We have heard learned counsel appearing for the
parties and perused the impugned Judgment(s) and Order(s)
passed by the High Court of Karnataka.
In our considered view, the reasons assigned by the
High Court in passing the impugned judgment(s) and
order(s) need no interference as the same are in
consonance with law.
Accordingly, there is no merit in these appeals and
CIVIL APPEAL NO.4702/2014
This appeal has been preferred by the appellant -
Director of Income Tax against the impugned judgment and
order passed by the Delhi High Court holding that a newly
registered Trust is entitled for registration under
section 12AA of the Income Tax Act, 1961 (for short, the
‘Act’) on the basis of its objects, without any activity
having been undertaken. Section 12AA of the Act reads as
follows :
“12AA. Procedure for registration. - (1) The
[Principal Commissioner or] Commissioner, on
receipt of an application for registration of a
trust or institution made under clause (a) or
clause (aa) or clause (ab) of sub-section (1) of
section 12A, shall-
(a) call for such documents or information from the
trust or institution as he thinks necessary in
order to satisfy himself about the genuineness of
activities of the trust or institution and may also
make such inquiries as he may deem necessary in
this behalf; and
(b) after satisfying himself about the objects of
the trust or institution and the genuineness of its
activities, he-
(i) shall pass an order in writing registering
the trust or institution;
(ii) shall, if he is not so satisfied, pass an
order in writing refusing to register the trust
or institution,
and a copy of such order shall be sent to the
applicant :
Provided that no order under sub-clause (ii)
shall be passed unless the applicant has been
given a reasonable opportunity of being heard.
(1A) All applications, pending before the
[Principal Chief Commissioner or] Chief
Commissioner on which no order has been passed
under clause (b) of sub-section (1) before the 1st
day of June, 1999, shall stand transferred on that
day to the [Principal Commissioner or] Commissioner
and the [Principal Commissioner or] Commissioner
may proceed with such applications under that sub-
section from the stage at which they were on that
day.
(2) Every order granting or refusing registration
under clause (b) of sub-section (1) shall be passed
before the expiry of six months from the end of the
month in which the application was received under
clause (a) or clause (aa) or clause (ab) of sub-
section (1) of section 12A.
(3) Where a trust or an institution has been
granted registration under clause (b) of sub-
section (1) or has obtained registration at any
time under section 12A [as it stood before its
amendment by the Finance (No. 2) Act, 1996 (33 of
1996)] and subsequently the [Principal Commissioner
or] Commissioner is satisfied that the activities
of such trust or institution are not genuine or are
not being carried out in accordance with the
objects of the trust or institution, as the case
may be, he shall pass an order in writing
cancelling the registration of such trust or
institution:
Provided that no order under this sub-section shall
be passed unless such trust or institution has been
given a reasonable opportunity of being heard.
[(4) Without prejudice to the provisions of sub-
section (3), where a trust or an institution has
been granted registration under clause (b) of sub-
section (1) or has obtained registration at any
time under section 12A [as it stood before its
amendment by the Finance (No. 2) Act, 1996 (33 of
1996)] and subsequently it is noticed that the
activities of the trust or the institution are
being carried out in a manner that the provisions
of sections 11 and 12 do not apply to exclude
either whole or any part of the income of such
trust or institution due to operation of sub-
section (1) of section 13, then, the Principal
Commissioner or the Commissioner may by an order in
writing cancel the registration of such trust or
institution:
Provided that the registration shall not be
cancelled under this sub-section, if the trust or
institution proves that there was a reasonable
cause for the activities to be carried out in the
said manner.]
The above section provides for registration of a
trust. Such registration can be applied for by a trust
which has been in existence for some time and also by a
newly registered trust. There is no stipulation that the
trust should have already been in existence and should
have undertaken any activities before making the
application for registration.
In brief, section 12AA of the Act empowers the
Principal Commissioner or the Commissioner of the Income
Tax on receipt of an application for registration of a
trust to call for such documents as may be necessary to
satisfy himself about the genuineness of activities of
the trust or institution and make inquiries in that
behalf; it empowers the Commissioner to thereupon register
the trust if he is satisfied about the objects of the
trust or institution and genuineness of its activities.
In the present case, the trust was formed as a
society on 30.05.2008 and it applied for registration on
10.07.2008 i.e. within a period of about two months.
No activities had been undertaken by the respondent
Trust before the application was made. The Commissioner
rejected the application on the sole ground that since no
activities have been undertaken by the trust, it was not
possible to register it, presumably because it was not
possible to be satisfied about whether the activities of
the trust are genuine. The Income Tax Appellate Tribunal,
Delhi (for short, the ‘Tribunal’) reversed the orders of
the Commissioner. The Revenue Department approached the
High Court by way of filing an appeal. The High Court
upheld the order of the Tribunal and came to the
conclusion that in case of a newly registered trust even
though there was no activities, it was possible to
consider whether the trust can be registered under section
12AA of the Act. This judgment is assailed before us.
