Existing 12AA Registration is a Valid Basis for Granting 80G Approval.

By | October 30, 2025
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Existing 12AA Registration is a Valid Basis for Granting 80G Approval.

Issue

Can the Commissioner of Income Tax (Exemptions) deny an application for approval under Section 80G by questioning the charitable nature of an institution (e.g., for generating a surplus from student fees), when the same institution already holds a valid and subsisting registration as a charitable entity under Section 12AA of the Income-tax Act?

Facts

  • The assessee, a society running an architecture college, held a valid registration as a charitable institution under Section 12AA.
  • It filed an application in Form 10G seeking approval under Section 80G to make donations to it tax-deductible for the donors.
  • The local tax officers (JCIT/AO) recommended rejecting the application. Their reasoning was that the society was primarily running a college, charging fees, and generating a surplus, which they argued was not a charitable activity.
  • Based on this adverse report, the Commissioner (Exemptions) [CIT(E)] rejected the Section 80G application.
  • The assessee appealed to the Income Tax Appellate Tribunal (ITAT), which set aside the CIT(E)’s order. The ITAT’s reasoning was simple: since the society’s charitable status was already established and certified through its valid 12AA registration, it was entitled to 80G approval.
  • The Revenue challenged the ITAT’s decision in the High Court.

Decision

 

  • The High Court ruled in favour of the assessee, upholding the ITAT’s order.
  • It held that the ITAT had correctly identified the legal position: a valid and subsisting registration under Section 12AA is a sufficient basis to establish the charitable nature of an institution.
  • The CIT(E), while considering an 80G application, cannot re-adjudicate or question the fundamental charitable character of an entity if its 12AA registration is in force.
  • The court directed the CIT(E) to grant the approval under Section 80G as ordered by the Tribunal.

