ITAT Remands 12AA Registration Refusal; CIT(E) Erred by Focusing on Past Corpus Grants Instead of Charitable Objects
Issue
Whether the Commissioner of Income Tax (Exemption) [CIT(E)] can refuse registration under Section 12AA solely on the ground that the applicant treated certain corpus grants as exempt in its balance sheet prior to registration, instead of examining the charitable nature of its objects and activities.
Facts
Applicant: A society formed for educational purposes.
The Rejection: The CIT(E), Chandigarh, rejected the society’s application for registration under Section 12AA.
CIT(E)’s Reasoning:
The applicant had shown receipts like “Corpus Grants” (₹11 lakhs in FY 2015-16), “Government grants” (₹5 lakhs in FY 2017-18), and “Building Fund” (₹7.28 lakhs in FY 2018-19) directly in the Balance Sheet.
The CIT(E) held that since the society was not registered under Section 12A/12AA at that time, these amounts were taxable income and should have been credited to the Income & Expenditure account.
Citing various judgments (like U.P. Forest Corporation), the CIT(E) argued that exemptions under Section 11 (including for corpus) are available only to registered entities.
The CIT(E) concluded that the trust had “illegally taken the benefit” of exemption and subverted tax laws by not paying tax on these amounts, rendering it ineligible for registration.
Decision
The Income Tax Appellate Tribunal (ITAT) allowed the appeal for statistical purposes.
Reversal of Order: The Tribunal reversed the CIT(E)’s order refusing registration.
Scope of Inquiry: The ITAT held that at the stage of Section 12AA registration, the CIT(E)’s inquiry is limited to examining:
The genuineness of the charitable objects in the trust deed.
The activities proposed to be carried out in furtherance of those objects.
Misplaced Focus: The issue of how corpus grants were treated in past years (application of income) is a matter for assessment proceedings under Section 11, not a ground to deny initial registration.
Reliance on Supreme Court: The Tribunal relied on the Supreme Court decision in CIT(E) Vs. International Health Care Education & Research Institute (2025) to reinforce the limited scope of inquiry.
Direction: The matter was remanded back to the CIT(E) to pass a fresh order according to the law, examining the objects and activities, preferably within three effective opportunities.
Key Takeaways
Registration vs. Assessment: There is a strict separation of powers. The CIT(E) grants registration based on objects and genuineness. The Assessing Officer (AO) determines taxability of specific receipts (like corpus donations) during assessment.
Past Conduct regarding Income: Alleged non-compliance in tax payments for prior years (pre-registration) is not a valid ground to deny registration for the future if the objects are genuinely charitable.
Scope of Section 12AA: The authority cannot expand the scope of the registration inquiry to conduct a full-fledged scrutiny of past financial treatments.
Supreme Court Precedent: The 2025 SC ruling cited (International Health Care) is now a binding precedent ensuring authorities stick to the mandate of verifying objects and activities only.
INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: ‘G’ NEW DELHI
Shree Jagat Guru
Brahmanand Gaushala Samiti,
Village-Kurana Panipat, Panipat
Vs.
CIT(E),Chandigarh
ITA No.297/Del/2022
Date of pronouncement 03.11.2025
Judgement :- 1763019064-QvhYKn-1-TO