Societies Registration Act Prohibition Against Asset Distribution Negates Mutuality Preserving Charitable Trust Registration Scope

By | October 27, 2026
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Societies Registration Act Prohibition Against Asset Distribution Negates Mutuality Preserving Charitable Trust Registration Scope

Issue

  1. Whether the Commissioner (Exemptions) was justified in refusing registration under Section 12AB by treating the assessee-society as a mutual benefit association, despite statutory provisions barring asset distribution among members upon dissolution.
  2. Whether the scope of enquiry at the stage of granting registration under Section 12AB is limited to verifying the charitable nature of objects and genuineness of activities, excluding assessment-stage issues.
  3. Whether the rejection of approval under Section 80G(5) solely based on the refusal of Section 12AB registration remains sustainable when the Section 12AB matter is remanded for fresh consideration.

Facts

  • The assessee, a society registered under the Societies Registration Act, 1860, submitted an application in Form 10AB seeking registration under Section 12AB of the Income-tax Act, 1961.
  • The Commissioner (Exemptions) rejected the application for registration under Section 12AB on the ground that the society functioned on the principles of mutuality rather than for the public at large.
  • Consequent to the refusal of registration under Section 12AB, the Commissioner (Exemptions) also denied approval under Section 80G(5) of the Act.
  • Under Section 14 of the Societies Registration Act, 1860, a society is expressly prohibited from distributing its funds or assets among its members upon dissolution.
  • Under Section 12D of the Societies Registration Act, 1860, the Registrar holds statutory power to cancel the registration of a society if its activities or proposed activities are subversive to its objects or opposed to public policy.

Decision

  • Rejection of Mutuality Principle: The express statutory prohibition under Section 14 of the Societies Registration Act, 1860 against asset/money distribution among members upon dissolution clearly negates the finding that the society operates as a mutual benefit association.
  • Presumption of Public Benefit: So long as the society’s registration under the Societies Registration Act, 1860 has not been cancelled under Section 12D by the Registrar, a legal presumption exists that its objects are for the benefit of the public at large.
  • Scope of Section 12AB Enquiry: At the stage of granting registration, the Commissioner (Exemptions) is strictly required to examine only the charitable nature of the objects and the genuineness of the activities. Issues pertaining to regular assessment cannot be adjudicated at this preliminary stage.
  • Remand of Section 12AB Registration: The matter was remanded to the Commissioner (Exemptions) for fresh consideration to verify the charitable nature of objects, genuineness of activities, and absence of specified violations mentioned in the Explanation to Section 12AB(4).
  • Remand of Section 80G Approval: Since the rejection of Section 80G(5) approval was entirely consequential to the denial of Section 12AB registration, the issue of Section 80G(5) approval was also restored to the Commissioner (Exemptions) for de novo disposal.

