Gujarat High Court in an important case namely CIT vs Kutchi Dasa Oswal Moto Pariwar Ambama Trust has held that registration to a trust u/s 12AA cannot be denied merely on the ground that the activities of the trust are not yet started and therefore he cannot come to such conclusion that the activities of trust are ingenuine.
The Tribunal in this case reversed the decision of Commissioner who denied registration to the trust. The order of the tribunal is upheld by the High Court.
I found the observations of the Tribunal as based on very sound reasoning and the same are quoted in the judgement by the High Court. The Tribunal observed as follows:
"On perusal of orders of the Commissioner of Income-tax I find that the Commissioner was of the view that since there was no activity the assessee did not satisfy the condition about the genuineness of the activities, which in my view, is not correct. When there are no activities at all, then there is no question of holding that the activities were non-genuine. The genuineness of the activities only can be verified when there is some activity. In case where the assessee trust did not start charitable activity at the time of granting registration, the same can be verified from the object clause"
High Court upheld the order of the Triubunal and further held that Even though Commissioner has power to call for such documents or information from trust as he thinks necessary, yet it does not mean that if activities of trust have not commenced, Commissioner has authority to reject its application for registration on ground that trust failed to convince him about genuineness of activities
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The Tribunal in this case reversed the decision of Commissioner who denied registration to the trust. The order of the tribunal is upheld by the High Court.
I found the observations of the Tribunal as based on very sound reasoning and the same are quoted in the judgement by the High Court. The Tribunal observed as follows:
"On perusal of orders of the Commissioner of Income-tax I find that the Commissioner was of the view that since there was no activity the assessee did not satisfy the condition about the genuineness of the activities, which in my view, is not correct. When there are no activities at all, then there is no question of holding that the activities were non-genuine. The genuineness of the activities only can be verified when there is some activity. In case where the assessee trust did not start charitable activity at the time of granting registration, the same can be verified from the object clause"
High Court upheld the order of the Triubunal and further held that Even though Commissioner has power to call for such documents or information from trust as he thinks necessary, yet it does not mean that if activities of trust have not commenced, Commissioner has authority to reject its application for registration on ground that trust failed to convince him about genuineness of activities
FACTS
• The assessee made an application for registration under section 12A(1)(a) in prescribed form.
• The Commissioner noted from the trust deed that the objectives of the trust were mainly religious. The Commissioner issued a letter to the trust calling upon the trust to produce evidence regarding expenses incurred towards the objects of the organization and on activities carried out since its inception.
• In response to such letter, the trust submitted that there were no activities till 31-3-2010 as very limited time was left to carry out any activity during the year ending on 31-3-2010 and the actual activities would start during Navratri of the current year.
• The Commissioner took a view that since there was nothing on record from which the genuineness of the activities of the assessee trust could be established, the assessee's application for registration had to be rejected.
• The Tribunal, however, allowed the assessee's claim.
• On revenue's appeal :
HELD
• Under section 12AA, the Commissioner has to satisfy himself about the objectives of the trust and the genuineness of its activities. For such purpose, he has the power to call for such documents or information from the trust as he thinks are necessary. However, this does not mean that if the activities of the trust have not commenced, the Commissioner has authority to reject its application for registration on the ground that the trust failed to convince him about the genuineness of the activities. That is what unfortunately the Commissioner did in the present case.
• In that view of the matter, there was no error in the Tribunal's impugned order reversing the order of the Commissioner. It is of course true that even if the activities of the trust have not commenced, if the Commissioner has sufficient material in his command, he may still come to the conclusion that he is not satisfied about the objectives of the trust or the genuineness of its activities.
• In the present case, however, merely on the ground that the activities of the trust had not commenced, the Commissioner was persuaded to reject its application for registration, which was not appropriate and, therefore, rightly interfered by the Tribunal.
HIGH COURT OF GUJARAT
Commissioner of Income-tax -I
v.
Kutchi Dasa Oswal Moto Pariwar Ambama Trust*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 918 OF 2011
DECEMBER 10, 2012
Pranav G. Desai for the Appellant.
ORDER
Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Rajkot Bench ["Tribunal" for short] raising following question for our consideration :-
"Whether the Appellate Tribunal is right in law and on facts in directing to allow assessee's application for registration u/s. 12A of the Act ?"
2. Brief facts stated are as under :-
3. The respondent-assessee had made an application for registration under Section 12A(1)(a) of the Income-tax Act, 1961 ["Act" for short] in prescribed form. The Commissioner, however, by his order dated 29th September, 2010 rejected such application for registration. In his said order, he noted that from the Trust Deed, it emerges that the objectives of the Trust are mainly religious. The Commissioner had issued a letter to the Trust calling upon the Trust to produce evidence regarding expenses incurred towards the objects of the organization and on activities carried out since its inception. In response to such letter, it was submitted on behalf of the Trust that there were no activities till 31st March, 2010 as very limited time was left to carry out any activity during the year ending on 31st March, 2010 and the actual activities will start during Navratri of the current year. The Commissioner, however, rejected the application observing as under :-
"The reply of the assessee trust is not acceptable. The trust has not submitted any documentary evidence regarding its activities.
