12A Registration Cannot Be Denied for Procedural Lapses under State Acts
Issue
Whether the Commissioner (Exemption) can deny registration under Section 12AB read with Section 12A solely on the ground that the trust accepted loans/advances from trustees without obtaining prior permission from the Charity Commissioner as required under Section 36A of the Maharashtra Public Trusts Act (MPTA).
Facts
The Entity: An assessee-trust running government-approved educational institutions.
The Application: The trust applied for fresh registration under Section 12A.
The Rejection: The Commissioner (Exemption) rejected the application. The sole reason cited was that the trust had taken loans from its trustees without the prior permission of the Charity Commissioner, which is a requirement under Section 36A of the MPTA. The Commissioner treated this as a “violation of law” under Section 12AB(1)(b)(B), rendering the trust ineligible.
Assessee’s Defense: The loans were used exclusively for the objects of the trust (education), and no encumbrance (mortgage/lien) was created on the trust property.
Decision
The Tribunal ruled in favour of the assessee.
Procedural vs. Substantive: The Tribunal held that failure to obtain prior permission under the State Act (MPTA) was merely a procedural lapse. It did not amount to a “material violation of law” that would compromise the charitable nature of the trust.
Utilization of Funds:
It was noted that the funds were genuinely utilized for the trust’s educational objects. Since the money flowed into the trust for its benefit and not out of it for the trustees’ benefit, the core requirement of Section 12A was met.
No Encumbrance: The absence of any charge or encumbrance on trust property further mitigated the gravity of the lapse.
Key Takeaways
Scope of Section 12AB: The primary inquiry for registration is the genuineness of activities and compliance with the objects of the trust. Non-compliance with procedural sections of other laws (like the Public Trusts Act), provided they don’t question the charitable intent, are usually curable and not grounds for rejection.
Distinction in Violations: Not every statutory non-compliance is a “violation of law” that warrants cancellation of tax exemption. The violation must be material to the trust’s charitable status.
80G Approval is Consequential to 12A Registration
Issue
Whether Section 80G approval can be denied when the rejection is based solely on the denial of Section 12A registration, which has subsequently been overturned.
Decision
The Tribunal ruled in favour of the assessee.
Automatic Grant: Since the rejection of Section 12A registration was set aside (as discussed above), the sole basis for rejecting the Section 80G application disappeared.
Direction: The Commissioner (Exemption) was directed to grant the approval under Section 80G, as the trust was now eligible under Section 12A.
IN THE ITAT PUNE BENCH ‘A’
Arham Foundation
v.
Commissioner of Income-tax, Exemption*
Rama Kanta Panda, Vice President
and Vinay Bhamore, Judicial Member
and Vinay Bhamore, Judicial Member
IT Appeal Nos.1584 & 1585 (PUN) OF 2025
OCTOBER 29, 2025
Prasad S. Bhandari, CA for the Appellant. Rakesh Jha, CIT(DR) for the Respondent.
ORDER
Vinay Bhamore, Judicial Member. – These two appeals filed by the assessee are directed against the separate orders of ld.Commissioner of Income Tax(Exemption), Pune rejecting the application for grant of registration u/s.12A r.w.s 12AB and 80G(5) of the Income Tax Act, 1961(hereinafter referred to as „the Act’) both dated 21.05.2025 respectively. For the sake of convenience, these two appeals were heard together and are being disposed of by this common order. We treat the appeal in ITA No.1585/pUN/2025 as lead case.
2. Facts of the case in brief are that the Assessee filed application in Form No.10AB for registration u/s.12A of the Act, on 07.11.2024 before the ld.Commissioner of Income Tax(Exemption)[ld.CIT(E)]. The ld.CIT(E) issued notices to the Assessee. Assessee filed details. Ld.CIT(E) after considering the submission of the Assessee held that since Assessee has not obtained prior permission of Charity Commissioner u/s.36A of the Maharashtra Public Trust Act, before taking loans from the Trustees, hence, Assessee is not eligible for registration u/s.12A r.w.s. 12AB of the Act. Accordingly, ld.CIT(E) rejected the application of the Assessee. Aggrieved by the order of the ld.CIT(E), Assessee filed appeal before this Tribunal.