Key Takeaways

  • Statutory Bar Overrides Mutuality: A society governed by statutory provisions prohibiting the distribution of assets to members upon dissolution cannot be classified as a mutual benefit entity for tax exemption purposes.
  • Subsisting Registration Presumption: Until the competent authority under the governing law (Registrar of Societies) cancels a society’s registration, its objects are presumed to be for public benefit and not opposed to public policy.
  • Limited Scope of Registration Proceedings: Proceedings under Section 12AB are restricted to evaluating the genuineness of activities and charitable objects; tax assessment issues cannot form the basis for denying registration.
  • Consequential Approvals Follow Primary Remand: Where Section 80G approval is rejected solely because Section 12AB registration was denied, the restoration of Section 12AB proceedings automatically necessitates a fresh, de novo evaluation of the Section 80G application.
IN THE ITAT CHENNAI BENCH ‘D’
Indian Association of Colleges of Pharmachy
v.
Commissioner of Income-tax (Exemptions)*
SS VISWANETHRA RAVI, Judicial Member
and Inturi Rama Rao, Accountant Member
ITA Nos. 2968 & 2969 (CHNY) of 2026
SEPTEMBER  29, 2026
T.Vasudevan, Adv. for the Appellant. K Jayganesh, CIT for the Respondent.
ORDER
Inturi Rama Rao, Accountant Member.- These are two appeals filed by the assessee are directed against the separate orders of Learned Commissioner of Income Tax(Exemption), Chennai denying grant of Registration u/s.12AB(1)(b) and 80G of the Income Tax Act, 1961 both dated 30.03.2026.
2. Since the identical facts and common issues are involved in both these appeals of the Assessee, we proceed to dispose of the same by this common order.
3. For the sake of convenience and clarity, the facts relevant to the appeal of the Assessee in ITA No.2968/CHNY/2026 are stated herein.
ITA No.2968/CHNY/2026 – 12A :
4. The Assessee raised the following grounds of appeal :
“1. The order of the Commissioner of Income Tax (Exemptions) dated 30.03.2026, rejecting the application of assessee for registration under sec. 12AB of the I.T. Act is contrary to law, erroneous and unsustainable on the facts of the case.
2. The CIT (E) erred in not granting registration to the appellant-trust, the predominant object is “to act as a catalyst in the field of Pharmacy and Pharmaceutical applications in aid of Research and Analysis in all forms of Medicine including allopathic medicine” and this falls within the precincts of “Education” under the main limb of sec.2 (15) of the Act and hence denial of registration is unjustified.
3. The CIT (E) was not justified in holding that assessee-society does not satisfy the public benefit test and functions on principles of mutuality, whereas it exists for the benefit of student community across the country providing invaluable guidance on advancements in the field of Pharmacy and therefore clearly satisfies the test of Education’ under sec.2 (15) enabling the grant of registration to the assessee.
4. The CIT(E) failed to appreciate that assessee was granted registration u/s.12A vide order of CIT(E) dated 28.12.2015 w.e.f.01.4.2015 and the objects and activity remaining unaltered, the assessee cannot be presently categorised as a mutual society disentitling it from the benefits of registration under sec. 12AB of the Act.
5. The CIT(E) further failed to appreciate that the task of ‘education’ is carried out by the assessee-society in a targeted manner through seminars, lectures and technical sessions attracting Pharmacy students and academicians from across the country and there is no mutuality principle involved in its activity, which was wrongly assumed by the authority leading to the denial of registration.
6. The CIT (E) further failed to appreciate that special clause in the Rules and Regulations bar the application of income to Trustees/Members and hence the assumption of mutuality is totally wrong and the assessee is entitled to the benefits of registration.
7. The CIT (E), in any event, ought to have considered the submissions of assessee in the proper perspective and granted the benefit of registration under sec. 12AB by allowing the application of assessee.”
5. Briefly, the facts of the case are that the assessee is a Society incorporated under the provisions of Societies Act. It was stated to have been formed with charitable objects. It is formed with following objects :
“a) To act as a National Organisation with a Mission to serve the Member Colleges of Pharmacy.
(b) To act as a Catalyst in the field of Pharmacy and Pharmaceutical Applications in aid of Research and Analysis in all forms of Medicine including the Allopathic Medicines.
(c) To equip and support the member institutions with the strength of quality faculty.
(d) To act as the Advocate at the National level taking up and pursuing the causes of hindrance to the people at large and members in particular in the field of Pharmacy and Pharmaceutical Applications.
(e) To organise seminars, conferences, forums, group meetings and get togethers of the members and eminent personalities of the society for greater technical interaction and exchange of information in the filled of medicine.
(f) To recognise, appreciate performances of the educationalists in general and member educators in particular through rewards and awards for their excellence in the field of medicine or their unqualified support to the cause of medicine.”
6. The appellant-society filed an application in Form No.10AB seeking grant of Registration u/s.12AB of the Income Tax Act, 1961 on 26.09.2025. On receipt of the said application, the Learned CIT(E) sought information from the appellant-society, so as to satisfy himself about the charitable nature of the objects of the Society and genuineness of the activities of the Society and also required the appellant to file certain documents and the copy of the approval u/s.12A obtained in the old regime etc. The appellant-society has filed the required information, details on 06.01.2026. The information filed by the appellant-society, the Learned CIT(E) concluded that the appellant-society was formed with the object of benefiting the members of the appellantsociety not for the public at large, therefore, concluded that it is a mutual benefit association and does not exist for the benefit of public at large.
