Trust registration should be based on its charitable objects, not on a premature judgment of its income's future taxability.

Trust registration should be based on its charitable objects, not on a premature judgment of its income’s future taxability.

Issue

Can the Commissioner (Exemption) deny registration to a trust under Section 12AB by examining the potential taxability of its income or the applicability of restrictive provisions like Section 13(3), or is the inquiry at the registration stage strictly limited to determining whether the objects of the trust fall within the definition of “charitable purpose” under Section 2(15)?

Facts

An assessee trust, associated with a jewelers and diamond trade association, applied for registration under Section 12AB.
The Commissioner (Exemption) examined the trust’s bye-laws and concluded that its objects were limited to benefiting only its members.
He opined that this constituted mutuality, not charity, and therefore, the objects were not for a “charitable purpose” as defined in Section 2(15).
Based on this reasoning, the Commissioner rejected the registration application.

Decision

The High Court ruled that the Commissioner had overstepped his jurisdiction.
It held that the question of whether specific income is taxable or if provisions like Section 13 (which restrict benefits to certain persons) are attracted is a matter to be decided by the Assessing Officer during the regular assessment proceedings, not by the Commissioner at the registration stage.
The inquiry for registration is confined to a basic examination of the trust’s objects to see if they are genuinely charitable in nature.
Upon reviewing the trust’s objects, the court found that they clearly fell within the residuary category of “advancement of any other object of general public utility” under Section 2(15).
Consequently, the court directed that the trust be granted registration under Section 12AB.

Key Takeaways

Distinct Roles: The role of the Commissioner at the registration stage is distinct from the role of the Assessing Officer at the assessment stage. The former only verifies the charitable nature of the objects, while the latter examines the application of income and compliance with exemption conditions year after year.
Registration Cannot Be Preemptively Denied: A trust cannot be denied registration based on assumptions about how it will earn or apply its income in the future. The actual tax treatment is determined during the assessment for each specific year.
“General Public Utility” Has a Broad Scope: An object that promotes a particular trade, industry, or profession is still considered an object of “general public utility” because it benefits a significant section of the public, not just a closed group of individuals. Promoting an entire trade is a charitable object.

IN THE ITAT CHENNAI BENCH ‘C’

Jewellers and Diamond Traders Association

Commissioner of Income-tax (Exemption)

Manu Kumar Giri, Judicial Member
and S.R. Raghunatha, Accountant Member

IT Appeal No. 1093 (Chny) of 2025

SEPTEMBER 22, 2025

V. Swaminathan, C.A. for the Appellant. Bipin C.N., CIT for the Respondent.

ORDER

S. R. Raghunatha, Accountant Member.- This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Exemption), Chennai 21.03.2025 rejecting application for registration of the Trust u/s.12AB of the Income Tax Act, 1961 (“the Act” for short).

2. The grounds raised by the assessee are as follows:

01. The Appellant falls under a “Class of Public” as per the Gujarat High Court Order in the case of CIT v Ahmadabad Rana Caste Association, 1972 AIR 273.

02. Appellant squarely falls under Trade Association as per Supreme Court Judgement in the case of Ahmadabad Urban Development Authority. SC held as follows:

Bodies involved in trade promotion (such as AEPC) or set up with the objects of purely advocating for, coordinating and assisting trading organizations, can be said to be involved in advancement of objects of GPU.

03. CIT(E), Chennai stated that the Appellant is a mutuality concern in his final conclusion. The appellant prays ITAT to pass order on merits in mutuality applicability to the Appellant.

3. The brief facts of the case are that the assessee filed an application for registration of trust u/s.12AB of the Act on 19.08.2024 in Form No.10AB under Rule 17A of the Income Tax Rules, 1962. In response to the application filed by the assessee under Form 10AB for registration u/s.12A of the Act, the Ld.CIT(E), Chennai, required the assessee to furnish certain details to which the assessee filed on 11.02.2025. Upon examining the Object Clause as per the Bye Laws and other details submitted documents, the Ld.CIT(E) observed that the objects of the assessee appeared to be limited to serving the interest of the members of The Jewellers and Diamond Trade Association-Madras.

