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Judgment
R. Sudhakar, J.—This Tax Case (Appeal) is filed at the instance of the Revenue as against the order of the Tribunal raising the following substantial question of law:
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that assessee trust is entitled to registration under s. 12AA?"
The Director of IT (Exemptions), Chennai appears to have been on the wrong premise in the whole case where the respondent/assessee seeks registration under s. 12AA of the IT Act as a charitable institution. At the outset we would like to point out a specific line in the order, which has been totally misquoted or misconstrued by the original authority, which reads as follows:
"As per r. 17A r/w s. 17B, audited accounts of the last 3 years should have been enclosed in Form No. 10B."
We find, r. 17B of the IT Act (sic-Rules) is not applicable in the case of charitable institution and further assuming r. 17B of the IT Rules is made applicable and it has been wrongly quoted as r. 17B, still then, rr. 17A and 17B stand mutually excluded and we give reasons hereunder.
The assessee/respondent herein is a trust. The trust was constituted under a trust deed dt. 17th Nov., 2008 and was registered on 2nd Dec., 2009. An application in Form 10A for registration under s. 12AA of the IT Act was filed on 22nd May, 2012. In response to the questionnaire dt. 17th Aug., 2012, the authorised representative of the assessee has submitted a reply on 4th Sept., 2012 enclosing certain details. The Director of IT (Exemptions) found fault with the language in the trust deed and held that the present trust cannot act as a trustee in another trust or institution. The authority also held that for more than four years, there was no activity worth its name undertaken by the trust except some small amount of donation and the accounts submitted along with Form 10A are not audited accounts for three years, as prescribed in Form 10B and therefore, the Director of IT (Exemptions) rejected the registration.
Aggrieved by the same, the assessee preferred an appeal before the Tribunal.
The Tribunal, on an analysis of the materials placed, held that the Director of IT (Exemptions) had not pointed out as to how the objects of the trust as not charitable or the activities of the trust as not genuine. In so far as the issue relating to filing of audited accounts for three years as required in Form 10B, the Tribunal held that the non-filing of audited accounts does not make any difference and that does not make the trust ineligible for registration. Accordingly, the Tribunal allowed the appeal.
Aggrieved by the order of the Tribunal, the Revenue has preferred the present Tax Case (Appeal).
Heard Mr. J. Narayanaswamy, learned standing counsel appearing for the appellant at length and perused the materials placed before this Court.
We find that the issue involved in this appeal is covered by the provisions of r. 17A of the IT Rules, which reads as follows:
"17A. Application for registration of charitable or religious trusts etc.-An application under cl. (aa) of sub-s. (1) of s. 12A for registration of a charitable or religious trust or institution shall be made in duplicate in Form No. 10A and shall be accompanied by the following documents, namely:
(a) where the trust is created, or the institution is established, under an instrument, the instrument in original, together with one copy thereof; and where the trust is created, or the institution is established, otherwise than under an instrument, the document evidencing the creation of the trust or the establishment of the institution, together with one copy thereof:
Provided that if the instrument or document in original cannot conveniently be produced, it shall be open to the CIT to accept a certified copy in lieu of the original;
(b) where the trust or institution has been in existence during any year or years, prior to the financial year in which the application for registration is made, two copies of the accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up."
All that is required to be submitted at the time of application for registration is that the institution should produce certified document evidencing creation of trust with two copies of the accounts of the trust or the institution relating to the previous year or years.
In this case, the accounts have been submitted in Form 10A. It is admitted by the original authority that the application has been enclosed with documents as required in Form 10A. The invocation of r. 17B (wrongly quoted as s. 17B) would apply in a case where the charitable institution was registered under s. 12AA of the IT Act.
Sec. 12A of the IT Act reads as follows:
"12A. Conditions for applicability of ss. 11 and 12.-(1) The provisions of s. 11 and s. 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:
(a) the person in receipt 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 CIT before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under s. 12AA:
Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of ss. 11 and 12 shall apply in relation to the income of such trust or institution,--
(i) from the date of the creation of the trust or the establishment of the institution if the CIT is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;
(ii) from the first day of the financial year in which the application is made, if the CIT is not so satisfied;
Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;
(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the CIT and such trust or institution is registered under s. 12AA;
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of s. 11 and s. 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-s. (2) of s. 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of ss. 11and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made."
