Non-registration under State Trust Act cannot justify rejection

Non-registration under State Trust Act cannot justify rejection under Section 12AB without verifying its applicability.

Issue

Whether the CIT(E) erred in rejecting the Section 12AB registration renewal for non-registration under a State Public Trust Act without first verifying if the law applied to a statutory body, and whether procedural deficiencies in Form 10AB justify rejection without granting an opportunity to rectify.

Facts

Assessee Status: The assessee is an Urban Improvement Trust constituted under a State statute and was previously granted registration under Section 12AA on February 6, 2020.
Renewal Application: The assessee filed Form No. 10AB seeking renewal/continuation of its registration under Section 12A/12AB of the Income-tax Act.
CIT(E) Findings & Rejection: The CIT(E) rejected the application on two main grounds:
- Failure to furnish registration under the Rajasthan Public Trust Act, 1959.
- Form No. 10AB was incomplete and certain supporting documents were not submitted.
Statutory Exemption Claim: Section 77 of the Rajasthan Public Trust Act, 1959 contains express provisions exempting certain statutory bodies from its application.

Decision

Verification of Legal Applicability: Held that before drawing an adverse inference for non-registration under a local state act, the CIT(E) is legally required to examine whether that state law actually applies to the statutory body, considering express exemptions like Section 77.
No Non-Compliance for Inapplicable Laws: Held that failing to obtain a registration that is not legally required cannot be treated as a statutory non-compliance for the purposes of Section 12AB.
Opportunity to Cure Deficiencies: Held that any technical or document-related deficiency in Form No. 10AB must be specifically confronted to the assessee, and a fair, effective opportunity must be provided to rectify the defect.
Remand Order: The order of the CIT(E) was set aside, and the matter was remanded back to the CIT(E) for the limited purpose of verifying Form No. 10AB and its accompanying documents after providing due opportunity to the assessee.

Key Takeaways

Prerequisite for Adverse Inference: CIT(E) cannot cite non-compliance with a non-tax statute to deny registration without first determining whether that statute legally governs the assessee.
Principles of Natural Justice in Registration: Curable procedural or documentary errors in registration forms (Form 10AB) require a mandatory opportunity to rectify before an application can be rejected.

IN THE ITAT JODHPUR BENCH

Urban Improvement Trust

Ward Exemption

Amit Shukla, Judicial Member
and Girish Agrawal, Accountant Member

IT Appeal No. 717 (Jodh) OF 2026
[Assessment year 2026-27]

AUGUST 11, 2026

Amit Kothari, CA for the Appellant. O.P. Meena, CIT-DR for the Respondent.

ORDER

1. The present appeal has been filed by the assessee, Urban Improvement Trust, Pali, against the order dated 20.03.2026 passed by the Ld. Commissioner of Income Tax (Exemptions), Jaipur [“Ld. CIT(E)”], whereby the assessee’s application in Form No. 10AB seeking renewal/continuation of registration under section 12A/12AB of the Income-tax Act, 1961 has been rejected.

2. The principal reasons assigned by the Ld. CIT(E) for rejecting the application are that the application filed in Form No. 10AB was incomplete and that the assessee had not furnished registration under the Rajasthan Public Trust Act, 1959. The Ld. CIT(E), while referring to section 12AB(1)(b)(i), has observed that compliance with the requirements of any other law which are material for achieving the objects of the trust or institution is also required to be examined and, since according to him the assessee had not established its registration under the Rajasthan Public Trust Act, the application was liable to be rejected.

3. Before us, the learned counsel submitted that the very premise of the aforesaid objection is misconceived in the peculiar facts of the assessee. It was submitted that the assessee is Urban Improvement Trust, Pali, a statutory/public authority constituted and functioning under the State Government framework for urban improvement and development and, therefore, it cannot be treated at par with an ordinary private public trust requiring registration under the Rajasthan Public Trust Act, 1959. Specific attention was invited to section 77 of the Rajasthan Public Trust Act, 1959, which provides that nothing contained in the said Act shall apply to a public trust administered by any agency acting under the control of the State Government or by any local authority. Thus, according to the learned counsel, the requirement insisted upon by the Ld. CIT(E) was one which was not applicable to the assessee in the first place.

