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"9. Section 12AA 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 of the Act. 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

12. Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term 'activities' in the provision includes 'proposed activities'. That is to say, a Commissioner is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust. In contrast, the position would be different where the Commissioner proposes to cancel the registration of a Trust under sub-section (3) of section 12AA of the Act. There the Commissioner would be bound to record the finding that an activity or activities actually carried on by the Trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found to have undertaken activities contrary to the objects of the Trust."

20. That the Hon'ble Allahabad High Court in the case of CIT v Red Rose School [2007] 163 Taxman 19 (Allahabad) held that: "Section 12AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean that they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere and not against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution. [Para 34]" That similarly Jurisdictional High Court in the case of CIT v. Babu Ram Education Society [2018] 96 taxmann.com 606 (All.) wherein at the instance of the Department order passed by the Agra Bench of the ITAT was put up for judicial scrutiny before the Hon'ble Allahabad High Court. The Hon'ble Court held as under: "Section 12A of the Income- tax Act, 1961 - Charitable or religious trust - Registration of (General) - Whether registration of trust does not involve enquiry into actual activities or application of funds, etc. and at that stage, only enquiry required to be conducted is with respect to object of trust alone and if assessee is found to have been actually engaged in any non-charitable activity, benefit of exemption may be denied in manner provided by Act - Held, yes - [Para 7] [In favour of assessee] (Head Note)" That In the case of CIT v. Spring Dale Educational Society [2011] 16 taxmann.com 282/[2012] 204 Taxman 11 (Mag.) the Hon'ble Punjab & Haryana High Court held as under: "Section 12AA of the Income-tax Act, 1961 - Charitable or religious trust - Registration procedure - Assessment year 201011 - Whether while examining application seeking registration under section 12AA, manner of application of funds of trust do not fall within purview of Commissioner; Commissioner should only satisfy himself about genuineness of aims and objects of trust/institution and genuineness of its activities as enumerated in clause (b) of sub-section (1) of section 12AA - Held, yes" That in the case of Vigyadayani Shiksh Samiti v. CIT (Exemption) [IT Appeal No. 309 (Delhi) of 2016, dated 14-12-2017] wherein while addressing the identical objection raised by the ld. CIT(E), the Hon'ble Lucknow ITAT held as under:

