By TIOL News Service

NEW DELHI, MAR 28, 2018: THE Issue is - Whether a trust formed solely as a part of compliance of CSR requirements, can be prevented from seeking registration u/s 12AA. NO IS THE ANSWER.

Facts of the case:

The assessee is a registered trust, fromed as a result of duties of corporate social responsibility carried out by M/s. Veer Overseas Ltd. The objects of the assessee trust were in the nature of eradicating hunger and poverty, promotion of education, promoting gender equality etc. Apart from this, the trust was liable to carry on other activities as prescribed by the Government in exercise of the powers conferred under clause (o) and (q) of Section 134(3) r/w/s 135 and sub section (1) or (2) of Section 469 of the Companies Act 2013. In the meanwhile, an application for grant of registration u/s 12AA was filed before the CIT(exemption), who rejected the same on the ground that assessee trust had been formed by the settler M/s Veer Overseas Ltd. solely for the purpose of carrying out its CSR activities. The CIT(Exemptions) opined that no activity in sync with the requirements of the Companies Act had taken place in the trust so far and the activities of the trust showed that it had relinquished its function, as the primary implementation agency and undertaking its own programmes to impact targeted beneficiaries, by transferring its funds to other societies. Besides, the CIT(Exemptions) also rejected application u/s 80G (v) which was holding that, the application was void ab initio in terms of provisions of Rule 11AA.

Tribunal held that,

++ it is pertinent to note that the reasons given by the CIT (exemption) is that the main aim appears to be forming a trust merely for complying to CSR requirements. When a trust is created for the purpose of carrying out CSR activities, the registration u/s 12AA cannot be denied. Even Companies Act provide for compliance of CSR provision through a dedicated trust or society. Just because the trust has been formed for complying CSR requirements it cannot per se be the reasons for denying registration u/s 12AA. As regards the reason given by the CIT (exemption) that the object of trust are to be noted whereby apart from the CSR activities, the Activities in the nature of eradicating hunger and poverty, promotion of education, promoting gender equality etc. are also provided. These activities are in the nature of public charity. Further, the CSR Activities itself are in the nature of public charitable activities. As regards another reason given by the CIT (exemption), no activities in sync with the requirement of the Companies Act has taken place in the trust so far. For the purpose of granting registration u/s 12AA, only two factors are to be seen by the CIT (E) which are the objects of the trust being charitable in nature and the genuineness of activities. There is no requirement to see where the activities are in sync with Companies Act or not;

++ at the time of granting the registration u/s 12AA, the CIT (exemption) need not go beyond two parameters that the object being charitable in nature and activities being genuine. Another reason given by the CIT (exemption) that it also militates against the legal principal that social enterprises cannot be a direct recipients of money from corporate as it is a profit making Company. This reasons is not in conformity with any of the provisions of the Income Tax Act. A profit making Company can grant certain donation to the charitable trust, how can the activities of the trust become not charitable with this act. The fact that the CSR expenditure are not allowable expenditure u/s 37 is relevant only for the taxability of the company incurring such expenditure. From the perception of the assessee trust, the amount received as donation whether will be eligible for exemption u/s 11 depends on the application of such fund for the charitable activities by the trust only. Once the CIT has not doubted about the genuineness of the activities nor doubted its charitable object, his powers u/s 12AA end.

(See 2018-TIOL-458-ITAT-DEL)