Sec. 12AA of the IT Act reads as follows:
"12AA. Procedure for registration.-(1) The CIT, on receipt of an application for registration of a trust or institution made under cl. (a) or cl. (aa) of sub-s. (1) of s. 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-cl. (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
(1A) All applications, pending before the Chief CIT on which no order has been passed under cl. (b) of sub-s. (1) before the 1st day of June, 1999, shall stand transferred on that day to the CIT and the CIT 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 cl. (b) of sub-s. (1) shall be passed before the expiry of six months from the end of the month in which the application was received under cl. (a) or cl. (aa) of sub-s. (1) of s. 12A.
(3) Where a trust or an institution has been granted registration under cl. (b) of sub-s. (1) or has obtained registration at any time under s. 12A (as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) and subsequently the CIT 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."
In this case, the respondent/assessee is yet to obtain registration under s. 12AA of the IT Act. Therefore, r. 17B of the IT Rules has no application for the present. If the respondent/assessee satisfies the requirement of r. 17A and had submitted Form 10A along with requisite documents, the assessee is entitled to seek registration under s. 12AA of the IT Act, unless there is some material to decline such registration as is provided in the said section. The original authority has not recorded his subjective satisfaction in this case. Also, the reasoning given by the authority is not in consonance with the provisions of law. The original authority declined registration on the ground that the assessee had spent only small amounts towards charitable activities. The bona fides of the trust should not be doubted on this ground. The authority has to test the nature and the activity of the trust to grant registration. In the present case, the original authority has not doubted the bona fides of the trust or the activity of the trust, but on the ground that the trust had spent low quantum towards charitable activity, the authority had declined registration of the trust. A trust can only do activities within its financial capability. A trust is not measured by its financial clout but by its philanthropic disposition.
The finding that no activity worth its name was undertaken by the assessee is untenable. This Court has already considered such plea in Tax Case (Appeal) No. 579 of 2013, dt. 27th Jan., 2014 in the case of Director of Income Tax Exemptions Vs. M/s. Seervi Samaj Tambaram Trust, and held as follows:
"9. In the present case also, the Revenue only questions the trust not having commenced its activity for the grant of registration. The provision under s. 12AA of the IT Act does not stipulate such a condition for grant of registration. On the other hand, s. 12AA(1) contemplates satisfaction of the CIT about the objects of the trust and the genuineness of the activities and make such enquiry as may be necessary for the purpose of grant of registration. In so considering the application, the CIT has to give an opportunity to the assessee as provided for under proviso to sub-s. (1) of s. 12AA. Under sub-s. (3) of s. 12AA, the CIT is given power to cancel the registration, if he is satisfied that the objects of such trust are not genuine or not being carried on in accordance with the objects of the trust. When such an authority is vested with the CIT to cancel the registration in the event of the trust not being carried on in accordance with the objects of the trust, we do not find any ground to say that merely on the date of the application, the assessee trust had not commenced its activities, hence, registration could not be granted. It is not denied by the assessee that on the date of the application under s. 12AA, it was yet to commence its operation. But nevertheless the genuineness of the objects of the trust were not questioned by the CIT. Considering the fact that the continuance of registration is further a subject-matter of scrutiny by the CIT as contemplated under s. 12AA(3) of the IT Act, we do not think that the Revenue would be justified in refusing the registration at the threshold. The Tribunal had followed the decision of the Gujarat High Court in the case of Commissioner of Income Tax-I Vs. Kutchi Dasa Oswal Moto Pariwar Ambama Trust, . We respectfully agree with the decision of the Gujarat High Court."
In such view of the matter, the interpretation given by the original authority declining to register the trust has no legal basis. Hence, we find that the Tribunal is justified in setting aside the order of the original Authority. In the result,--
(i) we hold that the Tribunal is correct in allowing the appeal filed by the assessee and the order of the Tribunal dt. 24th May, 2013 is confirmed.
(ii) Consequently, the question of law is answered against the Revenue and this appeal is dismissed. No costs.