By C. N. Vaze | Chartered Accountant
Is It Fair
Introduction :
Under the Income-tax Act, 1961 (the Act), charitable trusts
are eligible for exemption from tax liability in terms of section 10 and section
11 to section 13. One of the pre-conditions for section 11 to
section 13 is that it should obtain registration from the Commissioner of
Income-tax u/s.12AA. Of late, there is a tendency in the Income Tax Department
to create hurdles in availing any exemption or other tax reliefs. e.g.,
exemptions/deductions u/s.10A, u/s.10B, u/s.80IA, u/s.80IB, etc. Truly speaking,
registration u/s.12AA in itself does not grant exemption. It is only a basic
procedural requirement. Yet, it is experienced that obtaining the registration
has become a task in itself.
Grounds for rejection :
The objections being currently raised by the CITs are
difficult to comprehend, let alone justify. Some of the objections raised are
discussed below:
It is common that people settled in Mumbai, hailing from a
common village place have an affinity towards their native place. They may want
to set up a school or a hospital in that village. The source of funds is
obviously in cities like Mumbai. It is convenient to register and administer the
trust in Mumbai although the actual activity i.e., construction of
school/hospital, etc., is at a distant place.
The CIT’s objection is, how can be monitor the activity !
Needless to state that the Charity Commissioner has registered the trust with
the complete information on the record. Strictly speaking, the Charity
Commissioner is the regulating authority. How is the CIT concerned with
subsequent regulation/monitoring? Ultimately, the Department will always be in
a position to examine the accounts and records.
In this regard, reference can be drawn to the Karnataka High
Court decision in the case of DIT v. Garden City Education Trust, (191
Taxman 238) wherein it was held that at the time of granting registration, the
CIT is not concerned with the manner of application of funds. He is only required to examine the nature and objects of
the trust as deduced in the trust deed. The question of application of funds is
to be decided by the AO while granting exemption u/s.11.
Sometimes, the CIT refuses to register the trust unless there
is some activity! It is like a chicken and egg syndrome.
One of the objections was as to what is the evidence that it
is meant truly for the public ? i.e., how the activities are publicised ?
Another common question is how will the multiple objects of
the trust be achieved with a meagre initial corpus ! The explanation is quite
obvious. The institution first gets registered with a small amount. After it
obtains approval u/s.80G, only then the donations would flow in.
Possible reasons for negative attitude :
I visualise the following probable reasons :
(a) First and foremost, the typical bureaucratic attitude
is negative thinking.
(b) Ego or other interests.
(c) Revenue targets.
(d) Fear that good and positive attitude may be
misconstrued in the Department itself.
(e) Genuine experience about misuse of exemptions and
concessions. This gives rise to prejudices.
(f) Since the requirement of renewal of approval u/s.80G
has been done away with, extra caution while granting it for the first time.
Conclusion :
Instructions may be issued for a soft and liberal approach.
It may be noted that the Special Bench (Delhi) in the case of Bhagwad Swarup
Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust v. CIT, has
held that in a case where the CIT does not pass the order granting or refusing
registration of trust within the period laid down in section 12AA(2)
registration would be deemed to have been granted to the trust or institution
automatically on expiry of the period specified in section 12AA(2) of the Act.
Returns for first two to three years may be scrutinised to ensure that the
functioning is on a desired track.