Section 12AA undoubtedly requires the Commissioner
to satisfy himself about the objects of the trust or
institution and genuineness of its activities and grant a
registration only if he is so satisfied. The said section
requires the Commissioner to be so satisfied in order to
ensure that the object of the trust and its activities are
charitable since the consequence of such registration is
that the trust is entitled to claim benefits under
sections 11 and 12 of the Act. In other words, if it
appears that the objects of the trust and its activities
are not genuine that is to say not charitable the
Commissioner is entitled to refuse and in fact, bound to
refuse such registration.
It was argued before us that the Commissioner is
required to be satisfied about two things – firstly that
the objects of the trust and secondly, its activities are
genuine. If there have been no activities undertaken by
the trust then the Commissioner cannot assess whether such
activities are genuine and therefore, the Commissioner is
bound to refuse the registration of such a trust.
We have given our anxious consideration to the above
submissions made by Ms. Aishwarya Bhati, learned Senior
Counsel appearing for the appellant – Director of Income
Tax and find that it is not possible to agree with the
same. The purpose of section 12AA of the Act is to enable
registration only of such trust or institution whose
objects and activities are genuine. In other words, the
Commissioner is bound to satisfy himself that the object
of the Trust are genuine and that its activities are in
furtherance of the objects of the Trust, that is equally
genuine.
Since section 12AA pertains to the registration of
the Trust and not to assess of what a trust has actually
done, we are of the view that the term ‘activities’ in the
provision includes ‘proposed activities’. That is to say,
a Commissioner is bound to consider whether the objects of
the Trust are genuinely charitable in nature and whether
the activities which the Trust proposed to carry on are
genuine in the sense that they are in line with the
objects of the Trust. In contrast, the position would be
different where the Commissioner proposes to cancel the
registration of a Trust under sub-section (3) of section
12AA of the Act. There the Commissioner would be bound to
record the finding that an activity or activities actually
carried on by the Trust are not genuine being not in
accordance with the objects of the Trust. Similarly, the
situation would be different where the trust has before
applying for registration found to have undertaken
activities contrary to the objects of the Trust.
We therefore find that the view of the Delhi High
Court in the impugned judgment is correct and liable to be
upheld.
Ms. Bhati, learned Senior Counsel for the appellant,
fairly drew our attention to a judgment of the Allahabad
High Court in IT Appeal No.36 of 2013 titled as
“Commissioner of Income Tax-II vs. R.S. Bajaj Society”
which has taken the same view as that of the Delhi High
Court in the impugned judgment. The Allahabad High Court
has also referred to a similar view taken by the High
Courts of Karnataka and Punjab & Haryana.
Apparently, a contrary view has been taken by the
Kerala High Court in the case of Self Employers Service
Society vs. Commissioner of Income Tax – (2001) Vol.247
ITR 18. That view however does not commend itself.
However, the facts in Self Employers Service Society
(Supra) suggest that the Commissioner of Income Tax had
observed that the applicant for registration as a Trust
had undertaken activities which were contrary to the
objects of the Trust.
In the result, we find that there is no reason to
interfere with the impugned judgment of the High Court of
Delhi. The appeal is, accordingly, dismissed.
CIVIL APPEAL NO.1727/2020 (@SLP(C) NO.25761/2015)
Leave granted.
In this case, the Trust which applied for
registration under section 12AA of the Income Tax Act,
1961, was found not to have spent any part of its income
on charitable activities. The Commissioner of Income Tax,
therefore, refused the registration of Trust.
The Income Tax Appellate Tribunal reversed the
decision of the Commissioner of income Tax on the basis of
the judgment of the Delhi High Court in matters referred
to above.
For the reasons stated earlier, we are of the view
that the object of the provision in question is to ensure
that the activities undertaken by the Trust are not
contrary to its objects and that a Commissioner is
entitled to refuse registration if the activities are
found contrary to the objects of the Trust.
In the present case, what has been found is that the
Trust had not spent any amount of its income for
charitable purposes. This is a case of not carrying out
the objects of the Trust and not carrying on activities
contrary to its object. These circumstances may arise for
many reasons including not finding suitable circumstances
for carrying on activities. Undoubtedly the inaction in
carrying out charitable purposes might also become
actionable depending on other circumstances; but we are
not concerned with such a case here.
In these circumstances, we leave it upon the
Commissioner of Income Tax to consider the issue by
exercising his powers under sub-section (3) of section
12AA, if the facts justify such actions.
The appeal is, however, dismissed.
[S.A. BOBDE]
[B.R. GAVAI]