16/06/2025, 11:49

[2025] 174 [Link] 697 (Cochin - Trib.)[24-04-2025]

INCOME TAX : Mere fact that trust deed is having clause under head “Powers of the
Trustees” to receive honorarium or salary against services or involvement by trustee
does not render trust non-genuine or its activity becomes ineligible for registration
under section 12AB

■■■

[2025] 174 [Link] 697 (Cochin - Trib.)

IN THE ITAT COCHIN BENCH
Naughtys Pet Sanctuary
v.
CIT(Exemption)*
KESHAV DUBEY, JUDICIAL MEMBER
AND INTURI RAMA RAO, ACCOUNTANT MEMBER
IT APPEAL NO.543 (COCH) OF 2024
APRIL 24, 2025

Section 12A read with sections 11,12, 12AB and 13 of the Income-tax Act, 1961 - Charitable or
religious trust - Registration of - Assessee was public charitable trust engaged in
environmental and animal welfare activities - It filed application for registration under section
12A - CIT (Exemption) observed that trust deed permitted trustees to receive honorarium or
salary for services, which was considered a violation of section 13(3), and thus rejected
application - Whether mere fact that trust deed is having clause under head “Powers of the
Trustees” to receive honorarium or salary against services or involvement by trustee does not
render trust non-genuine or its activity becomes ineligible for registration under section 12AB
- Held,yes - Whether further, provisions of section 13(3) will trigger only in cases where
amount so paid to trustee by way of salary or allowance or otherwise out of resources of trust
or institution for services rendered by that person is in excess of what may be reasonably
paid for such services - Held,yes - Whether Section 13(1)(c) does not prohibit payment of
remuneration; it gets attracted if any benefit is provided to interested persons - Held,yes -
Whether if functionary is a salaried employee under an employment contract and therefore, is
being paid salary which is a contractual obligation on part of Trust then such remuneration is
permissible as payment of salary per se is not a benefit - Held, yes - Whether to establish that
some benefit was passed under section 13(1)(c), it will be incumbent on Assessing Officer to
have reasons to believe that remuneration were legally not due to employees/functionaries -
Held,yes - Whether once legal eligibility of trustees/board members to receive salaries full
time employee is not disputed, then only option available is to see reasonableness of salaries
under section 13(2)(c) - Held, yes - Whether therefore, in instant case provision of section
13(3) couldnot be pressed into play to decide eligibility of registration of Trust and
accordingly, registration sought by assessee vide application in form 10AB would be granted -
Held,yes [Paras 7.2 and 7.4][In favour of assesse]
FACTS

■ The assessee, Naughty''s Pet Sanctuary, was a public charitable trust registered in the state of Kerala. The
trust was engaged in charitable activities related to the preservation of the environment, including
watersheds, forests, wildlife, and animal welfare.

1/3
16/06/2025, 11:49

■ The assessee filed an application in Form 10AB on 30th September 2023 for final registration under section
12A.

■ The CIT (Exemption), examined the trust deed and noted that clause 5(8) under the head “Powers of
Trustees” allowed trustees to receive honorarium or salary for their services or involvement in any project
or program run by the trust. The CIT (Exemption) considered this clause to be in violation of section 13(3)
of the Act and issued a notice dated 4th January 2024 giving the assessee an opportunity to respond.

■ A personal hearing was held on 29th January 2024 by the ITO (Exemption), Kochi, where the said objection
was raised.
■ The assessee filed its reply on 22nd February 2024, submitting that no salary or honorarium was actually
paid to any trustee and that section 13(3) can be invoked only at the time of assessment and not while
processing a registration application under section 12A.

■ Despite the reply, the CIT (Exemption) rejected the application in Form 10AB filed u/s. 12A(1)(ac)(iii) filed
by the assessee and the provisional approval u/s 12A in Form in 10AC was also cancelled.

■ On second appeal:
HELD

■ On going through the annexure to Form 10AD dated 22/03/2024, one take a note of the fact that the CIT(E)
rejected the application for registration/approval on the ground that even there is a clause in the Trust deed
for paying Honorarium or salary to the trustee against his/her services or involvement in any of the project
or programs run by the trust, which is in violation of section 13(3) regardless of the fact that whether any
payment in honorarium or salary is made to specified persons, the applicant is ineligible for registration u/s
12A.[Para 7]

■ For the purpose of granting registration/approval, the CIT(E) should call for all the relevant
documents/information from the trust or make such enquiries in order to satisfy himself about the
genuineness of the activity of the trust and the compliance of such requirement of any other law for time
being in force by the trust as are material for the purpose of achieving its object and shall pass an order in
writing either by granting the registration of the trust or cancelling its registration after affording a
reasonable opportunity of being heard. Section 12AB undoubtedly requires the Commissioner to satisfy
himself about the objects of the trust or institution and genuineness of its activities and grant a registration
only if he is so satisfied. The said section requires the Commissioner to be so satisfied in order to ensure
that the object of the trust and its activities are charitable since the consequence of such registration is that
the trust is entitled to claim benefits under sections 11 and 12. In other words, if it appears that the objects
of the trust and its activities are not genuine that is to say not charitable the Commissioner is entitled to
refuse and in fact, bound to refuse such registration.[Para 7.1]