As a result of this, the department is totally in dark as to the actual activities carried out by the Trust since inception. Since, there is nothing on record from which the; genuineness of the activities of the assessee trust could be established, I hereby reject the assessee's application for registration under section 12A(a)."
2.2 Such order of the Commissioner was carried in appeal by the assessee before the Tribunal. The Tribunal, by its impugned order, allowed the appeal making following observations :-
"6. I have heard the learned representatives of the parties, record perused and gone through the decisions cited. The basis of rejection of assessee's application by the Commissioner is that the assessee could not start its activities till 31.03.2010. Except this, there were no other reasons for rejection of assessee's application. So far as the activities of the trust are concerned, section 12A lays down certain conditions for applicability of sections 11 & 12. Section 12A(1)(a) prescribed that the person in respect of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the prescribed period. Section 12AA provides the procedure for registration. The said section provides that Commissioner on receipt of an application for registration of trust shall call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust and may also make such enquiries as he may deem necessary in this behalf and after satisfying himself about the object of the trust and the genuineness of the activities, he may pass such order in writing registering the trust or refusing the registration of the trust. On plain reading of section 12AA, I find that at the time of granting registration, the Commissioner has limited power only to examine the object of the trust and genuineness of the activities of the trust and for that purpose he may call for such document or information from the trust. In the case under consideration, the Commissioner did not dispute about the charitable activities as indicated in the object clause of the assessee. On perusal of orders of the Commissioner of Income-tax I find that the Commissioner was of the view that since there was no activity the assessee did not satisfy the condition about the genuineness of the activities, which in my view, is not correct. When there are no activities at all, then there is no question of holding that the activities were non-genuine. The genuineness of the activities only can be verified when there is some activity. In case where the assessee trust did not start charitable activity at the time of granting registration, the same can be verified from the object clause."
3. Learned counsel for the Revenue vehemently contended that the Tribunal committed a serious error in reversing the order of the Commissioner. He drew our attention to the provisions contained in Section 12AA of the Act. He contended that it was well within the power of the Commissioner to examine the genuineness of the activities of the Trust.
4. Section 12A of the Act pertains to conditions of applicability of sections 11 & 12. Sub-section (1) thereof provides that provisions of sections 11 & 12 shall not apply in relation to the income of the Trust or institution unless (a) the person in receipt of the income has made application for registration of the Trust or institution in the prescribed manner before the Commissioner before 1st day of July, 1973 or before the expiry of period of one year from the date of creation of the Trust or institution; whichever is later and such Trust and Institution is registered under section 12AA of the Act.
3.2 Thus, to avoid applicability of sections 11 & 12 of the Act, a Trust would have to make an application for registration before the Commissioner before expiry of period of one year from the date of its creation and such Trust would have to be registered under section 12AA of the Act.
3.3 Section 12AA of the Act pertains to procedure for registration. Sub-section (1) thereof, which is relevant for our consideration, reads as under :-
"12AA. Procedure for registration - (1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) 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 the genuineness of activities of the tryst or institution 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, 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.
[1A] All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were 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 months from the end of the month in which the application was received under clause (a) or clause (aa) of sub-section (1) of section 12A.
(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution :
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard."
4. Upon perusal of the provisions of sub-section (1) of section 12AA of the Act, it emerges that upon receipt of an application for registration of a Trust or Institution under section 12A(1) (a) of the Act, the Commissioner would call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf. After satisfying himself about the objectives of the trust or institution and the genuineness of its activities, the Commissioner would pass an order in writing registering a trust or institution, and if he is not satisfied, would pass an order in writing refusing the registration of the trust or institution.
5. It can thus be seen that under section 12AA of the Act, the Commissioner has to satisfy himself about the objectives of the trust and the genuineness of its activities. For such purpose, he has the power to call for such documents or information from the trust as he think are necessary. However, this does not mean that if the activities of the trust have not commenced, the Commissioner has authority to reject its application for registration on the ground that the Trust failed to convince him about the genuineness of the activities. That is what unfortunately the Commissioner did in the present case. In that view of the matter, we see no error in the Tribunal's impugned order reversing the order of the Commissioner. It is of course true that even if the activities of the trust have not commenced, if the Commissioner has sufficient material in his command, he may still come to the conclusion that he is not satisfied about the objectives of the Trust or the genuineness of its activities. We understand the decision of the Tribunal accordingly.
6. In the present case, however, merely on the ground that the activities of the Trust had not commenced, the Commissioner was persuaded to reject its application for registration, which in our opinion, was not appropriate and therefore, rightly interfered by the Tribunal.
7. No question of law arises. Tax Appeal is, therefore, dismissed.
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