Guidelines to the AOs-29
Regarding cancellation of registration of trust
Guidelines to the AOs-29
Regarding cancellation of registration of trust
A. Preliminary Verification
(i) Confirm legal existence of trust/institution: Ensure that the trust is constituted through a registered trust deed, society registration, or statute and that the legal identity is verifiable.
Investigation:
i. Obtain and verify original registration documents.
Cross-check with Registrar of Societies/Charity Commissioner records.
Verify PAN and GST registrations, if any, to ensure operational authenticity.
(ii) Examine application completeness: Check that the application under Section 12A/12AB is fully supported by documents such as the founding deed, PAN, prior registrations, activity reports, and financial statements.
Investigation:
i. Compare application details with uploaded documents in the Income Tax portal.
ii. Flag missing or inconsistent documentation.
iii. Call for clarification or additional information where necessary.
(iii) Cross-check registration requirements with other laws: Validate whether the trust is registered under other relevant laws such as Societies Registration Act, Indian Trusts Act, or relevant state charitable laws.
Investigation:
i. Access state-level registration databases.
ii. Verify the registered office address and functioning of trustees.
iii. Conduct telephonic or physical verification if documents appear suspicious.
B. Examination of Objectives:
(i) Analyze objects clause carefully: Objectives must strictly fit into the definition of “charitable purpose” under Section 2(15).
Investigation:
i. Review the trust deed word-by-word.
ii. Flag ambiguous or profit-oriented language such as “commercial activities for profit.”
iii. Seek legal vetting if objects are partially charitable and partially business-oriented.
(ii) Identify profit-oriented or non-charitable objectives: Look for clauses permitting profit distribution or activities benefiting a limited group rather than the general public.
Investigation:
i. Trace amendments to the trust deed, if any, with local registration authority.
ii. Compare with judicial precedents to classify objects as charitable or non-charitable.
(iii) Mixed or vague objects: Mixed purposes (charitable and non-charitable) are a ground for rejection unless clear restrictions are included.
Investigation:
i. Verify whether trust rules include safeguards preventing diversion of funds to non-charitable ends.
ii. Ask trustees to explain how ambiguous activities are executed in practice.
C. Verification of Activities
(i) Match activities with declared objects: Actual activities must reflect the stated charitable objectives.
Investigation:
i. Collect photographs, reports, and beneficiary lists of recent programs.
ii. Compare these with expenditure details in financial statements.
iii. Conduct interviews with beneficiaries to confirm genuineness.
(ii) Field inquiry: Conduct local enquiries to confirm on-ground charitable work.
Investigation:
i. Visit the trust’s premises and field project locations.
ii. Speak with local government officials, vendors, and community leaders.
iii. Record statements where discrepancies are observed.
(iii) Early-stage trusts with limited activities: Evaluate intent and readiness to perform charitable work even if activities are minimal.
Investigation:
i. Review trust’s financial projections and donor commitments.
ii. Verify agreements for future projects or partnerships.
iii. Ask for detailed activity plans and supporting feasibility documents.
D. Financial Scrutiny:
(i) Audit of accounts: Trust accounts must be well-maintained and audited annually.
Investigation:
i. Review audit reports and statutory compliance certificates.
ii. Match donations, grants, and expenses with bank statements.
iii. Look for discrepancies in cash transactions or unrecorded income.
(ii) Sources of funds: Identify the origin of donations and contributions to prevent misuse.
Investigation:
i. Trace large or unusual donations to their source.
ii. Use bank KYC information and verify donor PAN details.
iii. Flag anonymous or foreign contributions for deeper scrutiny under FCRA.
(iii) Application of income: Ensure at least 85% of income is applied to charitable activities.
Investigation:
i. Compare annual income with expenditure heads.
ii. Identify excessive accumulation or diversion to fixed assets not used for charity.
iii. Request explanations for unspent balances.
(iv) Benefit to trustees or related parties: Section 13 prohibits direct/indirect benefit to specified persons.
Investigation:
i. Review payments made to trustees or their relatives.
ii. Examine related-party transactions such as rent, salaries, or vendor contracts.
iii. Cross-check with public records to confirm relationships.
E. Prohibited Activities and Red Flags
(i) Political or religious bias: Activities must not favour political parties or specific communities unless constitutionally permitted.
Investigation:
i. Review social media, event reports, and advertisements.
Identify links to political organizations or parties.
Verify whether religious activities serve the general public or a closed group.
(ii) Commercial activities: Substantial business operations not incidental to charity disqualify registration.
Investigation:
i. Analyze income streams for commercial ventures.
ii. Check for GST registration or invoices for non-charitable activities.
iii. Seek clarifications on whether profits are plowed back into charitable causes.
(iii) Non-genuine trusts: Detect bogus trusts used for tax evasion or laundering.
Investigation:
i. Compare donations with known tax evasion patterns, such as circular transactions.
ii. Use intelligence database inputs like FIU-IND or internal revenue alerts.
iii. Match beneficiaries’ details with Aadhaar or government welfare databases.
F. Procedural Compliance:
(i) Provide opportunity of being heard: Rejection must follow natural justice principles.
Investigation:
i. Issue a show-cause notice detailing reasons for proposed rejection.
Document replies and conduct personal hearings.
Keep audio/video or written records of proceedings.
(ii) Recording of satisfaction: Orders must clearly state findings on genuineness of activities and objects.
Investigation:
i. Maintain a structured report summarizing evidence for rejection.
ii. Ensure the order cites specific statutory breaches with supporting proof.
(iii) Timely disposal: Registration applications must be processed within statutory deadlines.
Investigation:
i. Maintain a timeline tracker for each case.
ii. Avoid delays by parallelly seeking clarifications while examination continues.
G. Legal Provisions and Judicial Guidance:
(i) Refer to relevant provisions: Sections 11, 12, 12A, 12AB, and 13 govern registration and compliance.
Investigation:
i. Keep a ready reference of statutory text and CBDT circulars.
Apply Supreme Court and High Court rulings in similar cases.
(ii) Use precedents: Align decisions with past judicial interpretations.
Investigation:
i. Maintain a database of relevant judgments for reference.
ii. Consult legal cell for clarification on complex cases.
H. Documentation and Reporting:
(i) Maintain a comprehensive investigation report
A strong case for rejection requires thorough documentation.
Investigation:
i. Include trust deed analysis, field visit notes, and financial scrutiny findings.
Attach photographs and beneficiary statements as evidence.
Submit the report to higher authorities for review before final action.
(ii) Common Grounds for Rejection
i. Objects not within Section 2(15) definition of charity.
ii. Absence or non-genuineness of activities.
iii. Private profit motives or benefits to trustees.
iv. Political, religiously restrictive, or commercial activities.
v. Poor record-keeping or fake documents.
vi. Non-compliance with audit, filing, or disclosure requirements.
Investigation:
a) Correlate findings across objectives, financials, and field reports.
b) Prepare a checklist scorecard to justify rejection based on evidence.