Rs. 3,87,000/- and Sh. Raj Kumar Nayyar : Rs. 10,00,000/-) and not an amount of Rs. 14 lac as stated by the CIT(E) in his order passed under Sec. 12AA(1)(b)(ii); (ii) that the aforesaid amount of Rs. 13,87,000/- was received by the assessee society as a 'security deposit' from its tenants S/sh. Rajiv Jain and Raj Kumar Nayyar, and not towards advance rent as find mentioned in the order passed by the CIT(E) under Sec. 12AA(1)(b)(ii). As observed by us hereinabove, the CIT(E) had traversed beyond the scope of his jurisdiction and instead of confining himself to the aspect of the genuineness of the activities of the assessee society, had rather embarked upon the issues which though would be relevant at the stage of framing of assessment but would have no bearing to the extent judging of the genuineness of the activities of the assessee society are concerned. Be that as it may, even otherwise as the 'security deposit' received by the assessee society from S/sh. Rajiv Jain and Raj Kumar Nayyar in the F.Y. 2015-16 could not be included in the 'total income' of the assessee for the F.Y. 2015-16, thus no infirmity as regards the manner in which the aforesaid amount has been reflected by the assessee in its final accounts for said year is liable to be drawn. Insofar the observations of the CIT(E) that the inconsistency between the annual rental income of Rs. 10,000/- and Rs. 14,000/- shown by the assessee in F.Y. 2015-16 and F.Y. 2016-17 on the one hand and the advance rent of Rs. 14 lacs is concerned, we are unable to subscribe to the said observations of the CIT(E), which as observed by us hereinabove is based on misconceived facts. As observed by us hereinabove, as the amount of Rs. 13,87,000/- (sic Rs. 14 lac) is the amount received by the assessee society as a 'security deposit' from its tenants, therefore, no feasible comparison between the rent received by the assessee society and the said security deposit can be drawn. Be that as it may, in our considered view the quantum of rent received by the assessee society from its tenants would not have any bearing for verifying the genuineness of the activities of the assessee society. As regards the observations of the CIT(E) that as to what necessitated the purchase of additional land by the assessee society in F.Y. 2015-16, and that there was no evidence as to whether the same was for educational purposes, we find it beyond our comprehension as to how the same would have any bearing for verifying the genuineness of the activities of the assessee society. In our considered view, if subsequently the said land which had been purchased by the assessee society in furtherance of its objects of providing education is used for any purpose which is not as per the objects of the assessee society, then the CIT(E) is vested with the powers under sub-section (3) of section 12AA to cancel the registration so granted to the assessee society. However, in our considered view no adverse inference as regards the genuineness of the activities of the assessee society could have validly been drawn for the reason that it had purchased additional land for the furtherance of its objects. We shall now advert to the observations of the CIT(E) that as the surplus of income over expenditure (without considering depreciation) of the assessee society was between 20% to 30% of its gross receipts during the last three years, therefore, it substantially proved that the emphasis of the assessee society was on generating excessive surpluses. In our considered view, in order to characterize a trust or an institution as one which has as its object profit making, it must be shown that the predominate object of the activity in the case of such trust or institution was that of making of a profit. In fact, where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would be incorrect to describe it as an activity for profit. However, on the other hand where the activity is carried on with the predominate object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. In sum and substance, the predominate object of a charitable trust or institution is to carry on activities to sub serve the charitable purpose and not to earn profit. Rather, the charitable purpose should not be submerged by the profit making motive. Fairly stating, the purpose of a charitable trust must be essentially charitable in nature and it should not be a cover for carrying on an activity which has profit making as its predominate object. In our considered view, it would indeed be difficult for a trust or institution to so carry on its activity that the expenditure balances the income and there is no resulting profit. As observed by the Hon'ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust (1975) 101 ITR 234 (SC), if the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. It was observed that the test now is the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity. In terms of our aforesaid observations, we are of the considered view that an activity involved in carrying out the charitable purpose must not be motivated by a profit objective, but must be undertaken for the purpose of advancement or carrying out of the charitable purpose. Rather, as observed by the Hon'ble Supreme Court in the case of CIT Vs. Surat Art Silk Cloth Manufactures Association (1980) 121 ITR 1 (SC), in order to ascertain as to whether a trust or an institution is carried on with the object of making profit or not, it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to objects for which such trust or institution had been established. In our considered view, where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus would not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. We are further of the view that in the case of an educational institution where the surplus generated during the year is ploughed back for education purposes, it can safely be concluded that the educational institution exists solely for educational purposes and not for the purposes of profit. In the case before us, we find that except for the fact that the assessee society in furtherance of objects of providing education had consistently generated surplus during the last three preceding year, nothing is discernible from the records of the lower authorities which would irrefutably prove that generation of such surplus and not rendering of the education was the predominate object of the assessee society. In fact, we find that the surplus in the hands of the assessee society (after claim of depreciation) ranges from 15% to 23%. The aforesaid surplus we find had been ploughed back by the assessee society for the furtherance of its object. We thus in terms of our aforesaid observations are of the considered view that the generation of surplus by the assessee society in furtherance of its predominate object of rendering education can in no way help to arrive at a conclusion that the emphasis of the assessee society was on generation of excessive surplus and not rendering of education. We thus in terms of our aforesaid observations are unable to subscribe to the view taken by the CIT(E) that the genuineness of the activities of the assessee society was not proved. In terms of our aforesaid observations, we are of the considered view that the CIT(E) had erred in declining to grant registration under Sec. 12AA to the assessee society. We thus set aside the order of the CIT(E) and direct him to grant registration under Sec. 12AA to the assessee society."