M/S. ANANDA SOCIAL AND EDUCATIONAL TRUST versus THE COMMISSIONER OF INCOME TAX & ANR.
[2020] 1 S.C.R. 721, Supreme Court of India, 2020
Outcome: Dismissed (Dismissed)
Segment: Ratio
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M/S. ANANDA SOCIAL AND EDUCATIONAL TRUST
v.
THE COMMISSIONER OF INCOME TAX & ANR.
(Civil Appeal No(s).5437-5438 of 2012)
FEBRUARY 19, 2020
[S. A. BOBDE, CJI, B. R. GAVAI AND SURYA KANT, JJ.]
Income Tax Act, 1961: s.12AA – Registration under, of a newly
registered Trust – Entitlement – Held: A newly registered Trust is
entitled for registration under s.12AA on the basis of its objects,
without any activity having been undertaken – s.12AA of the Act
empowers the Principal Commissioner or the Commissioner of the
Income Tax on receipt of an application for registration of a trust
to call for such documents as may be necessary to satisfy himself
about the genuineness of activities of the trust or institution and
make inquiries in that behalf – It empowers the Commissioner to
thereupon register the trust if he is satisfied about the objects of the
trust or institution and genuineness of its activities – The purpose
of s.12AA of the Act is to enable registration only of such trust or
institution whose objects and activities are genuine – Since s.12AA
pertains to the registration of the Trust and not to assess of what a
trust has actually done, 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 s.12AA of the Act – In that situation,
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.
Income Tax Act, 1961: s.12AA – Object of – Held: Is to ensure
that the activities undertaken by the Trust are not contrary to its
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SUPREME COURT REPORTS
[2020] 1 S.C.R.
objects and that a Commissioner is entitled to refuse registration if
the activities are found contrary to the objects of the Trust.
Self Employers Service Society v. Commissioner of
Income Tax (2001) Vol.247 ITR 18 – referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5437-
5438 of 2012.
[From the Judgment and Order dated 08.04.2015 of the High Court
of Delhi at New Delhi in Income Tax Appeal No. 98 of 2015]
 With
Civil Appeal Nos. 4702 of 2014 and 1727 of 2020.
Pritesh Kapur, Ms. Aishwarya Bhati, Sr. Advs., Senthil Jagadeesan,
Ms. Sonakshi Malhan, Ms. Suriti Chowdhary, Ms. Mrinal Kanwar,
Satyalipsu Ray, Vikas Bansal, Mrs. Anil Katiyar, Advs. for the appearing
parties.
The following Order of the Court was passed:
O R D E R
CIVIL APPEAL NO(S).5437-5438/2012
We have heard learned counsel appearing for the parties and
perused the impugned Judgment(s) and Order(s) passed by the High
Court of Karnataka.
In our considered view, the reasons assigned by the High Court in
passing the impugned judgment(s) and order(s) need no interference as
the same are in consonance with law.
Accordingly, there is no merit in these appeals and they are
dismissed.
CIVIL APPEAL NO.4702/2014
This appeal has been preferred by the appellant - Director of
Income Tax against the impugned judgment and order passed by the
Delhi High Court holding that a newly registered Trust is entitled for
registration under section 12AA of the Income Tax
Act, 1961 (for short,
the ‘Act’) on the basis of its objects, without any activity having been
undertaken. Section 12AA of the Act reads as follows :
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“12AA. Procedure for registration. - (1) The [Principal
Commissioner or] Commissioner, on receipt of an application for
registration of a trust or institution made under clause (a) or clause
(aa) or clause (ab) of sub-section (1) of section 12A, shall-
(a) call for such documents or information from the trust or
institution as he thinks necessary in order to satisfy himself about
the genuineness of activities of the trust or institution and may
also make such inquiries as he may deem necessary in this behalf;
and
(b) after satisfying himself about the objects of the trust or institution
and the genuineness of its activities, he-
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing
to register the trust or institution,
and a copy of such order shall be sent to the applicant :
Provided that no order under sub-clause (ii) shall be passed
unless the applicant has been given a reasonable opportunity
of being heard.
(1A) All applications, pending before the [Principal Chief
Commissioner or] Chief Commissioner on which no order has
been passed under clause (b) of sub-section (1) before the 1st
day of June, 1999, shall stand transferred on that day to the
[Principal Commissioner or] Commissioner and the [Principal
Commissioner or] Commissioner may proceed with such
applications under that sub-section from the stage at which they
were on that day.
(2) Every order granting
or refusing registration under clause (b)
of sub-section (1) shall be passed before the expiry of six months
from the end of the month in which the application was received
under clause (a) or clause (aa) or clause (ab) of sub-section (1)
of section 12A.
(3) Where a trust or an institution has been granted registration
under clause (b) of sub-section (1) or has obtained registration at
any time under section 12A [as it stood before its amendment by
the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently the
M/S. ANANDA SOCIAL AND EDUCATIONAL TRUST v. THE
COMMISSIONER OF INCOME TAX & ANR.
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[Principal Commissioner or] Commissioner is satisfied that the
activities of such trust or institution are not genuine or are not
being carried out in accordance with the objects of the trust or
institution, as the case may be, he shall pass an order in writing
cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless
such trust or institution has been given a reasonable opportunity
of being heard.
