ITAT rightly granted Sec. 12AA registration to trust meant for benefit of pharma dealers: Chhattisgarh High Court (13 August 2025)

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The Chhattisgarh High Court recently affirmed the order of the Income Tax Appellate Tribunal (ITAT) granting registration under Section 12AA of the Income-tax Act, 1961 to a trust created for the benefit of pharmaceutical dealers. The ruling underscores that at the stage of granting registration, the Commissioner of Income Tax (Exemptions) [CIT(E)] is required only to examine the objects of the trust and the genuineness of its activities, and not to prejudge whether such activities would ultimately fall within the ambit of “charitable purpose” under Section 2(15).

Case Background

  • The assessee-trust was formed with the stated objective of welfare, education, training, and mutual cooperation among pharma dealers.
  • It applied for registration under Section 12AA.
  • The CIT(E) rejected the application on the ground that the trust was essentially for the benefit of a particular group (pharma dealers) and therefore lacked a charitable character.
  • On appeal, the ITAT set aside the rejection and directed grant of registration, observing that the objects were charitable in nature and any apprehension about future misuse could be dealt with during assessment.
  • The Revenue challenged the ITAT’s order before the Chhattisgarh High Court.

Issue Before the Court

Whether the ITAT was justified in granting registration under Section 12AA to a trust formed for the welfare of pharmaceutical dealers, despite Revenue’s contention that the benefit was restricted to a specific group.

Court’s Observations

  1. Scope of Enquiry at Registration Stage
    • The High Court reiterated that the Commissioner’s role at the stage of Section 12AA registration is confined to examining:
      • The objects of the trust.
      • The genuineness of its proposed activities.
    • A deeper inquiry into the applicability of Section 2(15) or exemption eligibility arises only during assessment.
  2. Charitable Purpose Not Limited to Public at Large
    • The Court emphasized that “charitable purpose” includes advancement of education and objects of general public utility.
    • A group of persons connected by a common trade or profession (here, pharma dealers) can still constitute a section of the public.
  3. Safeguards Available to Revenue
    • If at a later stage the trust’s activities are found to be commercial or profit-driven, the Assessing Officer has the authority to deny exemption under Sections 11 and 12.
  4. Reliance on Precedents
    • The Court relied on earlier Supreme Court and High Court judgments clarifying that registration cannot be denied merely because the benefits are directed to a particular class, as long as such class constitutes a section of the public and not specified individuals.

Decision

The Chhattisgarh High Court dismissed the Revenue’s appeal and upheld the ITAT’s decision. It held that:

  • The trust’s objectives for pharma dealers constituted charitable purposes.
  • At the registration stage, apprehensions of misuse are irrelevant.
  • ITAT rightly directed the grant of Section 12AA registration.

Key Takeaways

  • Limited Scope of CIT(E): At the registration stage, focus is only on objects and genuineness, not final taxability.
  • Section of Public Principle: A trust for a specific trade or professional community can still qualify as charitable.

  • Revenue’s Remedies: Misuse of registration can be dealt with during assessment, not by pre-emptive denial.

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