Income Tax Appellate Tribunal (ITAT): The Bench of Inturi Rama Rao (Accountant Member) and Partha Sarathi Chaudhary (Judicial Member), decided whether registration under Section 12 AA can be denied for non-payment of taxes on donations received.
Instant appeal emanated from the Order of the CIT (Exemption), Pune passed under Section 12AA (1)(b)(ii) of the Income Tax Act, 1961 on the following grounds:
- CIT (E) erred in rejecting the registration under Section 12 AA of the Income Tax Act.
- Further, CIT (E) erred in law and on facts that voluntary contributions received by the charitable trust are not income as defined vide Section 2(24) (iia) of the Act.
- CIT (E) erred in not giving a reasonable opportunity of being heard while rejecting the application made under Section 12AA (1)(b)(ii) of the Act.
- Assessee craves right to add, alter or modify any grounds of appeal before or at the time of hearing of the appeal.
Factual Matrix
Assessee made online application form for approval of the Trust/Institution under Section 12 AA of the Act under the category of Religious cum Charitable trust/Institution. The said application was rejected by CIT (E).
CIT (E) opined that the voluntary contributions collected by the assessee trust formed a part of the corpus funds of the trust and hence, it is an income of the assessee. Thus, on the said income, the assessee trust was liable to pay tax as per law. Since the requisite taxes were not paid by the assessee, the CIT (E) opined that the requirement of Section 12 AA of the Act i.e. satisfaction of the Commissioner about objects of the Trust and the genuineness of the activities of the trust could not be determined and hence, the said application for registration under Section 12 AA of the Act of the assessee was rejected.
Analysis, Law and Decision
In Tribunal’s opinion, the provisions of Section 12AA of the Act provides that CIT(E) at the time of granting registration to assessee trust or society shall look into the objects of the trust/society and be satisfied with the genuineness of the activities carried out by such applicant trust/society at the time of granting registration under Section 12AA of the Act.
Whether any tax had accrued to be paid or whether such taxes have been paid or not are to be looked into at the stage of assessment proceedings.
Allahabad High Court in Fifth Generation Education Society v. CIT, (1990) 185 ITR 634 (All) held that,
“the Commissioner is not to examine the application of income at the stage of application made by assessee for granting registration u/s.12AA of the Act. The Commissioner may examine whether the application was made in accordance with the requirements of Section 12AA r.w.r 17A and whether Form 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At that stage, it is not proper to examine the application of income.”
In the case of Kai Shri Mahadebrao Naykude Dnyanvikas Prabhodhini Trust v. Commissioner of Income Tax (Exemption) (2020) 208 TTJ (Pune) 296, it was observed that,
when the objects of the trust were not disputed by the Department, nor they have disputed genuineness of activities of the assessee trust, then non filing of return u/s. 139(4A) of the Act cannot be the ground to deny registration u/s.12AA of the Act to the assessee. It is only at the assessment proceedings, the Assessing Officer can take appropriate steps as per law regarding the non-filing of return. However, at the time of granting registration, the object of the assessee trust has to be looked into and genuineness of the activities of the assessee trust should be considered.
In the present matter, registration was not granted under Section 12AA of the Act since taxes were not paid on the donations received by the assessee trust. It is always left to the Assessing Officer to take appropriate steps at the time of assessment proceedings with regard to payment of taxes and application of income of the trust/society.
Bombay High Court in the case of CIT v. Manekji Mota Charitable Trust (2019) 267 TAXMAN 0016 (Bombay) has held “at the time of the registration of the trust u/s.12A, the question of application of income of the trust is premature.” Thus, whether taxes are due to be paid on any income received that issue has to be looked into only at the time of assessment proceeding.
In the instant case, the objects of the trust were not doubted by the Department, and they have also not disputed the charitable nature of the activities conducted by the assessee trust.
Therefore, Tribunal held that the present matter was not a fit case for rejection of application for registration under Section 12 AA of the Act and no findings were laid down stating the activities carried out by the assessee were not genuine.
“…just because, the taxes were not paid on the donations/voluntary contributions received cannot be the ground for rejection of application u/s.12AA of the Act. These things can be examined by the Department and scrutinized at the assessment stage. When all the requirements of registration u/s.12AA of the Act have been satisfied by the assessee trust, registration therein should be granted.”
Hence, the order of CIT (E) was set aside, and the Department was directed to grant registration under Section 12 AA of the Act to asseessee trust. [Shree Lakadipool Vitthal Mandir v. CIT (E), ITA No. 568/PUN/2020, decided on 25-5-2021]
Assessee by: Shri Abhay Shastri
Revenue by: Shri Deepak Garg