3. Ld.AR submitted that Assessee Trust is running School, two junior colleges and a Senior College. All the colleges are duly registered with the Savitribai Phule Pune University and Government of Maharashtra. Ld.AR invited our attention to page no.21 – 24 of the paper book which are the approvals issued by Savitribai Phule Pune University dated 03.07.2019 for Arham College of Arts and Commerce. Similarly, the Board of Secondary Education, Government of Maharashtra has approved the college on 15.06.2023. He submitted that Arham Law College was approved on 07.10.2022 by Savtribai Phule Pune University(page 31 of the paper book).
3.1 The Ld.AR drew the attention of the Bench to the following note :
“The Foundation has received some of the most prestigious awards and recognistions at national and international level. We have also been involved in various social activities such as recognizing talents amongst Divyang students through Divyang National Awards, integrating students of Kashmir Valley via Kashmir Festival, cleaning various historical places around Pune under Swatchch Bharat Abhiyaan, offering scholarships to over 3500 underprivileged students, etc. “
3.2 He also drew the attention of the Bench to the list of Educational Institutes run by Assessee, which is as under :
| Arham | School and Junior College |
| Arham | College of Arts and Commerce |
| Arham | International Institute of Information Security |
| Arham | Law College |
3.3 Ld.AR submitted that Assessee Trust is duly registered with Charity Commissioner having Registration Number “F-48533/p”. Referring to Pages 38 to 48 of the paper book, he submitted that the Assessee has been regularly submitting Audited Profit and Loss Account, Balance Sheet as per Section 33 of the Maharashtra Public Trust Act to Charity Commissioner. He submitted that all these details were filed before ld.CIT(E).
3.4 Ld.AR further submitted that ld.CIT(E) has rejected Assessee’s application on frivolous ground. He submitted that for the purpose of Objects of the Trust, the Trustees had advanced some money to the Trust as and when required, so that the activities are not hampered. These advances had not created any encumbrances on the Property of the Trust. Ld.AR submitted that Section 36A of Maharashtra Public Trust Act will not be applicable in such scenario. Ld.AR further submitted that Assessee has regularly filed Audited Balance Sheet, Profit and Loss Account before the Charity Commissioner and the Charity Commissioner has never raised any objection or issued any show cause notice to the Assessee u/s.36A of the Act, therefore, it impliedly means that it is not violation of Section 36A of the Act. Ld.AR submitted that at the time of registration, ld.CIT(E) only has to verify objects and activities of the Trust. Ld.AR further submitted that Assessee Trust has fulfilled all the conditions, hence, Assessee Trust is eligible for registration u/s.12A of the Act. He also relied on decision of Pune Bench of the Tribunal in the case of Baramati Vipassana Samiti vide v. CIT (Exemption) [IT Appeal Nos.2642 & 2643(PUN) of 2024,dated 03-04-2025 ] and Nagpur Bench of the Tribunal in the case of Vyankanath Maharaj v. ITO [ITA No. 398(NAG) of 2024, dated 21-03-2025].
4. Ld.DR for the Revenue on the other hand relied on the order of ld.CIT(Exemption).
5. We have heard both the parties and perused the record. Assessee has filed copy of e-proceeding acknowledgment at page no.67, 68, 69 and 70 of the paper book, which gives list of documents filed by Assessee before the ld.CIT(E).
5.1 On perusal of the paper book filed by the Assessee, it is observed that Assessee is running following educational institutes :
| Arham | School and Junior College |
| Arham | College of Arts and Commerce |
| Arham | International Institute of Information Security |
| Arham | Law College |
5.2 All the above educational institutes are duly approved by the Competent Authority. Copies of the approval have also been filed by the Assessee in the paper book. These facts have not been challenged by ld.CIT(E) or ld.DR for the Revenue.
5.3 Thus, it is an admitted fact that Assessee Trust is running duly approved Educational Institutes. It is also an admitted fact that Assessee is registered with the Charity Commissioner and has submitted Audited Financials before the Charity Commissioner as per Maharashtra Public Trust Act.
5.4 As per Section 2(15) of the Act, Charitable Purpose includes Education. Thus, Assessee’s activities are as per the definition of Section 2(15) of the Act. This fact has not been doubted by ld.CIT(E).
