Activities of the trust cannot be the deciding factor while granting registration u/s 12A of Income Tax Act: ITAT [Read Order]

The Raipur bench of the Income Tax Appellate Tribunal held that Activities of the trust cannot be the deciding factor while granting registration.

The assesse filed the appeal on the grounds that the Commissioner of Income Tax Appeals [CIT(A)] erred in rejecting the application for registration of the appellant and the CIT(A) also erred in observing that the Appellant was engaged in the activities similar to “any activity in the nature of trade, commerce or business ”.

the assessee applied for registration under Section 12AA of the Income Tax Act, 1961  however, the Commissioner of Income Tax (Exemption) [CIT(E)] rejected the application of the assessee stating that the assessee is not engaged in any charitable activities, the assessee is indeed engaged in advancement of any other object of general public utility, which are far exceeds the allowed limit of 20%. Thus, the assessee appealed before the tribunal.

It was submitted that the assessee is registered under Public Trust Act by SDO, Kharasia on 29.12.1978, copy of order furnished in assessee’s Paper Book. The sole basis for rejection of the application under Section 12AA by the CIT(E) that the activities of the trust are in the nature of advancement of any other object of general public utility shall not be a charitable purpose.

Moreover, the assessee contended that while granting the registration under Section 12A of the Income Tax Act, activities of the trust should not have been looked into, instead the objects of the trust should have been the basis that whether the same are genuinely charitable in nature or not.

On this aspect the Assessee Representative (AR) relied on the judgment in the case of Ananda Social & Educational Trust V. CIT.

It was further submitted that the major income of the trust was from interest on FDR, the amount of interest for the year under consideration i.e. AY 2016-17 was Rs. 5.98 Lac out of total surplus of Rs. 13.13 Lac, thus, the finding of CIT(E) that the trust has high surplus from its activities was not based on correct appreciation of facts.

It was also submitted that the assessee trust has filed another application seeking registration under Section 12AA on 06.10.2020, on the same facts of the assessee trust, the same was accepted by the department and granted 12AA on 25.03.2021

Therefore, it was contented that the department cannot take 2 stands on the same issue, accordingly, the order of rejection CIT(E) towards the application made on 21.03.2016 by the assessee trust was under mistaken belief and deserves to be quashed.

On the other hand, it was submitted that refuting the contention of the assessee that an undertaking for dissolution was filed by the assessee is not emanated from the order of CIT(E) since there is no mention about such a submission by the assessee.

After hearing both the parties, the tribunal came to the conclusion that since the actual activities of the trust cannot be the deciding factor while granting the registration under Section 12A but the object of the trust should have been looked into, the activities have to be looked into by the Assessing Officer at the time of assessment proceedings.

The two bench members consisting of Ravidh Sood  and Arun Khodpia held that the rejection of application for registration under Section 12AA of the Income Tax Act by the CIT(E) was an erroneous application of law, thus, cannot sustain, accordingly quashed the same and directed to grant registration to the assessee as per law. Thus, the appeal was allowed.

To Read the full text of the Order CLICK HERE
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