4. We have considered the rival submissions and perused the material placed on record. Section 77(1) of the Rajasthan Public Trust Act, 1959, which has been specifically brought to our notice, provides that “nothing contained in this Act shall apply to a public trust administered by any agency acting under the control of the State Government or by any local authority.” Sub-section (2) further empowers the State Government to exempt, by notification and for reasons specified therein, any public trust or class of public trusts from all or any of the provisions of the said Act, subject to such conditions as may be prescribed. Thus, the Act itself recognises a category of public trusts administered by agencies acting under the control of the State Government or by local authorities to which its provisions do not apply.

5. In the present case, the nature and legal character of the assessee assumes significance. The assessee is not an ordinary private trust which has simply omitted to obtain registration under the Rajasthan Public Trust Act. It is an Urban Improvement Trust constituted under the statutory framework of the State of Rajasthan and functioning as an agency concerned with urban improvement and development. Therefore, before drawing an adverse inference on account of nonregistration under the Rajasthan Public Trust Act, the Ld. CIT(E) was required to first examine whether, having regard to the statutory character and constitution of the assessee, the Rajasthan Public Trust Act was at all applicable to it in view of the express exemption contained in section 77 thereof. A failure to obtain a registration which the law itself does not require cannot constitute noncompliance with another law for the purposes of section 12AB. Consequently, the application could not have been rejected merely on the assumption that registration under the Rajasthan Public Trust Act was invariably mandatory for every applicant seeking registration under section 12AB.

6. There is another material aspect which needs to be borne in mind. This is not a case where the assessee has approached the Department for charitable registration for the first time. The material placed before us shows that the assessee had already been granted registration under section 12AA vide order dated 06.02.2020, wherein its activities were accepted as falling within the ambit of “advancement of any other object of general public utility”, and the benefits of sections 11 and 12 were made applicable from Assessment Year 2020-21. Thereafter, upon migration to the new statutory regime, the assessee was again granted registration vide order dated 07.04.2022 for Assessment Years 2022-23 to 2026-27. The present application is, therefore, essentially for renewal/continuation of an already existing registration and not an application by an institution whose charitable character and objects are being examined for the first time.

7. The aforesaid antecedent registrations are relevant because the legal character, constitution and principal objects of the assessee were already before the Department when registration was originally granted and again when it was continued under the new regime. Of course, renewal under section 12AB is not an automatic exercise and the Ld. CIT(E) is entitled to examine the matters which the statute requires him to examine, including genuineness of activities and compliance with such other laws as are material for achieving the objects of the institution. However, where registration has subsisted over the years, rejection at the stage of renewal on the basis of an alleged statutory non-compliance necessarily requires examination of whether the law invoked is actually applicable to the assessee. In the present case, that exercise appears not to have been undertaken in the proper perspective, particularly in the light of section 77 of the Rajasthan Public Trust Act.

8. Insofar as the other objection that Form No. 10AB was incomplete and certain documents were not furnished is concerned, the learned counsel submitted that the relevant material was available and that the assessee is ready to furnish or re-furnish any document or clarification which may be required. Since the registration under section 12AA had already been granted in 2020 and thereafter registration under the new regime was granted in 2022, we are of the view that any deficiency in Form No. 10AB or supporting documents, if capable of being rectified, ought to be specifically confronted to the assessee and an effective opportunity should be given to cure the same. The substantive claim for continuation of registration should thereafter be considered on the complete material rather than being rejected on a curable procedural deficiency.

9. Accordingly, having regard to the peculiar facts of the case, we set aside the impugned order dated 20.03.2026 and restore the matter to the file of the Ld. CIT(E) for the limited purpose of verification of Form No. 10AB and the documents accompanying the same. While doing so, the Ld. CIT(E) shall take into consideration the statutory character of the assessee and the specific provisions of section 77 of the Rajasthan Public Trust Act, 1959 and shall not insist upon registration under the said Act if, having regard to section 77, the assessee falls within the category to which the provisions of that Act do not apply. He shall also take into consideration the earlier registration granted under section 12AA vide order dated 06.02.2020 and the subsequent registration granted vide order dated 07.04.2022 for Assessment Years 2022-23 to 2026-27.

10. The Ld. CIT(E) shall accordingly verify the complete Form No. 10AB and, if any document or information required under law is found deficient, the same shall be specifically communicated to the assessee and reasonable opportunity shall be afforded to furnish the same. Upon such verification, if the statutory requirements under section 12AB are otherwise satisfied, the Ld. CIT(E) is directed to grant renewal/registration to the assessee in accordance with law. The assessee shall also cooperate with the proceedings and furnish the requisite details and documents as and when called for.

11. In the result, the appeal of the assessee is allowed in the manner indicated above.