■ In the present case, the CIT(E) found in the trust deed that under the head “Powers of Trustees” there exist
clause regarding payment of honorarium or salary to the trustee against the services or involvement which
in his opinion is in violation of section 13(3). The CIT(E) is of the view that the assessee is ineligible for
registration u/s 12A regardless of whether any payment of honorarium or salary is made to the specified
persons or not. It is viewed that mere fact that the trust deed is having clause under the head “Powers of the
Trustees” to receive honorarium or salary against the services or involvement by the trustee does not render
the trust non-genuine or its activity becomes ineligible for registration u/s 12AB. Further, as rightly
contended by the assessee, as per provisions contained in section 13(2)(c), if any amount is actually paid by
way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3)
out of the resources of the trust or institution for services rendered by that person to such trust or institution
and the amount so paid is in excess of what may be reasonably paid for such services then the income of the
property shall be deemed to have been used or applied for the benefit of a person referred to in section
13(3). In the present case, as contended by the assessee, no salary has been actually paid to any of the
trustee. Therefore, merely because there is a clause in the trust deed regarding payment of honorarium or
salary to the trustee for his services or involvement in any of the project or programme run by the trust, the

2/3
16/06/2025, 11:49

application for registration/approval cannot be rejected on this sole ground especially when it has nothing to
do with the object & activity of the trust.[Para 7.2]

■ Further, the provisions of section 13(3) will trigger only in cases where the amount so paid to the trustee by
way of salary or allowance or otherwise out of the resources of the trust or institution for services rendered
by that person is in excess of what may be reasonably paid for such services. Therefore, merely by paying
the salary or honorarium for the services or involvement in any of the project or program run by the trust
which are paid reasonably for the services rendered will not violate the conditions for applicability of
section 11 & 12. The law pertaining to remuneration or fees paid to Trustees or Board Members is very
enabling and allows reasonable remuneration to Trustees or Board Members under section 13(1)(c) read
with section 13(2)(c). The Supreme Court in CIT Vs Kamala Town Trust [2005] 279 ITR89 (All) held that
section 13, carves out an exception to the general exemption granted under sections 11 and 12, to the
income derived by a trust / charitable institution. The onus lies on the Revenue to bring on record cogent
material /evidence to establish that the trust / charitable institution is hit by the provisions of section 13.
[Para 7.3]
■ Further, it is opined that any contractual compensation against services rendered is permissible, however
any benefit paid / provided is not permissible. A benefit means something which is not due to a person.
Under this understanding any unreasonable over and above what is reasonably due shall be treated as a
benefit. Forfeiture under section13(1)(c) can be done only if any benefit is provided to the Board members
or interested functionaries. Section 13(1)(c) does not prohibit payment of remuneration; it gets attracted if
any benefit is provided to interested persons. If the functionary is a salaried employee under an employment
contract and therefore, is being paid salary which is a contractual obligation on the part of the Trust then
such remuneration is permissible. There has to be a reason or cause of action to infer and conclude that any
benefit was provided to the functionary. A benefit implies payment of anything which is not legally due to a
person, therefore, the salaries paid cannot be treated as a benefit. It may also be noted that payment of salary
per se is not a benefit. To establish that some benefit was passed under section 13(1)(c), it will be incumbent
on the AO to have reasons to believe that the remuneration were legally not due to the
employees/functionaries. Once the legal eligibility of the trustees/board members to receive salaries full
time employee is not disputed, then the only option available is to see the reasonableness of the salaries
under section 13(2)(c). Therefore, one agrees with the contention of the assessee that the provision of
section 13(3) cannot be pressed into play to decide the eligibility of registration of the Trust. In view of the
above discussion, the order of the rejection passed by the CIT(E), Kochi is set aside and the registration as
sought by the assessee vide application in form 10AB dated 30/09/2023 is directed to be granted.[Para 7.4]

■ In the result, appeal filed by the assessee is allowed.[Para 8]

CASE REVIEW

CIT v. Kamala Town Trust [2005] 279 ITR89 (All) (para 7.3) – followed.
CASES REFERRED TO

CIT v. Kamla Town Trust [2006] 150 Taxman 107/[2005] 279 ITR 89 (Allahabad) (para 7.3).
Sunil Jain, A.R. for the Appellant. Smt. Leena Lal, Sr. D.R. for the Respondent.

3/3