Charitable Trust Registration Can't Be Denied Over Expenditure Concerns Alone: ITAT Delhi

The Income Tax Appellate Tribunal (ITAT), Delhi, has recently directed the Commissioner of Income Tax (Exemptions) to grant charitable trust registration to Visan Foundation.

It held that registration cannot be denied merely over concerns regarding expenditure without first examining whether the trust's objects are charitable and its activities are genuine.

A coram of Judicial Member Kavitha Rajagopal and Accountant Member M. Balaganesh observed, "We do not find any discussion as to the objects of the Trust, neither as to the genuineness of its activities. Rather, it was with regard to the expenditure claimed by the assessee towards food, rent, and training expenses, more specifically with regard to the food expenses incurred by the assessee. This, in our view, is not justifiable reasoning for denial of registration."

The bench directed that registration be granted, subject to the trust satisfying the requirements under Section 12A of the Income Tax Act.

Visan is a public charitable trust engaged in employment-linked programmes for marginalised youth in the healthcare and hospitality sectors. It also undertakes CSR projects in partnership with other organizations.

The trust had applied for registration under Section 12AB, which enables eligible charitable and religious trusts to claim tax exemptions under the Income Tax Act.

The Commissioner (Exemptions) rejected the application after holding that the trust had failed to substantiate variations in its food, rent and training expenses. The Commissioner also noted that substantial food expenses had been claimed in the name of the Managing Trustee instead of independent third-party vendors.

The Commissioner further took the view that the trust was carrying out CSR projects under contractual arrangements and that such activities were not charitable activities undertaken for the benefit of the public at large.

Before the tribunal, the trust argued that it had furnished all supporting documents and that the expenditure related entirely to charitable projects. It submitted that the projects were audited and monitored by the organizations that entrusted them.

The trust also contended that, at the stage of considering an application for registration, the Commissioner was only required to examine whether its objects were charitable and whether its activities were genuine, and not undertake a detailed scrutiny of expenditure.

Agreeing with the trust, the tribunal relied on the Supreme Court's decision in Ananda Social and Educational Trust and the Allahabad High Court's ruling in Red Rose School.

It reiterated that the Commissioner's enquiry at the registration stage is confined to the trust's objects and the genuineness of its activities.

The bench further observed, "It is always open for the Revenue to assess the income and to levy tax if in case it is found that the income derived is not out of the activities of the Trust or if the expenditure cannot be attributed to the objects of the Trust."

Finding that the Commissioner had returned no finding on the trust's objects or the genuineness of its activities, the tribunal held that the rejection was unsustainable.

It set aside the order and directed the Commissioner to grant registration, subject to the trust satisfying the requirements under Section 12A of the Act.

For the Assessee: Ramesh Chander, Advocate and Ms. Sangeeta Ranjit, Advocate.

For the Revenue: Shri Jitender Singh, CIT-DR