IN HIGH COURT AT CALCUTTA Special Jurisdiction Original Side Present:- Honble Justice I. P. Mukerji Honble Justice Protik Prakash Banerjee ITA 180 of 2018 Principal Commissioner of Income Tax (Exemption) Vs. Shri Nathji Goverdhan Nathji Charitable Trust For Appellant : Mr. S. N. Dutta, Advocate. For Respondent : Mr. Malay Dhar, Mr. Bhaskar Sengupta, Mr. Biswajit Sarkar, Advocates. Judgment on : 28.02.2020 I. P. MUKERJI, J.- On 10th January, 2019 division bench of this court admitted this appeal to be heard on following substantial question of law: Whether Income Tax Appellate Tribunal erred in law by misinterpreting Section 12AA of Income Tax Act, 1961 and came to erroneous decision that verification of genuineness of activity is not condition precedent for granting registration under Section 12AA of Income Tax Act, 1961. Section 12AA of said Act provides that Principal Commissioner or Commissioner of Income Tax shall register trust on being satisfied about its objects and genuineness of its activities. only question to be decided is whether trust should show some activities undertaken by it before registration to Commissioner to satisfy him or is Commissioner required to be satisfied that intended activities of trust after registration are genuine? In this case, tribunal proceeded on basis that activities of trust were at commencement stage and that registration of trust was to be made after Commissioner only satisfied himself that objects of trust were charitable. By its impugned order dated 28th March, 2018, tribunal allowed appeal of respondent trust by remanding matter to Commissioner of Income Tax (Appeals) to rehear and reconsider matter on above observations. Revenue appeals to us against that order. Now, let me discuss authorities on subject. In Director of Income-Tax (Exemptions) Vs. Meenakshi Amma Endowment Trust reported in (2013) 354 ITR 219 (Karnataka), division bench of Karnataka High Court opined as follows:- On perusal of records we note that trust was formed on January 23, 2008, and within period of nine months they had filed application under section 12A for issuance of registration claiming exemption. fact that corpus of trust is nothing but contribution of Rs.1,000 by each of trustees as corpus fund goes to show that trustees were contributing funds by themselves in humble way and were intending to commence charitable activities. It is not even case of Revenue that by time application of assessee came to be considered by them, assessee had collected lots of donations for activities of trust. On other hand, grievance of concerned authorities seems to be that there was no activity which could be termed as charitable as per details furnished by assessee, therefore, such registration could not be granted. When trust itself was formed in January, 2008, with money available with trust, one cannot expect them to do activity of charity immediately and because of that situation authority cannot come to conclusion that trust was not intending to do any activity of charity. In such situation objects of trust have to be taken into consideration by authority and objects of trust could be read from trust deed itself. In subsequent returns filed by trust, if Revenue comes across that factually trust has not conducted any charitable activities, it is always open to authorities concerned to withdraw registration already granted or cancel said registration under section 12AA(3) of Act. In Director of Income Tax Vs. Foundation of Ophthalmic and Optometry Research Education Centre reported in (2013) 355 ITR 361 (Delhi), division bench of Delhi High Court relying on above decision of Karnataka High Court added its own authority by qualifying ratio by saying that in case of newly registered trust consideration for registration should be its objects. It pronounced following ratio:- Facially, above provisions would suggest that there are no restrictions of kind which Revenue is reading into in this case. In other words, statute does not prohibit or enjoin Commissioner from registering trust solely based on its objects, without any activity, in case of newly registered trust. statute does not prescribe waiting period, for trust to qualify itself for registration. division bench of Allahabad High Court following above Karnataka High Court decision in Hardayal Charitable and Educational Trust Vs. Commissioner of Income-Tax reported in (2013) 355 ITR 534 (Allahabad) expressed similar view as follows:- preponderance of judicial opinion of all High Courts including this court is that at time of registration under section 12AA of Income-tax Act, which is necessary for claiming exemption under sections 11 and 12 of Act, Commissioner of Income-tax is not required to look into activities, where such activities have not or are in process of its initiation. Where trust, set up to achieve its objects of establishing educational institution, is in process of establishing such institutions, and receives donations, registration under section 12AA cannot be refused, on ground that trust has not yet commenced charitable or religious activity. Any enquiry of nature would amount to putting cart before horse. At this stage, only genuineness of objects has to be tested and not activities, which have not commenced. enquiry of Commissioner of Income-tax at such preliminary stage