Registration of trust U/s. 12AA cannot be denied by examining activities instead of objects
IN THE ITAT CHENNAI BENCH ‘A’
A.V.S. Educational Trust
IT Appeal Nos. 1911 & 1933 (Mds.) of 2012
January 18, 2013
Vikas Awasthy, Judicial Member
The present set of appeals i.e. ITA No.1911 & 1933/Mds/2012 have been filed by the assessee impugning the order of the Commissioner of Income Tax, Salem passed under section 12AA and 80G(5) (vi) of the Income Tax Act, 1961 respectively both dated 14.9.2012.
- Brief facts of the case are that the assessee is a trust created on 11.1.2012. The assessee had applied for registration under section 12AA on 27.3.2012. The Commissioner of Income Tax vide letter dated 28.3.2012 requested the assessee to furnish further details. As per the A.R. the details as sought were already furnished. However, vide letter dated 14.9.2012 the assessee gave further details with regard to school, number of students, teaching staff, non-teaching staff, bank account of the trust, etc. The A.R. appearing on behalf of the assessee submitted that at the time of registration the assessee had even provided account statement for the period from the date of creation of trust upto September, 2012. The school had started in June, 2012. Despite the fact that all the documents as required by the Commissioner were submitted, the CIT vide impugned order dated 14.9.2012 passed under section 12AA rejected the application of the assessee primarily on two counts:-
(i) Genuineness of the charitable activities of the trust ; &
(ii) Activities carried out in accordance with trust deed have not been established with documentary evidence.
The CIT referring to Board’s Circular no.762 dated 18.2.1998 held that the benefit of registration cannot be allowed to the trust in terms of the provisions of section 12AA (1)(b)(ii) of the Income Tax Act, 1961. The learned A.R. submitted that consequent to the order passed under section 12AA, the certificate of exemption under section 80G(5) was also denied by the CIT vide separate order dated 14.9.2012. Both the orders have been assailed by the assessee in two separate appeals. The A.R. stated that the CIT pre-judged the activities of the trust and school being run by the trust. It was too shorter period to assess the activities of the trust. The CIT did not raise any question regarding objects of the trust. A perusal of para 2.3 of the order under section 12AA shows that the main objection of the CIT was that no expenditure is shown towards charitable activity in the income and expenditure statement. In order to support his finding, the AR relied on the judgement of the Hon’ble Karnataka High Court in the case of DIT (Exemptions) v. Meenakshi Amma Endowment Trust  50 DTR (Kar) 243 and the judgement of the Hon’ble Delhi High Court in the case of DIT v. Foundation of Ophthalmic & Optometry Research Education Centre  210 Taxman 36. The learned AR has also referred to the judgement of Hon’ble Madras High Court in Tax Case Appeal No.337& 338/2011 decided on 13.12.2011 in the case titled DIT (Exemptions) v. JITO Chennai Chapterr  17 taxmann.com 261 wherein the Hon’ble High Court has observed as under:-
“4. A reference to Section 12AA of the Act would show that at the initial stage, there is an obligation on the part of the authority to find out and give his opinion about the genuineness of the activity of the society/trust. Inasmuch as the order of the Director of Income Tax (Exemptions) has not spoken anything about the genuineness of the Society, the rejection of the application, in our view, is not in accordance with law.”
The A.R. further pointed out that while rejecting the application for registration under section 12AA, the CIT has observed that the trust is not precluded from filing another application subsequently after obtaining necessary approval from the State Govt. authorities concerned along with statement of accounts showing earning of income and application for charitable purposes in accordance with the trust deed and satisfying other statutory requirements. The A.R. submitted that there is no provision for filing second application under the Act for registration as such the second application even if filed is not maintainable.
- The D.R. submitted that the education per se is not a charitable activity. He referred to object clauses of the trust deed to contend that clauses a, c, d and e of the Object Clause of the Trust deed are not charitable in nature. He strongly supported the order of the CIT rejecting the application of the assessee under section 12AA as well 80G(5) of the Act.
- We have heard the submissions made by both the parties. We have perused the orders of the CIT rejecting the applications of the assessee under section 12AA as well as 80G(5) of the Act. From the trust deed placed on record at page 1 to 8 of the paper book. The objects of the trust are reproduced herein below:-
(a) To support the cause of and spread education and to establish, administer and takeover schools, colleges viz., arts, science, engineering and medical technical institutes, polytechnics, hostels and other educational institutions.
(b) To provide for education, food, clothing and shelter to poor students irrespective of caste, creed, gender and community.
(c) To establish, administer, run, takeover computer coaching centres, nursery/primary/secondary schools, colleges, polytechnic, teachers’ training institutes, industrial training institutes, catering institutes, nursing colleges etc.
