Facts of the Case

The appeals arose from two orders dated 28.06.2024 passed by the Commissioner of Income Tax (Exemption), Lucknow, rejecting the Trust’s applications for registration under Section 12AB and approval under Section 80G(5) of the Income Tax Act, 1961.

The application for registration under Section 12AB as a new trust was rejected on the grounds that the Trust failed to submit audited balance sheets and income and expenditure accounts for Financial Years 2020-21, 2021-22, and 2022-23. Although receipt and payment details were submitted, the authority concluded that no visible charitable activities had been undertaken during the preceding three years and that charitable operations had not commenced.

 Issues Involved

  1. Whether rejection of registration under Section 12AB was justified on the ground of absence of audited accounts and visible charitable activities.
  2. Whether activities of a school run by the Trust should be treated as part of the Trust’s charitable activities.
  3. Whether rejection of Section 80G approval automatically follows rejection of Section 12AB registration.

 Petitioner’s Arguments (Assessee)

The Authorized Representative contended that the Society is an old institution running a school since 1964. The school receives government aid, and therefore its accounts were maintained separately from those of the Society.

It was argued that the Society sought registration to conduct charitable activities under its direct supervision and that the school was wholly and exclusively part of the Society. The separation of accounts was based on the understanding that government-supported activities should not be mixed with the Society’s accounts.

On this basis, it was submitted that the rejection order was contrary to facts and material on record.

 Respondent’s Arguments (Revenue)

The Departmental Representative submitted that the Society and the school were essentially one entity since the school was being run by the Society. Therefore, the activities of running the school should have been included in the application submitted to the CIT (Exemption).

 Court Order / Findings (ITAT Allahabad)

After examining the submissions and records, the Tribunal observed that the school had been operating since 1964 and therefore the Society had been engaged in charitable activities for several decades, not merely for the preceding three years.

The Tribunal held that the activities of the school should be considered an integral part of the Society’s activities. Accordingly, it remanded the matter to the CIT (Exemption) for fresh consideration, directing that the Trust be given another opportunity to present its case along with audited accounts of both the school and the Society.

With respect to approval under Section 80G(5), the Tribunal noted that its rejection was consequential to the denial of Section 12AB registration. Therefore, this issue was also remanded for reconsideration after adjudication of the registration application.

 Important Clarification

Both appeals were allowed for statistical purposes only. The Tribunal did not grant registration directly but restored the matter to the CIT (Exemption) for fresh evaluation based on complete financial records and recognition of the school’s activities as part of the Trust’s charitable work.

Link to download the order –

https://www.mytaxexpert.co.in/uploads/1771061192_PRAYAGEDUCATIONTRUSTALLAHABADVS.THECOMMISSIONEROFINCOMETAXEXEMPTIONLUCKNOWLUCKNOW.pdf                                                                

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