12AA registration should be provided to new trust on basis of objects even when no activities have been performed – Supreme court

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In a recent landmark judgement in case of Ananda Social & Educational Trust v. Commissioner of Income tax, Hon’ble Supreme Court held that a newly registered Trust is entitled for registration under section 12AA on basis of its objects, without any activity having been undertaken.

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 it’s objects, without any activity having been undertaken.

Section 12AA 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 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.

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.

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 Commissioner can cancel the registration of a Trust under sub-section (3) of section 12AA of the Act where he finds 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.

Thus, in the present case registration is to be granted to assessee where objects are in line with charitable purpose and no activities has been undertaken which are to the contrary of objects.

To download the judgement CLICK HERE.

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