Non-payment of tax on voluntary contribution no ground to deny registration u/s 12AA

Fact and Issue of the case

The brief facts in this case are that the assessee has made online application in Form No.10A for approval of the Trust/ Institution u/s.12AA of the Act on 02.03.2020 under the category of Religious cum Charitable trust/institution. The assessee trust is registered under Bombay Public Trust Act, 1950 with Registration Number: A-189/PUNE dated 03.05.1952. In this case, the application for registration u/s.12AA of the Act of the assessee trust has been rejected by the Ld. CIT(Exemption) vide order dated 01.10.2020 and at Para No.3.3, 3.4 and Para No.4 of the said order, the Ld. CIT(Exemption) has enumerated the reasons for rejection of the application for granting registration u/s.12AA of the Act.

The assessee trust had collected voluntary contributions and donations. The Ld. CIT(Exemption) was of the opinion that all these voluntary contributions forms a part of the corpus funds of the trust and hence, it is an income of the assessee. Thus on the said income, the assessee trust was liable to pay tax as per law. Since the requisite taxes were not paid by the assessee, the Ld. CIT(Exemption) opined that the requirement of section 12AA of the Act i.e. satisfaction of the Commissioner about objects of the Trust and the genuineness of the activities of the trust could not be determined and hence, the said application for registration u/s.12AA of the Act of the assessee was rejected. Therefore, the ground taken by the Ld. CIT(Exemption) was that on those voluntary contributions received by the assessee, the taxes should have been paid by the assessee before they applied for registration u/s.12AA of the Act.

Observation of the Tribunal

The Tribunal has heard the submissions of rival sides and perused the materials available on record. We are of the considered view that the provisions of Section 12AA of the Act provides that the Ld. CIT(Exemption) at the time of granting registration to the assessee trust or society shall look into the objects of the trust/society and be satisfied about the genuineness of the activities carried out by such applicant trust/ society at the time of granting registration u/s.12AA of the Act. Whether any tax had accrued to be paid or whether such taxes have been paid or not are to be looked into at the stage of assessment proceedings.

The Hon‟ble Allahabad High Court in the case of Fifth Generation Education Society Vs. CIT (1990) 185 ITR 634 (All) has held that “the Commissioner is not to examine the application of income at the stage of application made by assessee for granting registration u/s.12AA of the Act. The Commissioner may examine whether the application was made in accordance with the requirements of Section 12AA r.w.r 17A and whether Form 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At that stage, it is not proper to examine the application of income.”

Reverting to the facts of the present case, the Ld. CIT(Exemption) has not granted registration u/s.12AA of the Act since whatever donations were received by the assessee trust, the taxes were not paid and on this premise, the registration u/s.12AA cannot be denied. It is left always to the Assessing Officer to take appropriate steps at the time of assessment proceedings with regard to payment of taxes and application of income of the trust/society.

Further, the Hon‟ble Bombay High Court in the case of CIT Vs. Manekji Mota Charitable Trust (2019) 267 TAXMAN 0016 (Bombay) has held “at the time of the registration of the trust u/s.12A, the question of application of income of the trust is premature.” Thus, whether taxes are due to be paid on any income received that issue has to be looked into only at the time of assessment proceeding.

In the present case, the objects of the trust are not doubted by the Department and they have also not disputed the charitable nature of the activities conducted by the assessee trust. Meaning thereby, all the relevant records were submitted before the Ld. CIT(Exemption) and he had verified the same and was satisfied on this aspect fulfilling the requirement of Section 12AA of the Act.

Considering the aforesaid judicial pronouncements, facts and circumstances in this case, we are of the considered view that this is not a fit case for rejection of application for registration u/s.12AA of the Act on the reasons mentioned in the order of the Ld. CIT(Exemption). There is no finding on facts that the activities carried out by the assessee are not genuine. Further, the Ld. CIT(Exemption) has not mentioned in his finding that the objects of the trust were not in order or that the application made for registration was also not in accordance with law. In absence of these findings, just because, the taxes were not paid on the donations/voluntary contributions received cannot be the ground for rejection of application u/s.12AA of the Act. These things can be examined by the Department and scrutinized at the assessment stage. When all the requirements of registration u/s.12AA of the Act have been satisfied by the assessee trust, registration therein should be granted. In view thereof, we set aside the order of the Ld. CIT(Exemption) and direct the Department to grant registration u/s. 12AA of the Act to the assessee trust.