A wholly charitable or religious trust must make application for registration under Section 12A. The Commissioner or Director of Income-tax, as the case may be, will have to satisfy himself about the genuineness of the activities of the trust before granting registration.
Registration is a one-time formality for the trust and it can be cancelled if the trust activities are not carried out in accordance with its objects. However, before passing an order of cancellation, an opportunity of hearing must be given to the assessee.
The application for registration must be made within a year from the date of creation of trust or the establishment of the institution. Where the application is made after June 1, 2007, the registration can be granted only from the assessment year following the financial year in which the application is made.
For example, if a trust registered on June 1, 2006, makes application in August 2007 the benefits of the registration can be enjoyed only from the assessment year 2008-09 onwards. The trust will not have the benefit of registration for the period June 1, 2006 to March 31, 2007, and Sections 11 and 12 cannot be applied.
In Aggarwal Mitra Mandal Trust vs Director of Income-tax (Exemption) 2007 106 ITD 531 Delhi), the assessee applied for registration which was rejected by the income-tax authority. The tribunal held that Section 12 AA prescribing the procedure for registration provides that the taxman must satisfy himself about the genuineness of activities and objects of the trust. The income-tax authority while granting registration need not look into the eligibility for exemption under Sections 11 and 12 nor about the application of Section 13 of the Act.
The Tribunal held Section 13 would operate only when the computation of total income is made in respect of a person who claims exemption under Sections 11 and 12. Only where registration is granted under Section 12A the possibility of applying Section 13 can arise.
In New Life In Christ Evangelistic Association vs CIT (2000 246 ITR 532 Madras), it was held that to get registration under Section 12A there is no requirement to prove how the society would be able to claim the benefits of Section 11 or 12 of the Act. The question of exemptions under Sections 11 and 12 would come only when it is claimed by the assessee at the time of assessment.
If Section 12A registration is refused never ever can that assessee claim the benefit of Section 11 or 12 and the assessing officer (AO) too cannot apply Section 13. This, according to the Tribunal, would be contrary to the scheme of the Act and could also cause hardship to the taxpayers.
The Tribunal held that the trust may have multiple objectives and the objectives to society at large may have been pursued. In such a case, if registration is deprived then the benefits of Sections 11 and 12 cannot be given. On the other hand, if the registration is granted, Section 13 would become operative as and when the eligibility for Sections 11 and 12 are to be denied for any of the assessment years.
The Tribunal made a classic dissection of the scheme of tax provisions and opined that the application of Section 13 is in the exclusive domain the AO and the Commissioner or Director cannot invoke Section 13 while considering the application for registration under Section 12A.
V. K. Subramani (The author is an Erode-based chartered accountant.)