Key Takeaways

  • 12AA Registration is the Gateway: The registration under Section 12AA is the primary and fundamental certification of an entity’s charitable character. Section 80G approval is a subsequent benefit that builds upon this established status.
  • No Second Guessing at 80G Stage: The authority granting 80G approval cannot sit in appeal over the 12AA registration. The scope of inquiry for 80G is limited to the conditions specified within that section and does not extend to a fresh examination of the institution’s charitable objects.
  • Generating Surplus is Not Anti-Charitable: A charitable institution, including an educational one, is not barred from generating a surplus. The critical test, which is examined during the annual assessment by the AO, is whether this surplus is applied back towards its charitable objects.
  • Education is a Charitable Purpose: The act of imparting education is explicitly defined as a “charitable purpose” under Section 2(15) of the Income-tax Act. Running a college is, therefore, a prima facie charitable activity.
HIGH COURT OF CHHATTISGARH
Commissioner of Income-tax (Exemption)
v.
Dignity Education Society
SANJAY K. AGRAWAL and Radhakishan Agrawal, JJ.
TAXC No. 87 of 2022
NOVEMBER  28, 2024
Vijay Chawla, Adv. and Amit Chaudhari, Standing Counsel for the Appellant. Ms. Smiti Sharma, Adv. for the Respondent.
JUDGMENT
Sanjay K. Agrawal, J.- This tax appeal under Section 260A of the Income-tax Act, 1961 (for short, ‘the IT Act’) has been preferred by the Revenue calling in question legality, validity and correctness of judgment & order dated 9-6-2022 passed by the Income Tax Appellate Tribunal, Raipur Bench, Raipur (for short, ‘the ITAT’) in ITA No.31/RPR/ 2019, by which the appeal filed by the assessee / respondent herein has been allowed by the ITAT with a direction to the appellant herein to grant approval to the assessee under Section 80G(5) of the IT Act.
2. The appeal was admitted for hearing on 1-3-2023 by formulating the following substantial question of law: –
“Whether in the attending facts and circumstances of the case, the Income Tax Appellate Tribunal (ITAT) was correct in holding that the Commissioner of Income Tax (E) was not justified in rejecting the application of the respondent for grant of benefit of exemption under Section 80G(5) of the Act of 1961 and issuing direction to grant of exemption as sought for by the respondent society?”
3. The aforesaid substantial question of law arises for consideration on the following factual backdrop: –
4. The assessee / respondent herein has applied in Form 10G for exemption under Section 80G of the IT Act and thereafter, opportunity letters were issued to the assessee and various documents / details were called for to process the said application and to verify the objects and activities of the assessee in response to which the assessee submitted reply and thereafter, on 4-12-2018, the Joint Commissioner of Income Tax and the Assessing Officer vide their report not recommended his case for approval under Section 80G of the IT Act on the ground that the assessee Society runs a college in the name of Dignity College of Architecture, the Society is also generating surplus out of fees charged from students to provide education and the Society is not involved in any other activities as mentioned in the application of Form 10G. Ultimately, on 26-12-2018, the Commissioner of Income-tax (Exemption) passed an order on the application under Section 80G(5)(vi) of the IT Act and rejected the application under Section 80G of the IT Act which the respondent herein / assessee challenged before the ITAT. By the impugned order, the learned ITAT reversed the order passed by the CIT(E) and granted application under Section 80G of the IT Act directing the CIT(E) to grant approval to the assessee under Section 80G of the IT Act and thereby allowed the appeal which is sought to be challenged by way of this appeal.
5. Mr. Vijay Chawla, Advocate, appearing on behalf of Mr. Amit Chaudhari, learned Standing Counsel for the Income Tax Department / Revenue, would submit that the ITAT is absolutely unjustified in granting the appeal and directing the CIT(E) to grant approval to the assessee under Section 80G of the IT Act by recording a finding perverse to the record.
6. Ms. Smiti Sharma, learned counsel appearing for the assessee / respondent herein, would submit that since the assessee has already been granted the application under Section 12AA of the IT Act, which is operational at present, the learned ITAT is absolutely justified in setting aside the order of the CIT(E) and directing the CIT(E) to grant approval to the assessee under Section 80G of the IT Act, as such, the instant appeal deserves to be dismissed.
7. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also went through the record with utmost circumspection.
8. It is not in dispute that the assessee’s application under Section 12AA of the IT Act was granted and is continuing in operation and that is the basis which has persuaded the learned ITAT to accept the appeal of the assessee and direct the CIT(E) to grant approval under Section 80G of the IT Act.
9. The issue involved herein is no longer res integra and stands decided by a decision of the Gujarat High Court in the matter of Hiralal Bhagwati v. CIT [2000] 246 ITR 188 (Gujarat) and that has been approved to be the correct law by a decision of the Supreme Court in the matter of Asstt. CIT v. Surat City Gymkhana  ITR 214 (SC)/(2008) 14 SCC 169.
10. In Hiralal Bhagwati (supra), application of the assessee therein for exemption under Section 80G of the IT Act was rejected and the competent authority refused to grant exemption which the assessee challenged before the Gujarat High Court and the Gujarat High Court, considering the case of the assessee therein, held that once the registration under Section 12A(a) of the IT Act is granted, the grant of benefit under Section 80G of the IT Act cannot be denied, and observed as under:-
“18. It is also required to be noted that once the registration under section 12A(a) of the Act is granted, the grant of benefit cannot be denied. The Income-tax Officer was not justified in refusing the benefits which would otherwise accrue under the registration. If there was no registration, as contemplated under section 12A(a) read with rule 17A, the Revenue would have been justified in making a submission that the benefit cannot be granted, but where the application for registration is submitted and the registration has been granted, the benefit cannot be denied on the ground that the scheme is not for the benefit of the public at large.”
11. The principle of law laid down by the Gujarat High Court in Hiralal Bhagwati (supra) was considered by the Supreme Court in Surat City Gymkhana’s case (supra) in which two questions of law were framed, (A) whether the objects of the trust restricting benefit to the members of the club would fall within the purview of the act of ‘general public utility’ under Section 2(15) of the Income Tax Act constituting as a section of public and not a body of individuals and (B) whether registration under Section 12-A was a fait accompli to hold that assessing officer back from further probe into the objects of the trust, and it has been held by their Lordships that once application under Section 12A of the IT Act is granted, there is no need of further enquiry with regard to the parties to the lis, whether it is for charitable purposes or otherwise, and the two stated questions have been answered in paragraphs 4 and 5 of the report as under: –
“4. This Court, on 22-7-2002, granted leave in respect of Question ‘B’ only. The appeals were not entertained in respect of Question ‘A’ and it was noted that the appeals were rightly dismissed by the High Court insofar as Question ‘A’ is concerned as the appellant did not challenge the correctness of the judgment in Hiralal Bhagwati1.
5. On a perusal of the judgment of the Gujarat High Court in Hiralal Bhagwati1 we now find that Question ‘B’ is also concluded by the said judgment (refer to the 1st paragraph of ITR p. 196). Since the Revenue did not challenge the decision in the said case, the same has attained finality. Question ‘B’, therefore, is to meet the same fate as Question ‘A’ as this Court had declined to grant leave in respect of Question ‘A’ on the ground that the Revenue did not challenge the correctness of the decision in Hiralal Bhagwati1. It appears that the fact, that Question ‘B’ was also covered by the aforementioned judgment, was not brought to the notice of Their Lordships and, therefore, leave granted was restricted to Question ‘B’.”
12. In view of the decision rendered by the Gujarat High Court in Hiralal Bhagwati (supra) approved by the Supreme Court in Surat City Gymkhana’s case (supra), we have no hesitation to hold that since the respondent assessee stands registered as charitable institution under Section 12AA of the IT Act, the only corollary is, its application under Section 80G(5) of the IT Act also deserves to be allowed which the learned ITAT has rightly noticed to be the correct legal position and directed the CIT(E) to grant approval to the assessee under Section 80G(5) of the IT Act. As such, the substantial question of law is answered in favour of the assessee and against the Revenue and accordingly, the tax appeal deserves to be and is hereby dismissed leaving the parties to bear their own cost(s).