Newly Registered Trust Entitled For Registration Under Section 12AA Income Tax Act On The Basis Of Its Objects: SC [Read Judgment]

The Supreme Court has held that a newly registered Trust is entitled for registration under section 12AA of the Income Tax Act, 1961, on the basis of its objects, without any activity having been undertaken.

A three judge bench headed by the Chief Justice of India SA Bobde observed that the term 'activities' in the Section includes 'proposed activities' which means that 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.

Section 12AA of the Act deals with the procedure for registration of Trust or Institutions to claim benefits under sections 11 and 12 of the Act. It 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. It also requires the Commissioner to be so satisfied in order to ensure that the object of the trust and its activities are charitable. 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.

In this 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. 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.

Income Tax Appellate Tribunal, reversed this order holding 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. The High Court upheld this order.

The Apex Court bench, also comprising of Justices BR Gavai and Surya Kant noted that Section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done. It observed thus:

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.

While upholding the High Court view, the bench further observed:

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.  

The bench disagreed with the view taken by the Kerala High Court in the case of Self Employers Service Society vs. Commissioner of Income Tax – (2001) Vol.247 ITR 18.  The Court also noted that the Allahabad High Court (Commissioner of Income Tax-II vs. R.S. Bajaj Society), High Courts of Karnataka and Punjab & Haryana have taken a view similar to Delhi High Court, which has been upheld by it now.

Case name: M/S. ANANDA SOCIAL AND EDUCATIONAL TRUST vs. THE COMMISSIONER OF INCOME TAX 
Case no.: CIVIL APPEAL NO.4702/2014 
Coram:  CJI SA Bobde, Justices BR Gavai and Surya Kant 

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