CIT(E) Denies Registration to Trust Engaged in Fund-Raising Activities: ITAT sets aside Denial and directs Grant u/s 12AB [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) set aside the Commissioner of Income Tax (Exemptions)[CIT(E)]'s denial of registration to a trust engaged in fund-raising activities and granted registration under Section 12AB of Income Tax Act, 1961.

Rotary International District, appellant-assessee,was formed on 24-09-2020 and registered under the Bombay Public Trust Act, 1950. It received provisional registration from the CIT(E) on 27-05-2021 for the years 2020-21 to 2023-24. The trust applied for final registration under Section 12AB on 05-04-2023, but the CIT(E) rejected it.

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The rejection was based on fund-raising activities like coupon sales and a mega lucky draw, which were seen as business activities not aligned with the trust's charitable objectives, violating Section 12AB(4). The CIT(E) also cancelled the provisional registration.

Aggrieved by the decision the assessee appealed before the tribunal.

The tribunal carefully reviewed the materials on record, including the paper book and case laws cited. It was undisputed that the assessee trust organized a fund-raising program, "Adbhut Hungama," by selling donation coupons for ₹500 each and distributing prizes ranging from cars to tea mugs. The surplus generated was used to purchase medical equipment such as dialysis machines, CT scan machines, cataract operating equipment, and to establish blood and skin banks in Gujarat and Rajasthan.

The CIT(E) focused on the fund-raising activities but failed to address how the proceeds were used for charitable purposes. The tribunal noted that denying registration under Section 12AB based on these activities was against the provisions of the law. The CIT(E) did not dispute the charitable use of the funds for medical relief.

The appellate tribunal relied on a precedent where a High Court held that organizing events, such as Garba, to raise funds for charity did not constitute trade, commerce, or business if the dominant objective was charitable. Similarly, the one-time fund-raising activity by the appellant trust was not an organized business but a means to fulfill its charitable objectives.

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Citing judicial precedents, the tribunal ruled that the provisions of Section 13 of the Act could only be invoked during assessment, not during the grant of registration under Section 12AB. It also referenced cases where courts held that denying registration based on assumptions about future assessments was unjustified.

The two member bench comprising T.R.Senthil Kumar ( Judicial Member ) and Narendra Prasad Sinha ( Accountant Member ) concluded that the CIT(E)'s order denying registration and citing violations under Section 12AB(4) was incorrect. It set aside the order and directed the CIT(E) to grant the registration under Section 12AB.

To Read the full text of the Order CLICK HERE

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