should be restricted to genuineness of objects and not activities unless such activities have commenced. trust or society cannot claim exemption, unless it is registered under section 12AA of Act and thus at that such initial stage test of genuineness of activity cannot be ground on which registration may be refused. division bench of Kerala High Court in Sree Anjaneya Medical Trust Vs. Commissioner of Income Tax reported in (2016) 382 ITR 399 (Kerala) added new dimension by saying that genuineness of trust was vital consideration. In Self Employers Service Society Vs. Commissioner of Income Tax reported in (2001) 247 ITR 18 (Kerala), division bench of Kerala High Court, observing that trust for significant period of time had not done any charitable work and could not show any genuine activity supported decision for rejection of registration. While we substantially agree with ratio in above cases, we cannot help making some observations. Section 12A(1) of said Act states that provisions for tax benefit under Sections 11 and 12 would only apply to any trust if trust is registered under Section 12AA. Therefore, trust on registration gets very substantial tax benefits. trust on formation normally looks towards donors to augment its corpus. donor also gets corresponding tax benefits, only if trust is registered. Take for example, donation referred to in Section 80G(5) read with Section 10(23C)(v) of said Act. Any prudent trustee would not carry out substantial activities of trust for length of time and then apply for registration under Section 12AA, for simple reason that income of trust would be chargeable to income tax during that period. On other hand, donor would be reluctant to make donations to trust unless it was registered. In those circumstances, it is little unrealistic to think of two situations. First, on creation of trust trustees apply for registration under Section 12AA. In that case, they would have to demonstrate genuineness of objects of trust, only, before Commissioner. Secondly, other situation where trustees carry on activities for sometime and then apply for registration. In that case, genuineness of objects as well as genuineness of its activities have to be proved to Commissioner. In second situation, practically speaking, any activity of trust carried out without registration and without any tax benefit would likely to be insignificant. Every word in statute has meaning and application. legislature does not waste words. Nor does it indulge in surplussage. Hence, every word in Section 12AA has to be given its meaning and effect. In my opinion, when statute refers to objects of trust and genuineness of its activities to be investigated by Commissioner, words have to be given proper and purposive construction. Commissioner has to see that constitution of trust, its objects, its trustees and proposed activities are prima facie genuine. On that basis he has to consider registering trust. If activities are found not to be genuine at later point of time, he always has option of cancelling its registration under Section 12AA(3) of said Act. I am of opinion that tribunal has appreciated law correctly. question in this appeal is answered in negative, against Revenue and for assessee. appeal (ITA 180 of 2018) is accordingly dismissed. (I. P. MUKERJI, J.) PROTIK PRAKASH BANERJEE, J.: I have had opportunity to go through judgment of my Learned Brother and I concur fully with same. However, I wish to add few words to show how unrealistic interpretation offered by Revenue is in real life. No trust can be created without registration under Indian Registration Act. Section 12A/12AA of Income Tax Act, 1961 does not refer to this registration. registration referred to in Section 12AA is done by Principal Commissioner of Income Tax who on being satisfied about objects and genuineness of activities of trust registers it and by this act of registration, permits people to donate funds to it to claim certain deductions. If trust registered under Indian Trust Act and Registration Act as charitable trust, does not get itself registered before Principal Commissioner of Income Tax it loses certain benefits both for itself and for those who donate to it. Since by definition charitable trust is not one which makes profits and if we accept interpretation of Revenue that first activities of trust must commence and its genuineness ascertained before Principal Commissioner registers it, we would be asking trust to carry on activities perhaps at loss to corpus or by compromising on quality of such activities if expenditure is done from interest on corpus because no one will donate money to trust knowing that it is not tax deductable. In such view of matter, interpretation offered by Revenue appears to be one which perhaps defeats Section 12A/12AA of said Act of 1961 and its very purpose and, therefore, also it cannot be accepted. As result, I fully concur with findings reached by my Learned Brother, agree with His Lordship s reasoning and also answer question raised in appeal in negative against Revenue and for assessee. Certified photocopy of this order, if applied for, be supplied to parties upon compliance with all requisite formalities. (PROTIK PRAKASH BANERJEE, J.) Principal Commissioner of Income-tax (Exemption) v. Shri Nathji Goverdhan Nathji Charitable Trust