5.5 On perusal of the order of ld.CIT(E), it is noted that ld.CIT(E) has rejected Assessee’s application for grant of registration u/s.12A r.w.s 12AB of the Act, only on one ground that Assessee had taken certain loans/advances without obtaining prior permission of Charity Commissioner. Therefore, ld.CIT(E) held that Assessee has violated provisions of Section 36A of Maharashtra Public Trust Act.
5.6 It is the submission of Ld.AR that the Trustees have provided certain advances to the Trust as and when required, which were utilized by the Trust for the purpose of the objects of the Trust.
5.7 We find Hon’ble Bombay High Court in the case of Ashok Shreekrishna Beharay v. Joint Charity Commissioner [Writ Petition No.8180 of 2025, dated 16-10-2025] has observed as under :
“17. The aforesaid restriction in the matter of borrowing is necessary because, though the property of the public trust vests in the trustees, yet, they are not the owners of the trust property. The property vests in them for the purpose of discharge of the object of the Trust or for the benefits of the beneficiaries. It is, therefore, imperative that the trustees of a public trust do not have unfettered power to borrow the money on the credit of the property of the Trust and thereby encumber the property of the Trust. The legislature, therefore, considered it imperative to put restrictions in the matter of borrowing for the purpose or on behalf of Trust and vest authority in the Charity Commissioner to accord sanction for such borrowing as the Charity Commissioner exercises parens petrie jurisdiction. “
5.8 In the instant case we find the Trustees have given advances to the Trust without creating any encumbrances on property of the Trust. Thus, the advances are unsecured. Further it is an undisputed fact that the advances have been used for the purpose of the objects of the trust.
5.9 We find an identical issued had come up before the Nagpur Bench of the Tribunal in the case of Vyankanath Maharaj (supra) has held as under :
“12. We have given our thoughtful submissions to the facts and have dispassionately heard all the arguments. The procedural breach is venial and not material for the purpose of achieving its objects. Moreover, the loan has not been taken by way of encumbrance of assets from any particular deficiency. The learned CIT(E) has been given onerous responsibility to grant registration under section 12AB of the Act and registration and cancellation can be proceeded with only after affording a reasonable opportunity of being heard. The reply of the Trust that loan has been subsequently repaid has been glossed over and a mere procedural irregularity, which is curable defect has been amplified to deny registration. Moreover, once provisional registration has been granted under section 12AA, under section 12AB(4) of the Act, the learned CIT(E) is perfectly empowered to cancel such registration, if specified violation has taken place. Clause (f) of Explanation clearly lays down the requirement of order; direction or decree, holding such non-compliance has remained undisputed or has attained finality. Such circumstances are non-existent in this case. Accordingly, the provisional registration needs to be converted to final registration. We direct accordingly. Consequent upon our directions based on the findings cited supra, we set aside the impugned order passed by the learned CIT(E) by allowing all the grounds raised by the assessee. “
5.10 We find Pune Bench of the Tribunal in the case of Baramati Vipassana Samiti(supra) has directed ld.CIT(E) to grant registration u/s.12A of the Act to the Trust by observing as under :
“8. We have heard both the parties and perused the material on record. On perusal of the order under section 12A(1)(ac)(vi) of the Act, it is observed that ld.CIT(E) has rejected assessee’s application only one ground i.e. Assessee had not taken prior permission of Charity Commissioner before taking Loan of Rs.1,15,800/-. Ld.CIT(E) was of the opinion that at least post-facto permission should have been taken. It is noted that ld.CIT(E) has not discussed about the activities of the Assessee, it means ld.CIT(E) has accepted that activities of the assessee are charitable in nature. We have perused the paper book filed by the assessee. It is observed that assessee has conducted various training courses for Vipasana Training which is a Ancient Meditation Technique. We have also perused the trust deed and noted that following are the objects of the trust :
| (i) | To establish and operate centres and secular educational institutes for teaching of and training in Vipassana as taught by S.N.Goenkaji in the Tradition of Sayagyi U Ba Khin; open to all irrespective of caste, creed, gender, religion or nationality. |
| (ii) | To acquire lands and buildings for the purposes of establishing centers and institutes; |
| (iii) | To Hold/Host Vipassana courses, arrange lectures, discourses and seminars for teaching of and add educational training in Vipassana; without taking any fees or charges for Teaching, and for the standard Lodging & boarding facilities provided by the center. |