[(4) Without prejudice to the provisions of sub-section (3), where
a trust or an institution has been granted registration under clause
(b) of sub-section (1) or has obtained registration at any time
under section 12A [as it stood before its amendment by the Finance
(No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that
the activities of the trust or the institution are being carried out in
a manner that the provisions of sections 11 and 12 do not apply to
exclude either whole or any part of the income of such trust or
institution due to operation of sub-section (1) of section 13, then,
the Principal Commissioner or the Commissioner may by an order
in writing cancel the registration of such trust or institution:
Provided that the registration shall not be cancelled under this
sub-section, if the trust or institution proves that there was a
reasonable cause for the activities to be carried out in the said
manner.]
The above section provides for
registration of a trust. Such
registration can be applied for by a trust which has been in existence for
some time and also by a newly registered trust. There is no stipulation
that the trust should have already been in existence and should have
undertaken any activities before making the application for registration.
In brief, section 12AA of the Act empowers the Principal
Commissioner or the Commissioner of the Income Tax on receipt of an
application for registration of a trust to call for such documents as may
be necessary to satisfy himself about the genuineness of activities  of
the trust or institution  and make inquiries in that behalf; it empowers the
Commissioner to thereupon register the trust if he is satisfied about the
objects of the trust or institution and genuineness of its activities.
In the present 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.
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No activities had been undertaken by the respondent Trust before
the application was made. 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, presumably because it was not
possible to be satisfied about whether the activities of the trust are
genuine. The Income Tax Appellate Tribunal, Delhi  (for short, the
‘Tribunal’) reversed the orders of the Commissioner. The Revenue
Department approached the High Court by way of filing an appeal. The
High Court upheld the order of the Tribunal and came to the conclusion
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. This judgment is assailed before us.
Section 12AA undoubtedly 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. The said section
requires  the Commissioner to be so satisfied in order to ensure that the
object of the trust and its activities are charitable since the consequence
of such registration is that the trust is entitled to claim benefits under
sections 11 and 12 of the Act. In other words, 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.
It was argued before us that the Commissioner is required to be
satisfied about two things – firstly that the objects of the trust and secondly,
its activities are genuine. If there have been no activities undertaken by
the trust then the Commissioner cannot assess whether such activities
are genuine and therefore, the Commissioner is bound to refuse the
registration of such a trust.
We have given our anxious consideration to the above submissions
made by Ms. Aishwarya Bhati, learned Senior Counsel appearing for
the appellant – Director of Income Tax and find that it is not possible to
agree with the same. 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
M/S. ANANDA SOCIAL AND EDUCATIONAL TRUST v. THE
COMMISSIONER OF INCOME TAX & ANR.
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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.
We therefore find that the view of the Delhi High Court in the
impugned judgment is correct and liable to be upheld.
Ms. Bhati, learned Senior Counsel for the appellant, fairly drew
our attention to a judgment of the Allahabad High Court in IT Appeal
No.36 of 2013 titled as “Commissioner of Income Tax-II vs. R.S. Bajaj
Society” which has taken the same view as that of the Delhi High Court
in the impugned judgment. The Allahabad High Court has also referred
to a similar view taken by the High Courts of Karnataka and Punjab &
Haryana.
Apparently, a contrary view has been
taken by the Kerala High
Court in the case of Self Employers Service Society vs. Commissioner
of Income Tax – (2001) Vol.247 ITR 18. That view however does not
commend itself. However, the facts in Self Employers Service Society
(Supra) suggest that the Commissioner of Income Tax had observed
that the applicant for registration as a Trust had undertaken activities
which were contrary to the objects of the Trust.
In the result, we find that there is no reason to interfere with the
impugned judgment of the High Court of Delhi. The appeal is, accordingly,
dismissed.
CIVIL APPEAL NO.1727/2020 (@SLP(C) NO.25761/2015)
Leave granted.
In this case, the Trust which applied for registration under section
12AA of the Income Tax Act, 1961, was found not to have spent any
part of its income on charitable activities. The Commissioner of Income
Tax, therefore, refused the registration of Trust.
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The Income Tax Appellate Tribunal reversed the decision of the
Commissioner of income Tax on the basis of the judgment of the Delhi
High Court in matters referred to above.
For the reasons stated earlier, we are of the view that the object
of the provision in question is to ensure that the activities undertaken by
the Trust are not contrary to its objects and that a Commissioner is
entitled to refuse registration if the activities are found contrary to the
objects of the Trust.
In the present case, what has been found is that the Trust had not
spent any amount of its income for charitable purposes. This is a case of
not carrying out the objects of the Trust and not carrying on activities
contrary to its object. These circumstances may arise for many reasons
including not finding suitable circumstances for carrying on activities.
Undoubtedly the inaction in carrying out charitable purposes might also
become actionable depending on other circumstances; but we are not
concerned with such a case here.
In these circumstances, we leave it upon the Commissioner of
Income Tax to consider the issue by exercising his powers under sub-
section (3) of section 12AA, if the facts justify such actions.
The appeal is, however, dismissed.
Devika Gujral
Appeal dismissed.
M/S. ANANDA SOCIAL AND EDUCATIONAL TRUST v. THE
COMMISSIONER OF INCOME TAX & ANR.