Introduction
In the case of Commissioner of Income Tax (Exemptions) v. International Health Care Education and Research Institute (SLP (Civil) Diary No. 19528/2018), the Supreme Court once again confirmed the principle that registration under Section 12AA of the Income Tax Act, 1961 can be granted even in the absence of actual charitable activities, provided the proposed objects and activities are found to be genuine and charitable. While the Revenue argued for reconsideration of the precedent in Ananda Social and Educational Trust [(2020) 17 SCC 254], the Court declined to refer the matter to a larger bench and upheld the High Court’s decision in favour of the assessee.
1. Factual Background and Procedural History
The respondent, a charitable trust registered under the Indian Trusts Act, 1882, filed an application under Section 12AA of the Income Tax Act, 1961 on 18 February 2008, shortly after its creation on 1 January 2008. The Commissioner of Income Tax (CIT), however, declined the registration, citing the absence of evidence showing the trust was engaged in any charitable activities at the time of application.
Specifically, the CIT noted:
- Absence of receipts for donations or expenses incurred.
- No verifiable proof of scholarships, medical aid, or charitable disbursements.
- The trust was newly established and had not demonstrated “genuine” activities as required by Section 12AA.
On appeal, the ITAT allowed the registration, holding that the absence of past activities should not bar registration at an initial stage, especially when the trust’s objectives were charitable and the trust deed was valid.
The High Court of Rajasthan affirmed the ITAT’s decision, leading the Revenue to file a Special Leave Petition before the Supreme Court.
2. Identification of Legal Issues
The Court addressed the following key legal questions:
- Can a newly formed trust be denied registration under Section 12AA merely because it has not yet undertaken any charitable activities?
- Does the term “activities” in Section 12AA include proposed or future charitable undertakings?
- Should the precedent set in Ananda Social and Educational Trust be reconsidered by a larger bench?
3. Arguments of the Parties
Petitioner (CIT – Exemptions)
- Argued that the term “activities” in Section 12AA implies that actual charitable work must be shown before registration is granted.
- Contended that Ananda Social misinterprets the statutory language and contradicts the legislative intent of requiring proof of genuine activities.
- Urged the Court to refer the matter to a larger bench to reconsider Ananda Social.
Respondent (Assessee – International Health Care Education & Research Institute)
- Submitted that the trust was recently established, and charitable activity would commence after registration.
- Argued that the Commissioner failed to point out any defect in the trust deed or charitable objectives.
- Relied on Ananda Social, Fifth General Education Society v. CIT, and N.N. Desai Charitable Trust v. CIT to argue that “proposed activities” suffice for registration.
4. Court’s Analysis and Reasoning
a. Legality of Considering “Proposed Activities”
The Court reaffirmed the correctness of the principle laid down in Ananda Social, which states:
“Since Section 12AA pertains to the registration of the trust and not to assess what a trust has actually done, the term ‘activities’ in the provision includes proposed activities.”
Thus, registration under Section 12AA is a preliminary step meant to enable the trust to carry out charitable purposes. A contrary interpretation would render the process impractical for newly established institutions.
b. Commissioner’s Limited Scope at Registration Stage
The Court noted that the Commissioner’s duty at the registration stage is confined to examining:
- The objects of the trust, and
- Whether the proposed activities align with those charitable objects.
It clarified that detailed scrutiny of actual implementation and financial verification is within the domain of the Assessing Officer at the assessment stage, not during initial registration.
c. Declining Reference to Larger Bench
Although the Court acknowledged the ASG’s concerns and the importance of preventing abuse of tax exemptions, it refused to reopen the settled position in Ananda Social, finding it supported by earlier and consistent jurisprudence.
d. Separation Between Registration and Exemption
Importantly, the Court clarified that registration under Section 12AA does not automatically entitle a trust to exemption under Sections 10 or 11. The Assessing Officer retains full authority to deny exemption if actual activities are not charitable.
5. Final Conclusion and Holding
The Supreme Court dismissed the Special Leave Petition filed by the Revenue, thereby upholding:
- The ITAT’s order granting registration under Section 12AA.
- The Rajasthan High Court’s affirmation of the Tribunal’s ruling.
The Court reaffirmed the principle that newly formed trusts should not be denied registration merely for lack of past charitable activity, so long as their objects are genuine and in line with Section 2(15) of the Act.
FAQs:
1. Can a newly formed charitable trust get registered under Section 12AA?
Yes. The Supreme Court has held that even newly formed trusts can be registered under Section 12AA if their objects are charitable and proposed activities are genuine.
2. Is it mandatory to conduct charitable work before applying for registration?
No. The law does not require prior charitable activities. The registration authority only needs to verify the trust’s stated objectives and proposed activities.
3. What is the purpose of Section 12AA of the Income Tax Act?
Section 12AA provides the procedure for registering a charitable or religious trust. Registration enables the trust to later claim income tax exemptions under Sections 10 and 11.
4. Does registration under Section 12AA guarantee tax exemption?
No. Registration is only the first step. Actual exemptions are evaluated during assessments, based on the trust’s conduct and expenditure.
5. Can the Income Tax Commissioner reject 12AA registration for lack of receipts or past data?
Not if the trust is newly created and has not commenced operations. The Commissioner should evaluate the trust deed and intended charitable purpose, not actual performance.
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