| (iv) | To otherwise promote and further the spread of the awareness and practice of Vipassana Meditation in the region of the Trust and throughout the world. |
| (v) | The trust shall not carry on any Activiti for earning profit. However, if any income is generated out of/on account of trust activities/properties the same will be solely applied / utilized in furtherance of trust objects. The beneficiaries are public at large and not any specific community/individuals. |
8.1 Thus, we are of the opinion that objects and activities of the trust are charitable in nature as defined in Section 2(15) of the Act. As far as the issue of obtaining a meagre loan of Rs.1,15,800/- is concerned, it is observed that assessee had submitted PAN and Aadhar of the Lenders. The ld.CIT(E) has not doubted the genuineness of the loan. During the proceedings, a letter has been submitted which states that assessee has applied for post-facto permission from Charity Commissioner with reference to the said loan. Thus, as stated by ld.CIT(E) in his order, the assessee has applied for post-facto permission. It is observed that on identical facts, ITAT Nagpur in the case of Prerana Samajik Sanskrutik Bahuddeshiya Shikshan Sanstha v. CIT(E) in ITA No.376/NAG/2023 has allowed the assessee’s appeal and directed ld.CIT(E) to grant registration under section 12A of the Act. In these facts and circumstances of the case, we are of the opinion that Assessee is eligible for registration under section 12A(1)(ac) of the Act. Accordingly, we direct the ld.CIT(E) to grant registration u/s.12A of the Act to the assessee. Accordingly, grounds of appeal raised by the assessee are allowed.
9. In the result, appeal of the assessee in ITA No.2642/pUN/2024 is allowed.”
5.11 We find the provisions of Section 12AB(1)(b) of the Income Tax Act, 1961 is reproduced here as under :
“12AB. (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,—
(a) where the application is made under sub-clause (i) of the said clause, pass an order in writing registering the trust or institution for a period of five years;
(b) where the application is made under sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) 66[or item (B) of sub-clause (vi)] of the said clause,—
(i) call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about—
(A) the genuineness of activities of the trust or institution; and
(B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects;
(ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A) and compliance of the requirements under item (B), of sub-clause (i),—
(A) pass an order in writing registering the trust or institution for a period of five years; or ”
5.12 Thus, as per provisions of Section 12AB(1), ld.CIT(E) has to verify only the genuineness of the activities of the Trust and compliance of such requirements of any other law by the Trust as are material for the purpose of achieving its objects.
5.13 In this context, in the case of the Assessee-Arham Foundation, objects and activities of the Assessee Trust had not been doubted by the ld.CIT(E). We have already noted that Arham Foundation is running educational institutions. Thus, objects of the Assessee and Activities of the Assessee are charitable in nature. Therefore, there is no doubt about the genuineness of the activities of the Assessee Trust.
5.14 Now, coming to the second condition, compliance of such requirement of any other law as are material for the purpose of achieving its objects. In this case, advances taken from Trustee’s have been used for objects of the Trust.
5.15 As mentioned earlier, no encumbrances have been created on the property by the impugned loans/advances given by Trustee. In these facts and circumstances of the case and respectfully following the judgment of Hon’ble Bombay High Court cited(supra) and the decision of ITAT, we are of the considered opinion that the nonobtaining of prior permission of Charity Commissioner for impugned advances/loans is a procedural lapse and is not a violation of law as envisaged in Section 12AB(1)(b)(B) of the Act. Therefore, we are satisfied that Assessee’s objects are charitable in nature and activities are also charitable in nature as defined in Section 2(15) of the Act.
5.16 In these facts and circumstances of the case, we are of the opinion that Assessee is eligible for registration u/s.12A r.w.s 12AB of the Act. Accordingly, we set-aside the order of Ld.CIT(E) and direct him to grant registration u/s.12A r.w.s 12AB of the Act.
6. In the result, appeal of the Assessee is allowed.
ITA No.1584/pUN/2025 – Section 80G :
7. Ld.CIT(E) has rejected assessee’s application for registration u/s.80G of the Act, only on one ground that Assessee is not having registration u/s.12A r.w.s 12AB of the Act. Since we have already directed ld.CIT(E) to grant registration u/s.12A r.w.s 12AB of the Act, therefore, we direct ld.CIT(E) to grant registration u/s.80G of the Act.
8. In the result, appeal of the Assessee in ITA No.1584/pUN/2025 is allowed.
9. To sum up, both the appeals of the Assessee are allowed.