Section 12AA

Section 12AA — the law in short

What the courts have decided on section 12AA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• ACIT v Ahmedabad Urban Development Authority Supreme CourtCuts both ways
  We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
  Only if the fees are pitched above cost. Charging on a cost or nominal mark-up basis is not trade, commerce or business; charges noticeably higher than cost are. Even permissible commercial activity must be carried on in the actual course of achieving the general public utility object, and receipts from it must stay within 20 per cent of total receipts.
• CIT (Exemption) v Batanagar Education and Research Trust Supreme CourtHelps department
  The Commissioner has cancelled my trust's registration because some corpus donations are said to be bogus — can he do that when the money was actually spent on the trust's objects?
  Yes. The Supreme Court held on 2 August 2021 that a trust which takes donations by cheque and returns the money in cash is misusing its section 12AA status and cannot keep it. The Managing Trustee had admitted in a survey that a major part of the corpus donations were accommodation entries, that part of each donation went back to the donors through named intermediaries by RTGS, and that those payments were booked as building capital expenditure. On that material the Commissioner and the Tribunal were right to cancel registration under section 12AA(3) and the consequent 80G approval, and the Calcutta High Court should not have interfered under section 260A.
• Ananda Social and Educational Trust v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  Our trust was formed weeks ago and has done nothing yet. Can registration be refused for that?
  No. Registration cannot be refused merely because a newly formed trust has not started activities. 'Activities' includes proposed activities, so at the registration stage the Commissioner looks at whether the objects are genuinely charitable and whether the proposed activities are genuine.
• CIT v Dawoodi Bohara Jamat Supreme CourtCuts both waysValidity unconfirmed
  The Commissioner has refused my trust registration under section 12AA because our objects are tied to one religious community — can he refuse registration on that ground?
  No, not at the registration stage on this reasoning. The Supreme Court held on 20 February 2014 that section 13 is an exception to sections 11 and 12, so whether it bites is examined when exemption is claimed, not when registration is decided. On the merits the Court corrected both sides. Section 13(1)(b) is not confined to trusts that are purely charitable; a composite religious and charitable trust is not outside it merely because it is composite. But on these objects — food served on community occasions, a madarsa, help to the needy — the benefit was not channelled to the Dawoodi Bohra community alone, so section 13(1)(b) was not attracted and the appeals were dismissed.
• CIT (Exemptions) v Audyogik Shikshan Mandal High CourtHelps taxpayer
  Trust funds went to a trustee. Does the trust lose exemption on all its income or only that amount?
  Only that amount. Denial of exemption under s.11 is confined to the sum actually diverted in breach of s.13; s.13 withdraws the benefit in respect of the offending income or property, not for the trust as a whole.
• Lala Sher Singh Memorial Jeevan Vigyan Trust Society v PCIT (Central) ITATHelps taxpayer
  The PCIT has cancelled our registration under s.12AB(4) for 'specified violations' said to have occurred in years going back to 2015-16. Can s.12AB(4) reach back that far?
  The Delhi Tribunal held it cannot. The concept of a 'specified violation' in the Explanation to s.12AB(4) was brought in with effect from 1 April 2022, so it cannot be applied to alleged violations of assessment years 2015-16 to 2021-22. The Tribunal also held that the cancellation was passed by the wrong officer: under the CBDT notifications constituting the Commissioner (Exemptions), it is that Commissioner and not the PCIT (Central) to whom the Assessing Officer is subordinate who deals with a trust's registration. The cancellation orders were quashed.
• Versova Kokni Sunni Jamat Trust v CPC ITATHelps taxpayerValidity unconfirmed
  We have no 12A registration. Is a corpus donation given for buying property taxable in our hands?
  No. A voluntary contribution made with a specific direction that it form part of the corpus is a capital receipt, and that character does not depend on the trust holding registration under s.12A or s.12AA. The addition of Rs 8,99,811 was deleted.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.