Court upholds ITAT decision: Trust registration under 12AA hinges on objects and activities, not legal status

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Case Name:

Commissioner of Income Tax Vs Suparasnath Jain Sangh Trust (High COurt of Rajasthan)

D.B. Income Tax Appeal No. 17 / 2018

Date: 10th May 2018

Key Takeaways:

1. For registration under Section 12AA, the focus should be on the trust's objects and genuineness of activities.

2. Registration with state authorities (like the Charity Commissioner) is a separate issue from tax registration.

3. The CIT(E) should primarily examine the trust's objects and activities, not its legal status under state laws.

Issue:

Should registration under Section 12AA of the Income Tax Act be denied to a trust solely because it's not registered under state laws?

Facts:

- The respondent-assessee (Suparasnath Jain Sangh Trust) applied for registration under Section 12AA on 22.06.2016.

- The CIT(E), Jaipur, rejected the application on 19.12.2016, stating the trust wasn't legally valid as it wasn't registered with state authorities.

- The assessee appealed to the ITAT, which allowed the appeal on 06.07.2017.

- The Income Tax Department then filed this appeal in the High Court.

Arguments:

Revenue's Argument:

- The CIT(E) was correct in denying registration as the trust wasn't registered with the Sub-Registrar or Assistant Commissioner, Devasthan Department.

- As per Rajasthan Public Trust Act, 1959, trusts must be registered within two years of creation.

Assessee's Argument (implied from ITAT's decision):

- The trust had produced all necessary documents, including books of accounts and objects.

- The CIT(E) examined these and found no defects.

- Registration under state laws is a separate issue from tax registration.

Key Legal Precedents:

The ITAT relied on the case of Institute for Design of Electrical Measuring Instruments Vs. CIT (decided on 10.05.2013) to support its decision that only the object of the Trust and genuineness of activity need to be examined for Section 12AA registration.

Judgement:

The High Court dismissed the appeal, agreeing with the ITAT's decision. They stated that:

1. The CIT(E) had examined the trust's books of accounts, objects, and activities and found no defects.

2. There's no requirement for a trust to be registered with the Charity Commissioner for Section 12AA registration.

3. The CIT(E) should focus on examining the trust's objects and genuineness of activities.

4. The trust's registration with state authorities is a separate issue to be considered by the relevant registering authority.

FAQs:

Q1: Does a trust need to be registered under state laws to get Section 12AA registration?

A1: No, the court clarified that these are separate issues. Section 12AA registration focuses on the trust's objects and activities, not its legal status under state laws.

Q2: What should the CIT(E) examine when considering a Section 12AA application?

A2: The CIT(E) should primarily examine the trust's objects and the genuineness of its activities.

Q3: Can a trust be denied Section 12AA registration if it's not registered with state authorities?

A3: Based on this judgment, no. The court emphasized that these are separate issues and Section 12AA registration should focus on the trust's objects and activities.

Q4: What documents should a trust provide when applying for Section 12AA registration?

A4: The trust should provide its books of accounts, main objects, and relevant documents showing the genuineness of its activities.

Q5: Does this judgment apply to all states in India?

A5: While the case specifically dealt with Rajasthan's laws, the principle that Section 12AA registration is separate from state registration could potentially apply more broadly. However, it's always best to consult with a legal expert for specific situations.

The instant Income-tax Appeal has been filed under Section 260-A of the Income Tax Act, 1961 against the judgment dated 06th of July, 2017 passed by learned Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur (received by the Commissioner on 24.07.2017) in I.T.A. No.120/Jodh/2017, pertaining to the appeal preferred by assessee regarding issue of denial of registration sought under Section 12AA of the Income Tax Act, 1961 (Act of 1961).

As per facts of the case, the respondent-assessee filed an application for registration under Section 12AA of the Act of 1961 in Form No.10A on 22.06.2016. The learned C.I.T. (E), Jaipur vide its order dated 19.12.2016 declined to accept the application filed under Section 12AA of the Act and passed order that in the State of Rajasthan, Trust can come into existence through legally registered document by getting it registered before the competent authority within prescribed time limit and in this case it is seen that the Trust is neither registered before the concerned Registrar, nor before the Assistant Commissioner of Devasthan Department, therefore, the existence/creation of the Trust is not legally valid, it cannot be held as valid legal Trust.

The aforesaid order was challenged by the respondent Assessee before learned Income Tax Appellate Tribunal (ITAT) and that appeal was allowed by the learned ITAT vide order dated 06.07.2017.

Learned counsel for the appellant- Revenue vehemently argued that there is no error in the finding of learned CIT (E) for declining registration of the respondent Trust under Section 12AA of the Act for the reason that the Trust was not registered before the concerned Sub-Registrar or before the Assistant Commissioner, Devasthan Department of the Govt. of Rajasthan, but the learned ITAT did not consider this aspect of the matter. Therefore, a substantial question of law arises for consideration as to whether the ITAT is right in holding that it is not necessary that the Institution/Trust should be established under an instrument, inspite of the facts that as per Rajasthan Public Trust Act, 1959, the Trust within a period of two years from the date of creation is to be registered by the office of Assistant Commissioner having jurisdiction over such places. Further, in the facts and in the circumstances of the case and in law the learned ITAT is right in directing CIT (E) Jaipur to grant registration under Section 12AA to the Trust despite the fact that it is not a legal trust in the State of Rajasthan in view of Section 17 (1) of the Rajasthan Public Trust Act, 1959.

After hearing the learned counsel for the appellant, we have perused the order impugned. The learned ITAT while considering the case of the respondent/assessee held that there is no dispute with regard to the fact that assessee has produced Books of Accounts and, main objects and relevant documents for genuineness of the activities, which have been examined by the C.I.T. (E), in which no defect has been pointed out. It is also observed that there is no requirement of any Trust to be registered with the Charity Commissioner of the Devasthan Department, Rajasthan and the learned C.I.T. (E) has to leave its examination only on the objects of the Trust and genuineness of the activities, which have been examined and no defect in the same has been pointed out. The learned ITAT while allowing the appeal filed by the respondent Trust placed reliance upon the decision of the ITAT, Mumbai in the case of Institute for Design of Electrical Measuring Instruments Vs. CIT decided on 10.05.2013 and held that object of the Trust and genuineness of the activity is to be examined and none else. It is was further held that the assessee is required to be registered by the Charity Commissioner of Devasthan Department, Rajasthan because it is separate question which is to be considered by the registering authority.

In our opinion the finding arrived at by the learned ITAT for the purpose of registration of respondent Trust under Section 12AA of the Act of 1961, does not require any interference because no substantial question of law emerges for consideration. Consequently, the instant appeal is hereby dismissed.

(RAMCHANDRA SINGH JHALA) J. (GOPAL KRISHAN VYAS) J.