Denial of trust registration is remanded for fresh adjudication, as the Commissioner failed to prove non-charitable objectives

By | June 1, 2025
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Denial of trust registration is remanded for fresh adjudication, as the Commissioner failed to prove non-charitable objectives or non-genuine activities, despite financial discrepancies.

Issue:

Whether the Commissioner (Exemptions) is justified in denying registration to a charitable trust under Section 12AB of the Income-tax Act, 1961, solely based on the financial statement not showing costs incurred toward charitable activities and unexplained discrepancies between provisional and audited financials, when the trust deed clearly evidences charitable objectives and no material is brought on record to suggest non-charitable objectives or non-genuine activities.

Facts:

  • The assessee-trust was established with the stated object to build, restore, renovate, and maintain places of worship, historical monuments, pilgrimage sites, and public places of faith and belief.
  • The assessee filed an application seeking registration under Section 12AB.
  • The Commissioner (Exemptions) denied registration on the following grounds:
    1. The financial statement (particularly the receipt and payment account) did not suggest costs incurred toward charitable activity.
    2. Discrepancies were noticed between provisional and audited financials, which had not been explained.
  • However, the assessee had placed before the authorities a trust deed evidencing its charitable objectives, which were in the nature of “general public utility.”
  • There was no material brought on record by the Commissioner (Exemptions) to suggest that the objectives were non-charitable or that the activities undertaken were not genuine.
  • Furthermore, the assessee had purchased a fixed asset (property), which the court noted showed an intention to create infrastructure for carrying out charitable activities and supported the genuineness of its purpose.

Decision:

The court held that the issue was to be set aside to the file of the Commissioner (Exemptions) for fresh adjudication as per law. The matter was remanded.

Key Takeaways:

  • Proof of Charitable Objects and Activities: For registration under Section 12AB, a trust must establish two key aspects:
    1. Its objects are genuinely charitable.
    2. Its activities are genuine and are being carried out in furtherance of those charitable objects.
  • Trust Deed as Primary Evidence of Objects: The trust deed is the primary document to determine the charitable objects. If the trust deed clearly states objects of “general public utility” (like maintaining places of worship, etc.), the Commissioner cannot summarily conclude that the objects are non-charitable without concrete evidence.
  • Onus on Revenue to Disprove Genuineness: While the initial onus to prove genuineness is on the assessee, if the assessee provides basic evidence (like a trust deed and financial statements), the onus shifts to the revenue to bring “material on record” to suggest that the objectives are non-charitable or that the activities are not genuine. Mere observation of low expenditure or financial discrepancies, without deeper inquiry or specific evidence of non-genuineness, is insufficient to deny registration.
  • Infrastructure Creation as Evidence of Genuineness: The purchase of a fixed asset (property) to create infrastructure for charitable activities is a strong indicator of a genuine intention to carry out such activities, especially for objects like building/maintaining places of worship. This directly supports the genuineness claim.
  • Financial Discrepancies Require Explanation, Not Automatic Rejection: While discrepancies in financial statements or low expenditure on charitable activities certainly warrant inquiry by the Commissioner, they should not automatically lead to rejection of registration. The assessee must be given an opportunity to explain such discrepancies.
  • Remand for Fresh Adjudication: The court’s decision to remand the matter signifies that the Commissioner’s order was flawed for not adequately considering all evidence, not bringing counter-material on record, or denying a proper opportunity to the assessee to explain the points raised. A fresh adjudication will allow a more thorough and fair examination.
  • Purpose of 12AB Registration: Obtaining registration under Section 12AB is crucial for a trust to claim exemption under Section 11 of the Income-tax Act. Denial without proper justification can severely impact the trust’s operations.
IN THE ITAT BANGALORE BENCH ‘B’
Siwanchi Oswal Jain Bhavan Trust
v.
Commissioner of Income-tax (Exemptions)
Waseem Ahmed, Accountant Member
and SOUNDARARAJAN K. , Judicial Member
ITAppeal Nos. 2172 & 2173 (Bang.) OF 2024
[Assessment year 2024-25]
MAY  13, 2025
Smt. Suman Lunkar, C.A for the Appellant. Aseem Sharma, CIT (DR) for the Respondent.
ORDER
Waseem Ahmed, Accountant Member. – These are appeals filed by the assessee against the order passed by the ld. CIT(E), Bangalore, both dated 29/10/2024 rejecting the applications for registration under section 12AB and 80G of the Act.
First, we take up ITA No. 2172/Bang/2024 as the lead case.
2. The assessee has raised the following grounds appeal:
“1. The learned Commissioner of Income Tax (Exemptions) has erred in passing the impugned order, rejecting the application for registration filed by the appellant, in the manner passed. The impugned order is bad in law, void ab initio and is liable to be quashed.
2. In any case, and without prejudice the impugned order passed in violation ofprinciples of natural justice is liable to be quashed.
3. The impugned order passed by the learned Commissioner of Income Tax (Exemptions) is not based on legal provisions but based on erroneous conclusions and is liable to be cancelled.
4.1 In any case, and without further prejudice the learned Commissioner of Income Tax (Exemptions) has erred in holding that the appellant has not satisfied the conditions laid under section 12AB(l) of the Act. Such a conclusion is without basis, adhoc and is therefore not to be accepted and acted upon.
4.2 In particular the learned Commissioner of Income Tax (Exemptions) has erred in concluding that the appellant has not carried on any charitable activities. Infact, the appellant had commenced charitable activities as per objectives in the trust deed.
4.3 The learned Commissioner of Income Tax (Exemptions) also erred in holding that the differences in provisional statement and audited statement have not been explained at all.
Infact, no such opportunity was given to the appellant to explain the provisional and audited statements.
4.4 The grounds of rejection for application of registration being not present, the conclusion of the learned Commissioner of Income Tax (Exemptions) that appellant is not entitled for registration is bad in law and on fact and liable to be rejected.
5.1 The learned Commissioner of Income Tax (Exemptions) has erred in ignoring:
(a) That the objectives ofthe appellant are charitable in nature.
(b) That the activities of the appellant are genuine.
(c) That the appellant complied with requirements of any other law in so far as are material to achieving the objects of appellant.
5.2 Therefore, the appellant having complied with all the legal conditions laid down under section 12AB(l) of the Act is entitled to registration under the Act and same is to be granted to the appellant.
6. In view of the above and on other grounds to be adduced at the time of hearing, it is requested that the impugned order be quashed or at least it be held that the appellant is entitled for registration u/s. 12AB(l) ofthe Act.”
3. The only issue raised by the assessee is that the Ld. CIT(E) erred in canceling the application of registration applied under section 12AB(1) of the Act.
4. Brief facts are that the assessee is public charitable trust established vide trust deed dated 1st September 2024 with the stated object to build, restore, renovate, and maintain places of worship, historical monuments, pilgrimage sites, and public places of faith and belief. It also intends to construct and run community service facilities such as marriage halls, prayer halls, libraries, reading rooms, and dharamshalas for the benefit of the general public. Additionally, the trust will organize worship activities, charity, chanting, and meditation sessions to promote peace and spiritual growth. It may also acquire and manage movable and immovable properties needed to support its objectives and publish or distribute relevant literature to advance its cause.
5. The trust initially obtained provisional registration under section 12A vide Form 10AC dated 30.01.2024. Subsequently, the trust filed Form 10AB on 17.04.2024 seeking regularization of registration under section 12AB of the Act. The application was assigned to the Jurisdictional AO (JAO) for verification.
6. The JAO, after examination of the documents submitted, found that the assessee has claimed that it carried the charitable activity which included providing boarding & lodging facility with food to the travellers. As per the assessee’s claim, the rooms were provided free of cost however the assessee failed to provide the detail how the cost of running such facilities were met. The JAO found that the financial statement of the assessee trust particularly receipt and payment account does not suggestion cost incurred toward charitable activity. The JAO also notices discrepancies between the provisional and audited financials for the Year 2024-25. As such in provisional financials, the corpus fund and loans and liability was shown at Rs. 5,38,13,000/- and Rs. 5,71,41,600/- respectively however in audited financials, the corpus fund was reduced by 4,02,68,000/- and the loans and liabilities were increased by the same amount. Likewise, there was difference of Rs. 50 lakhs in the value of fixed assets shown in the provisional and audited financial statements. However, such material difference was not explained despite the fixed assets being purchased for Rs. 9.74 crores on 02.02.2024. Accordingly, the JAO recommended not to grant the approval of final registration under section 12AB of the Act.
7. The Ld. CIT(E), concurring with the recommendations of the JAO, denied the registration under section 12AB of the Act.
8. Being aggrieved the assessee is in appeal before us.