4. The Ld.CIT(E) concluded that the assessee’s activities and objects are primarily to protect, preserve, safeguard and further the interest and welfare of merchants dealing in diamonds, bullion, manufactured gold and silverware and Jewellery but not for the benefit general public without discrimination of the case, creed, sex or religion etc. and hence Ld.CIT(E) was of the opinion that the assessee is existing to protect the interest of its members who are engaged in the commercial activities and therefore the objects do not fall under the scope of charitable purpose as defined u/s.2(15) r.w.s.13(3) of the Act. Accordingly, with the above observations, the Ld.CIT(E) rejected the application filed in form No.10AB by the assessee u/s.12A of the Act dated 25.03.2025. The relevant observation of the Ld. CIT(E) are as under:

“4.6 Though the applicant society narrated the decision of the Hon’ble Supreme Court, but completely failed to satisfy the matrix laid down in the case of CIT v. Ahmedabad Rana Caste Association, by the Hon’ble Gujarat High Court wherein held that General means pertaining to a whole class. Public means the body of people at large including any class of the public. Utility means usefulness. Therefore, the advancement of any object of benefit to the public or a section of the public as distinguished from the individual or group of individuals would be a charitable purpose i.e

4.8 On the other hand, In case of a charitable organization, the primary condition is that the organization cannot distribute surplus amongst the members and the surplus is always for the benefit for the public at large. In such a situation, it is always believed that charity and mutuality cannot go together.

Thus, the society is for the benefit of particular section of the people and for the general public. Hence, this society is evolved and exist on the principle of mutuality and not charity.

Hence, from the above discussion, it is seen that the activities of the society cannot be held as advancement of any other objects of general public utility and ultimately charitable as defined in Section 2(15) of the Income Tax Act.

From the above facts of the case and the points of discussion, it is seen that the object of the society is not charity but only mutuality as it benefited only for a section of people.

4.9 Moreover, as explained in para 2 of this order, as per the provisions of section 12AB(1)(b) clause (ii) (B) of the I. T Act, 1961, if the application is made under sub-clause (ii) or sub-clause (iii) or sub-clause (v) of section 12A(1)(ac) and the Principal Commissioner or Commissioner has not satisfied, he can reject the application as well as cancel the registration of the trust/institution.

Considering all the above facts, the application field under the section 12A(1)(ac) (iii) in Form 10AB is not maintainable and as such deserved rejection.

4.10 Under the facts and circumstances of the case, the application field by the applicant on 19.08.2024 in Form 10AB u/s 12A(1)(ac) (iii) seeking registration u/s 12AB of the Act is rejected for the reasons enumerated in para 4.1 to 4.9 of this order”

5. Aggrieved, the assessee is in appeal before us against the order of the Ld.CIT(E) rejecting the application filed by the assessee. The Ld.AR for the assessee primarily contended that looking into the objects of the assessee, the assessee qualifies as a ‘Trade Association’ by placing reliance on the judgment of the Hon’ble Supreme Court in the case of Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority 11/[2022] 449 ITR 1 and thus is covered under the category of “advancement of any other object of general public utility” as defined u/s.2(15) of the Act. The Ld. AR also filed a written submission dated 01.07.2025.

6. Per contra, the Ld. DR on the other hand, strongly supported the order of Ld. CIT(E).

7. We have heard the rival submissions perused the materials available on record and gone through the order of the authorities along with the case laws relied upon by both the parties. We observed that in the case of CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), the Hon’ble Supreme Court held as under:

“It was not the case of the assessee that the objects of incorporation were relief of the poor, education or medical relief. The principal objects of the assessee were to promote and protect trade, commerce and industries and to aid, stimulate and promote the development of trade, commerce and industries in India or any part thereof. By the achievement of these objects, it was not intended to serve merely the interests of the members of the assessee. Advancement or promotion of trade, commerce and industry leading to economic prosperity enures for the benefit of the entire community. That prosperity would be shared also by those who engage in trade, commerce and industry but on that account the purpose was not rendered any the less an object of general public utility. It may be remembered that promotion and protection of trade, commerce and industry could not be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry.

In the promotion of trade, commerce and industries of India the public is vitally interest and if by the activities of the assessee that object is achieved, it would be within the meaning of section 4(3)(i) of the 1922 Act an advancement of an object of general public utility. In enacting the last paragraph of section 4(3) of the 1922 Act the legislature has used language of great amplitude. ‘Charitable purpose’ includes not only relief of the poor, education and medical relief alone, but advancement of other objects of general public utility as well. The clause is intended to serve as a special definition of the expression ‘charitable purpose’ for the Act; it is again inclusive and not exhaustive or exclusive. Even if the object or purpose may not be regarded as charitable in its popular signification as not tending to give relief to the poor or for advancement of education or medical relief, it would still be included in the expression ‘charitable purpose’ if it advances an object of general public utility. The expression ‘object of general public utility’, however, is not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole or mankind or even all persons living in a particular country or province. It is sufficient if the intention to benefit a section of the public as distinguished from specified individuals.”

8. In the case of Ahmedabad Urban Development Authority (supra), the Hon’ble Supreme Court held as under:

“203. The revenue has appealed to this court, in respect of two assessment years, in the case of Apparel Export Promotion Council (AEPC). The objects of AEPC, which was set up in 1978 – include promotion of readymade garment export. To achieve that end, its objects include providing training to instil skills in the workforce, to improve skills in the industry; guide in sourcing machinery; to serve as a body advising, providing information on market or technical intelligence; assisting the concerned industry in obtaining import licenses; showcase the best capabilities of Indian garment exports through the prestigious “India International Garment Fair” organised twice a year by AEPC, etc. These fairs host over 350 participants who exhibit their garment designs and patterns. Other functions are to provide information, and to provide market research. AEPC also assists in developing new design patterns and garments and to perform promotional activities in individual foreign markets. Further, AEPC sends missions and trade delegations abroad, who participate in international fairs; and conducts surveys to gather information on potential export of readymade garments.