7. Being aggrieved by the above order, an appeal was filed before this Tribunal. The Learned Counsel submits that the Learned CIT(E) had failed to appreciate the objects of the society are for the benefit of student community of the pharmacy across the country providing invaluable guidance on advancements in the filed of Pharmacy. He further submits that the Learned CIT(Exemption) had clearly fell in error in classifying the appellant-society as a mutual benefit association without appreciating that the provisions of Societies Act prohibits distribution of dividends amongst its members. Finally, it submits that at the time of grant of registration, he can only look into the objects of the appellant-society.
8. On the other hand, the Learned CIT-DR opposed the above submissions and submits that the Learned CIT(Exemption) had passed a very-well reasoned order taking into consideration the objects of the appellant-society. Therefore, the order of the Learned CIT(Exemption) cannot be interfered by this Tribunal.
9. We heard the rival submissions and perused the material on record. The sole issue that arises for our consideration is whether the Learned CIT(Exemption) was justified in rejecting the grant of registration u/s.12AB of the Act. The Learned CIT(Exemption) had denied the grant of registration for the reason that it is a mutual benefit association and benefitting the members of the Society only, not for the public at large.
10. We had carefully perused the reasoning of the Learned CIT(Exemption) that the appellant-society is engaged in the object of rendering services to its members but not the public at large. It is an undisputed fact that the appellant-society was formed under Societies Registration Act, 1860. The provisions of section 12D of the Societies Registration Act, 1860 empowers the Registrar of the Societies to cancel the registration of the any society on the ground that the activities or proposed activities of the society will be subversive of the objects of the society or opposed to public policy. A society can be registered under the provisions of Societies Registration Act, only if the objects of the Society benefits the public at large. Therefore, presumption has to be drawn that objects of the society are for the benefit of public at large so long as the registration of the society is not cancelled. Further, the provisions of Section 14 of the Societies Registration Act, 1860 expressly prohibits distribution of assets, money in the event of dissolution of the Society among its members. The relevant provisions are extracted below :
“14. Upon a dissolution no member to receive profit.
If upon the dissolution of any society registered under this Act there shall remain after the satisfaction of all its debts and liabilities any property whatsoever, the same shall not be paid to or distributed among the members of the said society or any of them, but shall be given to some other society, to be determined by the votes of not less than three-fifths of the members present personally or by proxy at the time of the dissolution, or, in default thereof, by such Court as aforesaid:Clause not to apply to Joint-stock Companies. Provided, however, that this clause shall not apply to any society which shall have been founded or established by the contributions of shareholders in the nature of a Joint-stock Company.”
11. Thus, it is clear that the provisions of section 14 of the Societies Registration Act, 1860 clearly negates the stand of the Learned CIT(Exemption).
12. Further, we are of the considered opinion that at the time of grant of registration, the Learned CIT(Exemptions) can only look into the objects of the Society. The issues of the assessment cannot be looked into. In this connection, we place reliance on the decision of the Hon’ble Supreme Court in the case of Ananda Social and Educational Trust v. CIT 426 ITR 340 (SC). The relevant observations made vide para 12 of the judgment are extracted below :
“12. Since Section 12-AA 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 12-AA 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 been found to have undertaken activities contrary to the objects of the trust.”
13. Recently, the Hon’ble Supreme Court in the case of CIT v. International Health Care Education and Research Institute [2025] 171  482 ITR 287 (SC) after making a reference to the earlier judgment in the case of Ananda Social and Educational Trust (supra) held that the mere registration u/s.12AA of the Act automatically does not entitle any charitable trust to claim exemption under Sections 10 and 11 respectively of the Act, 1961. When a return is filed by any trust claiming exemption, it is for the Assessing Officer to look into all the materials and satisfy itself whether the exemption had been claimed genuinely or not! If the assessing officer is not convinced, it is always open for him to decline grant of exemption.
14. We may also state here that the above position of law equally holds good even in the New Regime of Registration u/s.12AB of the Act inserted by Taxation and Others Laws (Relaxation and Amendment of certain Provisions) Act, 2020 with effect from 01.04.2021.
15. In view of the above discussion, the order of the Learned CIT(Exemption) is set-aside and restored to the file of Learned CIT(Exemption), for grant of registration u/s.12AB of the Act on being satisfied on due verification of the material on record that the objects of the appellant-society are charitable in nature and genuineness of its activities and there are no specified violations as mentioned in the Explanation inserted to sub-section (4) of section 12AB of the Act. Thus, the matter is restored to the file of Learned CIT(Exemption) on the above lines for de novo disposal of application in accordance with law after affording an opportunity of being heard to the appellant-society.
16. In the result, appeal filed by the assessee in ITA No.2968/CHNY/2026 is partly allowed for statistical purposes.
ITA No.2969/CHNY/2026 – 80G(5) :
17. From the perusal of the ld.CIT(E) order, we observe that ld.CIT(E) denied the grant of approval u/s.80G(5) of the Act, merely for the reason that the appellant-society was denied grant of registration u/s.12AB of the Act. Since, we had already restored the issue of grant of registration u/s.12AB, in appellantsociety’s appeal in ITA No.2968/CHNY/2026 above, following the same parity of reasoning, this appeal in ITA No.2969/CHNY/2026 is restored to the file of Learned CIT(E) for de novo disposal of appeal.
18. In the result, appeal filed by the assessee in ITA No.2969/CHNY/2026 is partly allowed for statistical purposes.