(d) To build or to assist in building schools, colleges, hospitals or other buildings in connection with or for the advancement of the objects of the trust and to maintain, alter and improve the same including existing buildings and to furnish and equip the same.
(e) To do such other things as may be required to further the attainment of the objects of the trust.”
A perusal of the object clauses show that the trust is being created for the purpose of spreading education and to establish school, college and other educational institutions etc.
- The term ‘charitable purpose’ is defined under section 2(15) of the Income Tax Act. The relevant extract of the provision is reproduced herein below:-
“charitable purpose” includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:”
- The Board Circular No.11 of 2008 dated 19.12.2008 relates to exemption under section 11 in case of assessee claiming both to be charitable institution as well as mutual organization. The relevant extract of the circular is reproduced herein below:-
“CIRCULAR NO. 11/2008, DATED 19-12-2008
Definition of ‘Charitable purpose’ under section 2(15) of the Income-tax Act, 1961
Section 2(15) of the Income Tax Act, 1961 (‘Act’) defines “charitable purpose” to include the following:-
(i) Relief of the poor
(iii) Medical relief, and
(iv) the advancement of any other object of general public utility.
An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of ‘charitable purpose’. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the ‘advancement of any other object of general public utility’ shall not be a charitable purpose if it involves the carrying on of –
(a) any activity in the nature of trade, commerce or business; or
(b) any activity of rendering any service in relation to any trade, commerce or business;
for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity.
- The following implications arise from this amendment –
2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities.”
- As per the circular where the purpose of the trust or institution is relief of the poor, education or medical relief, it will constitute charitable purposes even if it incidentally involves commercial activities. Thus, the object of providing education is charitable activity even if consequent to carry on of such activity the trust earns any benefit out of it.
- The Hon’ble Karnataka High Court in the case of Meenakshi Amma Endowment Trust(supra) has observed as under:-
“6. A trust could be formed today and within a week registration under s. 12A could be sought as there is no prohibition under the Act seeking such registration. The activities of the trust have to be considered if such registration is sought much later than the formation of the trust or after expiry of the earlier registration granted in favour of the trust. Therefore in a case of this nature where the trust has approached the authority for registration under s. 12A within a span of eight months of its formation, the above-mentioned criteria namely, the objects of the trust for which it was formed will have to be examined to be satisfied about its genuineness and activities of the trust cannot be the criterion, since it is yet to commence its activities.”
- The Hon’ble Delhi High Court in Foundation of Ophthalmic & Optometry Research Education Centre(supra) has held as under:-
“10. Facially, the above provision would suggest that there are no restrictions” of the kind which the Revenue is reading into in this case. In other words, the statute does not prohibit or enjoin the CIT from registering trust solely based on its objects, without any activity, in the case of a newly registered trust. The statute does not prescribe a waiting period, for a trust to. qualify itself for registration.
- If the Revenue’s contentions are correct then, necessarily, a condition would have to be read into the provision that the CIT should be satisfied that the trust is in fact engaged in charitable activities which would in turn inject considerable deal of subjectivity. It is quite possible that if such flexibility is introduced, it would be susceptible to varied interpretation by the different authorities, in that some would be satisfied with activity of few months, while others may wish to examine the activities of the organization for longer time. In this view of the matter, this Court is persuaded to follow the interpretation given to s. 12AA by the Karnataka High Court, in Director of IT (Exemptions)v. Meenakshi Amma Endowment Trust (supra).”
- From the perusal of the judgements cited above, it can be construed that the case of the assessee trust is squarely covered by the law laid down by the Hon’ble High Courts. A perusal of the order passed under section 12AA shows that CIT has not commented on the objects of the Trust. The CIT after examining the statement of accounts formed an opinion that since no expenditure towards any charitable activity is shown in the statement of accounts, therefore carrying out of genuine charitable activities is absent in this case. It would be relevant to mention here that the trust was formed on 11.1.2012, the application for registration under section 12AA was submitted by the appellant on 27.3.2012 i.e. within a period of three months of its creation. The school activities started in June, 2012, the appellant submitted its books of accounts upto September, 2012 before CIT. The CIT after examining the statement of accounts for such a short period, formed its opinion that the activities of trust are not charitable in nature. The CIT has not raised any objection on the objects of the trust. In our considered opinion, it was premature for CIT to judge the activities of the Trust by just glancing through the statement of accounts of the trust of such a short period.
- We, therefore, set aside the order of the CIT and direct the CIT to grant registration to the assessee trust under section 12AA of the Act. Consequent to the registration under section 12AA, we further direct the CIT to consider the application of the assessee for grant of initial certificate of exemption under section 80G(5) of the Income Tax Act.
- Resultantly, both the orders of the CIT are set aside and the appeals of the assessee are allowed.