204. As part of its functioning, it also books bulk space, which is then rented out to individual Indian exporters, who showcase their products and services, and ultimately secure export orders. Towards these services, i.e., booking and providing space, AEPC charges rentals. Now, these rents are not towards fixed assets owned by it. They are in fact charges, or fees, towards services in relation to business; likewise, the skill development and diploma courses conducted by it, for which fees are charged, are to improve business functioning of garment exporters. Furthermore, market surveys and market intelligence, especially country specific activities, aimed at catering to specified exporters, or specified class of exporters, is also service in relation to trade, commerce or business.

205. In the circumstances, it cannot be said that AEPC’s functioning does not involve any element of trade, commerce or business, or service in relation thereto. Though in some instances, the recipient may be an individual business house or exporter, there is no doubt that these activities, performed by a trade body continue to be trade promotion. Therefore, they are in the “actual course of carrying on” the GPU activity. In such a case, for each year, the question would be whether the quantum from these receipts, and other such receipts are within the limit prescribed by the sub-clause (ii) to proviso to section 2(15). If they are within the limits, AEPC would be – for that year, entitled to claim benefit as a GPU charity”

9. Further, In the case of Malik Hasmullah Islamic Educational and Welfare Society v. CIT 93/138 ITD 519 (Lucknow- Trib), the ITAT held that since provisions of Sections 11, 12 and 13 are intended for exercise of jurisdiction by an AO in an assessment proceeding, Commissioner is not competent to invoke such provisions for purpose of declining registration u/s.12AA of the Act.

10. In view of the above judicial precedents, we proceed to decide the issue before us. The present matter relates to the denial of registration u/s.12AB of the Act, by Ld.CIT(E). The primary question to be determined is whether, at the stage of registration, the Ld.CIT(E) is empowered to go into the issue of taxability of income or whether his role is limited to examining the genuineness of the activities of the trust and the nature of its objects. At the stage of registration of the trust, the Ld.CIT(E) is required only to verify whether the trust or institution has charitable objects and whether its activities are genuine. The question of whether particular receipts are taxable or whether certain provisions of Sections 11, 12, or 13 of the Act are attracted is a matter that falls squarely within the domain of the AO during the course of regular assessment proceedings. Thus, the inquiry at the registration stage is confined to examining the basic nature of the trust and not to adjudicate on the ultimate taxability of its income. On a careful reading of the objects of the Trust along with judicial pronouncements, the activities of the assessee fall squarely within the ambit of “advancement of any other object of general public utility” as defined in Section 2(15) of the Act.

11. In the present facts and circumstances of the case, the Ld.CIT(E) has denied registration on the premise that certain receipts of the assessee may be commercial in nature and could therefore affect its eligibility for exemption u/s.11 and 12 of the Act. In our considered view, such reasoning is misplaced and legally unsustainable. The role of the Ld.CIT(E) u/s.12AB of the Act is limited to an initial verification of objects and activities of the trust. Any determination of whether the assessee is eligible for exemption or whether certain receipts are taxable can only be undertaken during the course of assessment proceedings by the AO. By delving into issues of taxability at the registration stage, the Ld.CIT(E) has exceeded the jurisdiction conferred upon him by the statute and has misapplied the law. It is pertinent to note that the grant of registration is a preliminary step. The purpose of such registration is merely to enable the trust to claim exemption, subject to fulfilment of conditions u/s.11 and 12 at the time of assessment. The settled position of law is that unless the objects are found to be non-charitable or the activities are shown to be ingenuine, the registration cannot be refused.

12. In light of the above legal position and on a thorough appreciation of the facts, and respectfully following the decision of the Hon’ble supreme court in the case of Andhra Chamber of Commerce (supra), and Ahmedabad Urban Development Authority (supra), we are of the considered view that the assessee is engaged in activities that qualify as objects of general public utility and fall within the ambit of Section 2(15) of the Act. The Ld. CIT(E) has erred in law by refusing registration u/s.12AB of the Act on grounds relating to taxability, which is beyond his scope of authority at this stage. Accordingly, we hold that the order passed by the Ld. CIT(E) is not sustainable and is liable to be set aside. The Ld. CIT(E) is directed to grant registration to the assessee u/s.12AB of the Act forthwith, in accordance with law as applied by the assessee trust on 19.08.2024 in Form No.10AB.

13. In the result, the appeal of the assessee is allowed.