Whether a newly trust registered under 12AA without starting any charitable activities

ANANDA SOCIAL AND EDUCATIONAL TRUST (APPELLANT) VS. THE COMMISSIONER OF INCOME TAX (RESPONDENTS) 
SUPREME COURT OF INDIA
DATED: 19/02/2020

QUESTION

Whether High Court erred in holding that newly registered Trust was entitled for registration under Section 12AA of Income Tax Act, 1961 Act on basis of its objects, without any activity having been undertaken?

BRIEF FACTS

1. The Trust was formed as a society and it applied for registration. 

2.  No activities had been undertaken by the Respondent Trust before the application was made. 

3.  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. 

4. The Income Tax Appellate Tribunal reversed the orders of the Commissioner. 

5. The Revenue Department approached the High Court by way of filing an appeal. 

6. 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 were no activities, it was possible to consider whether the Trust could be registered under Section 12AA of the Act.

JUDGEMENT OF THE APEX COURT

7.  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 objects of the Trust are genuine and that its activities are in furtherance of the objects of the Trust that is equally genuine. 

8.  Since Section 12AA pertains to the registration of the Trust and not to assess of what a Trust had actually done, the term activities in the provision includes proposed activities. That was to say, a Commissioner was bound to consider whether the objects of the Trust were genuinely charitable in nature and whether the activities which the Trust proposed to carry on were genuine in the sense that they were in line with the objects of the Trust. 

9. 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. 

10. There the Commissioner would be bound to record the finding that an activity or activities actually carried on by the Trust were not genuine being not in accordance with the objects of the Trust.

11.  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. 

12.  Therefore the view of the High Court in the impugned judgment was correct and liable to be upheld.

DISCLAIMER: The case law presented here is only for sharing information with the readers. The views are personal ,shall not be considered as professional advice. In case of necessity do consult  with professionals.

FOOTNOTE
SECTION 12AA OF INCOME TAX ACT, 1961

Procedure for registration

12AA. (1) The Principal Commissioner or Commissioner, 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, 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 trust 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 Principal Chief Commissioner or 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 Principal Commissioner or Commissioner and the Principal Commissioner or 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) 28[or clause (ab)] 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) or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) and subsequently the Principal Commissioner or 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) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution:
Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner.