Denial of permanent registration to the trust on the reason that “no credible evidence is furnished” and way forward
There are a lot of cases wherein the application for permanent registration has been done by the trust for the first time after they have got the provisional registration. In many cases, one notice was issued asking to submit more information for permanent registration. All the trusts who are in a nascent stage and have carried out the activities on a smaller basis are denied the registration for the reason that no “credible evidence” has been furnished.
Before discussing on the future course of action, let us discuss one case here which was before ITAT Delhi, as under:
Federation of Delhi Textile Merchants vs ITO (Exemption) (ITA No. 7807/Del/2019)
- The appellant filed an application electronically on 24/01/2019 in Form No. 10G seeking exemption u/s 80G of the IT Act. When the Commissioner (Exemption) sought justification of the expenses incurred, seminar bills along with hotel bills were submitted, which also contained payments made for consumption of liquor.
- The Commissioner (Exemption) held that the activity involving serving of liquor cannot be set to be charitable, usage of money collected from donors is to be utilized for welfare of the general public, not for enjoyment of people enjoying the state of affairs of the federation.
- Accordingly it was concluded that the activity involving serving of liquor cannot be set to be charitable, usage of money collected from donors is to be utilized for welfare of the general public, not for enjoyment of people enjoying the state of affairs of the federation. However, the details of clarification/reply given by the Applicant in the order have not been mentioned in the order.
ITAT New Delhi held as below:
- The Ld. Commissioner of Income Tax (Exemption) has relied on various bills of the Appellant wherein the service of liquor has been mentioned, but the Ld.CIT(A) has not mentioned the details of clarification/reply given by the Applicant in the order impugned and not adjudicated the reply given by the Applicant. The order of the Ld. CIT(A) is a non speaking one.
- Therefore, the matter is set aside to the file of CIT (Exemption) to decide the matter afresh in accordance with law and pass appropriate speaking order. Needless to say that an opportunity of being heard be given to the Appellant herein.
In short, non adjudication of the reply given by the applicant could be considered as improper and unwarranted.
The ratio of the above judgement can be applied wherein the permanent registration has been denied without considering the detailed submission and reply done by the assessee trust.
There are various other judgments in the earlier regime of charitable trust wherein it has been held that the registration cannot be denied for the reason that substantial activities have not been carried out by the trust. All such cases would be relevant in all such cases where permanent registration has been denied for non submission of credible evidence.
Now, what’s the way out wherein the registration has been denied to the trust for want of credible evidence? Ideal way out could be to approach ITAT for a direction to the CIT (E) that the application need not be denied without specifically asking the credible evidence and without verifying it. In majority of the cases, the permanent registration application has been denied without specific “Show Cause Notice” for credible evidence.
At ITAT, one can demand the restoration of the file to the CIT (E) for re-verification of the specific credible evidence which shows that the activity has been undertaken by the trust. The counsel in ITAT needs to request the ITAT to ask the CIT to verify not the number of charitable activities but even one charitable activity has been undertaken.
The trust may note that the ITO verification report has not been called for in various cases wherein the trust has applied for permanent registration. In the earlier regime of trust registration, the verification used to be carried out by the ITO (Exemption) which is missing in the new regime of trust registration. The question remains, without ITO (Exemption) report, how one can form an opinion that “no credible evidence” exists for granting the permanent registration.
Let us hope that CBDT also comes out with a little soft corner for the charitable trusts who are doing noble tasks for the society.