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October 28, 2021

Section 12AA registration cannot be denied without examining the activities of the trust

Section 12AA registration cannot be denied without examining the activities of the trust

Fact and Issue of the case

This appeal by the assessee is directed against order dated 27/02/2018 passed by the Ld. Commissioner of Income-Tax(Exemption), Delhi [in short the Ld. CIT(E) ] rejecting the application of the assessee for registration under section 12AA of the Income Tax act, 1961 (in short the Act). The grounds raised by the assessee are reproduced as under:

1. That the CIT (E) has erred in law in not granted registration U/S 12A of the Income Tax Act 1961, to the Appellant.

2. The CIT (E) has not considered that the activities of the Appellant are charitable in nature and conducted to support the activities of International Center For Research On Women which is the its self a section 25 company under companies act 1956 and engaged in charitable activities and has been granted registration U/s 12 A of the Act.

3. The Appellant craves leaves to add, alter or modify the aforesaid ground and craves leaves to file additional grounds.

Briefly stated facts of the case are that M/s International Centre for research on Women Ltd. (‘ICRW’) is a non-profit organisation with the object of promoting social and economic development with women’s full participation and is incorporated as a limited company under section 25 of the Companies Act, 1956. The said company is registered for the purpose of section 12AA and section 80G of the Act. The provisions of Payment of Gratuity Act, 1972 are applicable in the case of ‘ICRW’ and therefore to protect the financial interest of its employees, the ‘ICRW’ setup this trust namely ‘ICRW Group Gratuity Trust’ i.e. the assessee. This trust applied for online application on 23/08/2017 in form No. 10A before the Ld. CIT(E) for seeking registration under section 12AA of the Act. The assessee filed trust deed and another documents as desired by the Ld.CIT(E). After examination of objects of the trust, the Ld.CIT(E) observed that trust’s aims and objectives is only for the worker/employee of the ‘ICRW’ and does not appear to be for general charitable purpose. The Ld. CIT(E) accordingly rejected the application of the registration under section 1 2AA of the Act.

Observation of the court

We have heard rival submission of the parties on the issue in dispute and perused relevant material on record. As per section 12AA(1)(b) of the Act, for registering the trust or institution, the competent authority must satisfy about the object of the trust or institution and genuineness of its activities. As per section 12AA(1)(a)(ii) of the Act, the competent authority may satisfy about the compliance of such requirement of any other law for the time being in force by the trust or institution, as material for the purpose of achieving its objects. In the case before us, the application for registration under section 12AA of the Act has been rejected by the appropriate authority on the ground that object of the trust is only for the benefit of worker/employee of the company who has created the trust and does not appear to be for the general charitable cause.

The assessee has filed a copy of trust deed before us, which is available from page 6 to page 18 of the paperbook. On perusal of the trust deed we find that the managing director of the company ‘ICRW’, is the managing trustee of the assessee trust.

On page 8 of the paperbook, the object of the trust have been recorded as under:


a) To protect and hedge tire financial interest of ail the workers/employees which are working for ICRW with the object of making payment to them of the gratuity amount in accordance with the provisions of the Act;

b) To receive the amount of grant, donation or the share of amount from ICRW for the purpose of making payment to the employees of the gratuity amount in accordance with the provisions of the Act;

c) To contribute the respective amount of the fund required for creating a corpus that can be utilised for the purpose of making payment to the employees of the gratuity’ amount in accordance with the provisions of the Act;

d) To enter into arrangements/agreements with the approved Insurance companies for insuring the payment of the gratuity amount to the employees

e.) To do all such act{s)which is consequential or incidental to the aforesaid objects.”

In the case of Hiralal Bagwati (supra), the trust was created for the benefit of employees of the 16 institutions with the object of providing aid in case of sickness and disablement. The Hon’ble High Court following the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana caste Association (supra) held that an object beneficial to a section of the public is an object of general public utility.

10. In view of the above decisions, the registration of the assessee trust cannot be rejected merely on the ground that it is for the benefit of a restricted group of employees of the company ‘ICRW’. However, we find some merit in the argument of the Ld. DR that trust has been engaged in discharging the statutory obligation of the company “ICRW’ of making gratuity payment to their employees. But in this regard the competent authority has not examined the activities actually carried out by the trust, sources of funds and how the same are distributed to the employees, whether by way of creating the trust, the company is getting some benefit of saving of money, whether any activity of welfare of the employees other than making gratuity payment has been carried out by the trust etc. The assessee has also not filed any information with regard to its activities before us. Therefore, examining those issues need enquiry at the end of the Ld.CIT(E). In view of the above facts and circumstances and the interest of substantial justice, we feel it appropriate to restore this issue back to the Ld. CIT(E) for re-examination of the application of the assessee trust as per the provisions of the law, in the light of the decision of the Hon’ble Supreme Court in the case of Ahmedabad Rana caste Association (supra) and the decision of the Hon’ble High Gujrat of in the case of Hiralal Bhagwati (supra). We accordingly order It is needless to mention that adequate opportunity of being heard shall be provided to the assessee. The grounds of the appeal of the assessee are allowed for statistical purposes.


The Court allowed the appeal in favour of the assessee

Read the full order from below


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