for registration of a trust. Suchregistration can be applied for by a trust which has been in existence forsome time and also by a newly registered trust. There is no stipulationFthat the trust should have already been in existence and should haveundertaken any activities before making the application for registration.

In brief, section 12AA of the Act empowers the PrincipalCommissioner or the Commissioner of the Income Tax on receipt of anapplication for registration of a trust to call for such documents as mayGbe necessary to satisfy himself about the genuineness of activities ofthe trust or institution and make inquiries in that behalf; it empowers theCommissioner to thereupon register the trust if he is satisfied about theobjects of the trust or institution and genuineness of its activities.

In the present case, the trust was formed as a society onH30.05.2008 and it applied for registration on 10.07.2008 i.e. within aperiod of about two months.

No activities had been undertaken by the respondent Trust beforethe application was made. The Commissioner rejected the applicationon the sole ground that since no activities have been undertaken by thetrust, it was not possible to register it, presumably because it was notpossible to be satisfied about whether the activities of the trust aregenuine. The Income Tax Appellate Tribunal, Delhi (for short, the‘Tribunal’) reversed the orders of the Commissioner. The RevenueDepartment approached the High Court by way of filing an appeal. TheHigh Court upheld the order of the Tribunal and came to the conclusionthat in case of a newly registered trust even though there was noactivities, it was possible to consider whether the trust can be registeredunder section 12AA of the Act. This judgment is assailed before us.

Section 12AA undoubtedly requires the Commissioner to satisfyhimself about the objects of the trust or institution and genuineness of itsactivities and grant a registration only if he is so satisfied. The said sectionrequires the Commissioner to be so satisfied in order to ensure that theobject of the trust and its activities are charitable since the consequenceof such registration is that the trust is entitled to claim benefits undersections 11 and 12 of the Act. In other words, if it appears that theobjects of the trust and its activities are not genuine that is to say notcharitable the Commissioner is entitled to refuse and in fact, bound torefuse such registration.

It was argued before us that the Commissioner is required to besatisfied about two things – firstly that the objects of the trust and secondly,its activities are genuine. If there have been no activities undertaken bythe trust then the Commissioner cannot assess whether such activitiesare genuine and therefore, the Commissioner is bound to refuse theregistration of such a trust.

We have given our anxious consideration to the above submissionsmade by Ms. Aishwarya Bhati, learned Senior Counsel appearing forthe appellant – Director of Income Tax and find that it is not possible toagree with the same. The purpose of section 12AA of the Act is toenable registration only of such trust or institution whose objects andactivities are genuine. In other words, the Commissioner is bound tosatisfy himself that the object of the Trust are genuine and that its activitiesare in furtherance of the objects of the Trust, that is equally genuine.

Since section 12AA pertains to the registration of the Trust andnot to assess of what a trust has actually done, we are of the view that AB

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Athe term ‘activities’ in the provision includes ‘proposed activities’. Thatis to say, a Commissioner is bound to consider whether the objects ofthe Trust are genuinely charitable in nature and whether the activitieswhich the Trust proposed to carry on are genuine in the sense that theyare in line with the objects of the Trust. In contrast, the position would bedifferent where the Commissioner proposes to cancel the registration ofBa Trust under sub-section (3) of section 12AA of the Act. There theCommissioner would be bound to record the finding that an activity oractivities actually carried on by the Trust are not genuine being not inaccordance with the objects of the Trust. Similarly, the situation wouldbe different where the trust has before applying for registration found toChave undertaken activities contrary to the objects of the Trust.

We therefore find that the view of the Delhi High Court in theimpugned judgment is correct and liable to be upheld.

Ms. Bhati, learned Senior Counsel for the appellant, fairly drewour attention to a judgment of the Allahabad High Court in IT AppealDNo.36 of 2013 titled as “Commissioner of Income Tax-II vs. R.S. BajajSociety” which has taken the same view as that of the Delhi High Courtin the impugned judgment. The Allahabad High Court has also referredto a similar view taken by the High Courts of Karnataka and Punjab &Haryana.E

Apparently, a contrary view has been taken by the Kerala HighCourt in the case of Self Employers Service Society vs. Commissionerof Income Tax – (2001) Vol.247 ITR 18. That view however does notcommend itself. However, the facts in Self Employers Service Society(Supra) suggest that the Commissioner of Income Tax had observedFthat the applicant for registration as a Trust had undertaken activitieswhich were contrary to the objects of the Trust.

In the result, we find that there is no reason to interfere with theimpugned judgment of the High Court of Delhi. The appeal is, accordingly,dismissed.GCIVIL APPEAL NO.1727/2020 (@SLP(C) NO.25761/2015)

Leave granted.

In this case, the Trust which applied for registration under section12AA of the Income Tax Act, 1961, was found not to have spent anypart of its income on charitable activities. The Commissioner of IncomeHTax, therefore, refused the registration of Trust.

The Income Tax Appellate Tribunal reversed the decision of theCommissioner of income Tax on the basis of the judgment of the DelhiHigh Court in matters referred to above.

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For the reasons stated earlier, we are of the view that the objectof the provision in question is to ensure that the activities undertaken bythe Trust are not contrary to its objects and that a Commissioner isBentitled to refuse registration if the activities are found contrary to theobjects of the Trust.

In the present case, what has been found is that the Trust had notspent any amount of its income for charitable purposes. This is a case ofnot carrying out the objects of the Trust and not carrying on activitiescontrary to its object. These circumstances may arise for many reasonsincluding not finding suitable circumstances for carrying on activities.Undoubtedly the inaction in carrying out charitable purposes might alsobecome actionable depending on other circumstances; but we are notconcerned with such a case here.

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In these circumstances, we leave it upon the Commissioner ofIncome Tax to consider the issue by exercising his powers under sub-section (3) of section 12AA, if the facts justify such actions.

The appeal is, however, dismissed.

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Devika Gujral

Appeal dismissed.

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