What if the Permanent Registration of the Trust is Rejected
The registration mode of the charitable trusts have gone sea change by the Finance Act-2020 whereby the concept of provisional registration and permanent registration was introduced in the Income Tax Act-1961.
The provisional registration has been instantly granted by the department without much verification or inspection. However, the permanent registration is not so easily granted for the new trust. The same detailed methodology as was prevailing earlier has been followed and the registration is denied with following general observation:
“1. The assessee has filed application No.CIT EXEMPTION, ****/2022- 23/12AA/**** in Form No.10AB under clause (iii) of section 12A(1)(ac) of the Income Tax Act, 1961 on 29/03/2022.
- The application was carefully perused and considered along with its annexures. With a view to verify the genuineness of activities of the assessee, a notice was issued through ITBA portal on **/**/2022 requesting him to upload certain other information / clarification by **/**/2022. Another opportunity was given to the assessee vide notice dated **/**/2022 requesting him to submit his compliance by **/**/2022. The assessee was specifically informed that in the event of failure to comply by the due date, the matter will be decided based on material available on record. Both these notices were duly served on the assessee through e-portal / email.
- The assessee was specifically requested vide the initial notice to furnish the details of activities carried out during the last 3 years or since inception whichever is later along with supporting credible evidence. In response, the assessee submitted its reply on **/**/2022 * **/**/2022.
On verification of the details submitted, it is observed that the assessee did not submit any credible evidence to establish that the assessee is carrying on of the activity, the evidences submitted regarding monetary help distribution are cryptic and no criteria is mentioned for identifying the needy persons..
3.1 The assessee was given opportunity of being heard vide notice dated 11.09.2022. However, the assessee did not appear for the same. In the absence of any credible evidence, the undersigned is unable to draw any satisfactory conclusion about genuineness of activities of the assessee.
- In view of the above, the application filed by the assessee is hereby rejected.”
One may note that in most of the cases the query letter was issued after the 4 months or 5 months of filing of the application for permanent registration. The approval or rejection of the application for permanent registration is required to be disposed of within a period of 6 months.
While processing the application for permanent registration, notice has been issued calling for information and documents about the activities of the trust. However, no opportunity of being heard is given before its rejection. One may note that section 12AB which provides for the procedure for fresh registration reads as under:
Procedure for fresh registration.
12AB. (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,—
(a) where the application is made under sub-clause (i) of the said clause, pass an order in writing registering the trust or institution for a period of five years;
(b) where the application is made under sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of the said clause,—
(i) call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about—
(A) the genuineness of activities of the trust or institution; and
(B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects;
(ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A) and compliance of the requirements under item (B), of sub-clause (i),—
(A) pass an order in writing registering the trust or institution for a period of five years; or
(B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its registration after affording a reasonable opportunity of being heard;
(c) where the application is made under sub-clause (vi) of the said clause, pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought,
and send a copy of such order to the trust or institution.
(2) All applications, pending before the Principal Commissioner or Commissioner on which no order has been passed under clause (b) of sub-section (1) of section 12AA before the date on which this section has come into force, shall be deemed to be applications made under sub-clause (vi) of clause (ac) of sub-section (1) of section 12A on that date.
(3) The order under clause (a), sub-clause (ii) of clause (b) and clause (c), of sub-section (1) shall be passed, in such form and manner as may be prescribed, before expiry of the period of three months, six months and one month, respectively, calculated from the end of the month in which the application was received.
(4) Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,—
(a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or
(b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or
(c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year,
the Principal Commissioner or Commissioner shall—
(i) call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation;
(ii) pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place;
(iii) pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations;
(iv) forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such trust or institution.
Explanation.—For the purposes of this sub-section, the following shall mean “specified violation”,—
(a) where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or
(b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or
(c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public; or
(d) the trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or
(e) any activity being carried out by the trust or institution—
(i) is not genuine; or
(ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or
(f) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.
(5) The order under clause (ii) or clause (iii) of sub-section (4), as the case may be, shall be passed before the expiry of a period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) of sub-section (4).
At the cost of repetition, one may note that clause b to section 12AB(1) reads as under:
(b) where the application is made under sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of the said clause,—
(i) call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about—
(A) the genuineness of activities of the trust or institution; and
(B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects;
(ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A) and compliance of the requirements under item (B), of sub-clause (i),—
(A) pass an order in writing registering the trust or institution for a period of five years; or
(B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its registration after affording a reasonable opportunity of being heard;
While processing the application for permanent registration, the CIT has carried out the verification as per (i) above by calling for various information and documents. However, the opportunity of being heard in the majority of the case is not given by the CIT exemption before rejecting. The principle of natural justice demands that the show cause notice be issued after the trust has made all the submission. One may carefully note that the application was required to be disposed of within 6 months and so various applications have been rejected on the last moment of the deadline of complying with the statutory provision. In various cases, even the application has been rejected even without considering the submission of the assessee.
In case the trust permanent registration has been rejected, the assessee trust can follow the following remedy:
- Approach the ITAT for violation of the principle of Natural Justice by not giving an opportunity of being heard before rejecting the application. Non issuance of the show cause notice specifically mentioning that the application is likely to be rejected for the reason mentioned therein is a violation of the section 12AB as well as the principle of Natural Justice.
- Even ITAT can be approached for the error on the part of the CIT – Exemption in not appreciating the entire fact of the case.
- In ITAT, one can also plead that the ITO report for verification which may have been called for the verification of the trust activities is not called for and so the opinion formed that the trust is not carrying out the charitable activities is blatantly wrong and erroneous.
- The nature of enquiry carried out before rejection can also be questioned during ITAT
- One may note that there are various cases in the earlier law of registration of the charitable trust wherein the power of the CIT – Exemption has been discussed and the same may also be relevant under the new regime of registration of the charitable trust.
One may note that the order of rejection is passed in majority of the case on the last day of the deadline which may also be pleaded. An RTI application may be filed with the CIT exemption enquiring as to the number of applications that has been disposed off on the last day of the deadline in support of the case.
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