The Supreme Court of India ruled that a trust’s eligibility for Section 12-AA registration should be determined based on its proposed activities rather than the actual charitable work undertaken before registration.
International Health Care Education and Research Institute (respondent), a registered trust engaged in education and medical aid, applied for registration under Section 12-AA of the Income Tax Act, 1961. The Commissioner of Income Tax (CIT) rejected the application, stating that there was no evidence of charitable activities undertaken by the trust.
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The trust then appealed before the Income Tax Appellate Tribunal (ITAT), which ruled in its favor, directing the CIT to grant registration. The Revenue Department challenged this decision in the Rajasthan High Court, which upheld ITAT’s order.
The Revenue Department, dissatisfied with the Rajasthan High Court’s ruling, approached the Supreme Court seeking a reconsideration of the legal interpretation of Section 12-AA. The Revenue’s counsel argued that the term “activities” in Section 12-AA should refer to actual charitable activities performed by a trust before seeking registration, rather than merely its intended or proposed activities.
The Revenue’s counsel argued that the existing Supreme Court precedent in Ananda Social and Educational Trust v. Commissioner of Income Tax (2020) 17 SCC 254, which allowed registration based on proposed activities, needed reconsideration.
Section 12-AA of the Income Tax Act, 1961, prescribes the procedure for registering a charitable or religious trust. It requires the Commissioner of Income Tax (CIT) to evaluate whether the objects of the trust are charitable and whether the activities (including proposed activities) are genuine. Registration under this section is necessary for a trust to claim income tax exemptions under Sections 10 and 11 of the Income Tax Act.
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The bench comprising Justices J.B. Pardiwala and R. Mahadevan clarified that a trust can be registered based on its proposed activities but such registration does not automatically grant tax exemptions. The Assessing Officer have the authority to review the actual activities of the trust during tax assessments and deny exemptions if the trust fails to engage in genuine charitable work.
The court held that requiring trusts to show actual charitable work before registration would defeat the purpose of Section 12-AA. The Supreme Court dismissed the Revenue’s petition, upholding the Rajasthan High Court’s ruling in favor of the respondent.
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