9. The learned AR before us submitted that the assessee has acquired certain pieces of land which evidences that the activity of the assessee has commenced. According to the Ld. AR, the investment in the land for carrying out its charitable activity is one of the essential requirements. The learned AR further submitted that the discrepancy between the provisional and the audited financial statements cannot be a ground for drawing any adverse inference. In the provisional financial statement, there were certain errors which were rectified subsequently.
9.1 On the other hand, the learned DR before us submitted that the charitable activity of the assessee has not commenced. According to the learned DR the acquisition of the piece of land does not justify the commencement of charitable activities. The learned DR vehemently supported the order of the authorities below.
10. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, it is pertinent to refer to the provisions of section 12AB of the Act, which provides for registration of trusts and institutions carrying out genuine charitable activities. Section 12AB(1)(a) mandates that the Principal Commissioner or Commissioner shall satisfy himself about
(i)the genuineness of the activities, and
(ii)the compliance with applicable laws which are material for achieving the trust’s objectives.
10.1 Upon such satisfaction, registration is to be granted; failing which, an opportunity of being heard must be provided before rejection. The scope of inquiry by the CIT(E) at the stage of granting registration has been clarified by the Hon’ble Supreme Court in the case of Ananda Social and Educational Trust v. CIT ITR 340 (SC) wherein it has been held as under:
12. 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. 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.
10.2 We further note that the Hon’ble Allahabad High Court in the case of CIT v. Red Rose School(Allahabad) held that while granting registration under Section 12A, the Commissioner is not to act as an Assessing Officer and is only required to examine the objects and genuineness of activities based on materials placed before him. The relevant part of the judgment is extracted as under:
33. In regard to the genuineness of the activities of the trust or the institution, whose objects do not run contrary to public policy and are, in fact, related to charitable purposes, the Commissioner is again empowered to make enquiries as he thinks fit. In case the activities are not genuine and they are not being carried out in accordance with the objects of the trust/society or the institution, of course, the registration can again be refused. But on mere presumptions and on surmises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made.
34. Section 12AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution.
35. This is more evident if we see the provisions of section 11, which, while exempting the income given in its various sub-clauses from being included in the total income of the previous year of the person in receipt of the income, for example, in sub-clause (1) says ‘income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property.
10.3 Thus, it is settled law that the extent of spending or surplus generated cannot, by itself, be a ground for doubting the genuineness of activities. We also were of the view that the question with respect to expenses incurred towards the object of the trust is the part of assessment proceedings and not for raising at the time of granting the registration. Regarding this, we find support and guidance from the judgment of Hon’ble Karnataka High Court given in the case of DIT (Exemptions) v. Garden City Educational Trust ITR 480 (Karnataka), the Hon’ble Karnataka High Court held that registration cannot be refused merely because at the initial stage the trust has not carried out large-scale activities or only incurred administrative expenses. What is relevant is the intention to carry out charitable activities as reflected from the trust’s objects and initial activities. The relevant headnotes of the judgment are detailed as under:
“Section 12A, read with sections 2(15),11 and 12, of the Incometax Act, 1961 – Charitable or religious trust – Registration of -Whether so long as a trust has education as one of its objects which is one of enumerated heads which qualifies and comes within scope of charitable purpose as enumerated in section 2(15), it has to be accepted that trust is having a charitable purpose as its object and may qualify for claiming exemption in terms of sections 11 and 12 subject to fulfilling conditions enumerated therein and, if so, grant of registration, so long as procedural requirements are complied with, is inevitable – Held, yes – Whether manner of application of funds and as to whether assessee can claim benefit of exemption in terms of sections 11 and 12 are questions which have to be examined by Assessing Officer at stage when it is urged and not by Commissioner while considering application for grant of registration under section 12A – Held, yes”
10.4 Coming to the facts of the present case, the assessee has placed before the authorities the trust deed evidencing its charitable objectives in the nature of general public utility. There is no material brought on record by the ld. CIT(E) to suggest that the objectives are non-charitable or that the activities undertaken are not genuine.
1 0.5 The fact that the trust is at initial stage and yet to carry out extensive activities should not go against it. Further, we are of the considered opinion that the minor discrepancies in provisional and audited financials, although needing attention, do not fundamentally alter the charitable nature of the trust or its intentions. Likewise, we note that the assessee has purchased fixed asset (property) for Rs. 9.74 crores which shows an intention to create infrastructure for carrying out charitable activities and same is supporting the genuineness of its purpose.
1 0.6 In our considered opinion, the Ld. CIT(E) has adopted a highly technical and pedantic approach by focusing on the mode of expenditure rather than evaluating the genuineness of the objectives and the growing stage of the trust’s activities. Furthermore, the law prescribes that any violation regarding the actual application of income can be examined during the assessment proceedings, and appropriate action under the relevant sections read with section 12AB of the Act can be taken, but such potential violations cannot be pre-judged at the registration stage.
1 0.7 Therefore, based on the facts and circumstances of the case, applicable legal provisions, we hereby set aside the issue to the file of the learned CIT(E) for fresh adjudication as per law and in the light above discussion. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes.
11. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Coming to the ITA No. 2173/Bang/2024, an appeal by the assessee
12. The assessee has raised as many as 7 grounds in the memo of appeal which are interconnected and pertains to the rejection of application filed for regularization of registration under section 80G of the Act.
13. At the outset we note assessee along with application for regularization of registration under section 80G of the Act also applied for regularization of registration under 12AB of the Act and which was also rejected by the learned CIT(E) on the same basis as adopted for rejection of application for regularization of registration under section 80G of the Act. The dispute regarding the rejection of registration under section 12AB of the Act has already been adjudicated vide paragraph no. 10 of this order in the case of appeal bearing ITA No. 2172/Bang/2024. We note that the provision of section 12AB of the Act and section 80G(5) of the Act in relation to granting registration are pari materia. Therefore, the finding given regarding the registration under section 12AB of the Act shall also be applicable on the issue on hand i.e. registration under section 80G(5) of the Act. We have the decided the issue of registration under section 12AB of the Act in favour of the assessee for statistical purposes vide above mentioned paragraph. Hence, following the same, the issue on hand is also allowed in favour of the assessee for statistical purposes.
14. In the result, the appeal of the assessee is allowed for statistical purposes.