CIT(E) cannot reject Section 12AB registration for object

CIT(E) cannot reject Section 12AB registration for object modification delay without examining charitable eligibility

Issue

Whether the CIT(E) was justified in rejecting an assessee’s registration application under Section 12AB solely due to procedural non-compliance with Section 12A(1)(ac)(v) for modification of objects, without evaluating the charitable nature of the amended objects or the overall eligibility for registration.

Facts

Assessee Status: The assessee is a social impact organization that previously held registrations under Section 12A and Section 80G of the Income-tax Act.
Modification of Objects: Pursuant to RBI directions, the assessee ceased its microfinance activities, changed its name, updated statutory records, and amended its Memorandum and Articles of Association to broaden its social objectives while removing all references to microfinance.
Registration Applications: The assessee filed applications seeking fresh registration under Section 12A(1)(ac)(ii) and approval under Section 80G.
CIT(E) Rejection: The CIT(E) rejected both applications solely on the technical ground that the assessee modified its objects without applying for re-registration under Section 12A(1)(ac)(v) within the prescribed time limit.
Nature of Amendments: The amendments were restrictive and aimed at removing microfinance activities, which actually strengthened the charitable character of the trust, with no non-charitable objects introduced.

Decision

Obligation to Examine Eligibility: Held that procedural non-compliance or delay regarding Section 12A(1)(ac)(v) does not absolve the CIT(E) of the statutory duty to examine the eligibility of the trust based on the amended trust deed on record.
Improper Rejection on Technical Grounds: Held that in the absence of any finding that the newly adopted objects were non-charitable, the CIT(E) erred in rejecting the application without evaluating whether the assessee satisfied the essential conditions for registration under Section 12AB.
Consequential Section 80G Approval: Held that since the Section 12A registration proceedings were set aside for fresh evaluation, the Section 80G approval application—being consequential—must also be remanded.
Remand Order: Remanded both Section 12AB registration and Section 80G approval matters back to the CIT(E) for fresh adjudication on merits.

Key Takeaways

Substance Over Procedural Delays: Technical delays or non-compliance under Section 12A(1)(ac)(v) for object modification cannot automatically disqualify an institution from registration if its objects remain genuinely charitable.
Mandatory Merit Assessment: CIT(E) must evaluate the actual contents of the amended trust deed and verify the charitable nature of the activities rather than dismissing applications strictly on timeline defaults.
Consequential Status of Section 80G: Rejection or reconsideration of Section 80G approvals tied to Section 12AB registrations must follow the same outcome when the primary registration matter is remanded for fresh consideration.

IN THE ITAT CHENNAI BENCH ‘C’

Innovative Microfinance for Poverty Alleviation and Community Transformation

Commissioner of Income-tax (Exemptions)^*

George George K., Vice President
and Ms. Padmavathy S., Accountant Member

IT APPEAL Nos. 2401 & 2402 (CHNY) OF 2026

AUGUST 7, 2026

V.S. Jayakumar, Sr. Adv., M.V. Swaroop and Ms. Sankari B., Advs. for the Appellant. Ms. Nayani Swapna, CIT for the Respondent.

ORDER

Ms. Padmavathy S., Accountant Member.-These appeals by the assessee are against the separate orders of the Commissioner of Income Tax (Exemptions), Chennai (in short “CIT(E)”) dated 30.03.2026 and 31.03.2026 rejecting application made for approval u/s. 80G and registration u/s. 12AA of the Income Tax Act, 1961 (in short “the Act”), respectively.

2. The assessee is a social impact organization incorporated u/s. 25 of the Companies Act, 1956. The assessee was initially involved in the rehabilitation of livelihood activities of affected families in the tsunami that struck Tamil Nadu in 2004. Subsequently, the assessee started offering micro credit largely to the marginalized sections of society situated in the remotest region in the country. The assessee is also carrying on other charitable activities as stated in the objects. The assessee was holding registration u/s.12A of the Act and 80G of the Act since incorporation. On 15.06.2022, the Reserve Bank of India vide a letter stated that the assessee must cease micro finance operations as a condition for granting registration u/s. 45-IA of the Reserve Bank of India Act, 1934. Thereafter, the assessee in its board meeting held on 26.10.2023 passed a resolution stating that the assessee company will cease to carry out micro finance operation w.e.f. 31.10.2023. The assessee stopped the disbursement of micro finance loans w.e.f 15.06.2022 and was solely engaged in the collection of outstanding dues from its borrowers which was completed on 31.10.2023. Subsequently, the assessee carried out first set of amendments to the Memorandum of Associations and articles of association as per the applicable law on 09.01.2024 to include more social objectives to its objects clause. The assessee carried out second set of amendments to MoA and AoA whereby any mention of micro finance operations was deleted from its objects clause on 09.09.2025. The assessee to reflect the amended MoA and AoA also changed the name of the organization to M/s. Innovative Social Impact Foundation on 07.10.2025. The assessee also obtained the certificate of incorporation, PAN card etc. to the amended name and the income tax records were also updated to reflect the name changed. The assessee made an application u/s.12A(1)(ac)(ii) of the Act on 29.09.2025 seeking registration and the assessee also filed application for approval u/s.80G(5)(ii) of the Act on 30.09.2025. The CIT(E) called for various details from time to time. The CIT(E) however rejected the applications made stating that:

“3) Irregularities and Show Cause Notice:

3.1. In response, the applicant filed its submissions. Upon noticing certain irregularities inconsistencies / anamolies, this office issued a Show Cause Notice dated 17/03/2026 eloborating the same as under.

Please refer to your application in Form No. 10AB seeking registration u/s.12AB.

2. It is seen that the trust your application for 80G was already rejected on merits.

3. Also, you have amended the objects. However, you have not applied for re registration u/s 12A(1)(ac)(v).

4. In view of the above discrepancies, your application cannot be considered. In this regard, you are requested to furnish the above details/data/objection if any on or before aforementioned date by uploading online in the e-filing portal or by Post to: “The Commissioner of Income Tax (Exemptions), Chennai, 3rd Floor, Annexe Building, Aayakar Bhawan, No. 121, Mahatma Gandhi Road, Nungambakkam, Chennai-600034″. If you fail to respond within the said date, no further opportunity/adjournment will be granted and your application will be disposed-off based on the material available on record.

4) Decision:

4.1. It is seen from the records that the application of the applicant seeking approval u/s 80G dated 17.09.2024 was rejected vide order in form 10AD dated 21/03/2025 for the reason that the applicant is involved in commercial activities. Therefore, the applicant was asked to show cause as to why the current application seeking registration u/s 12AB should not be rejected. In response, the applicant submitted that subsequent to the rejection order, it has amended objects and stopped the commercial activities. However, the applicant neither has taken approval before the amendment of objects nor applied for re registration u/s 12A(1)(ac) (v) of the Act.”

3. The Ld. Authorized Representative (AR) of the assessee submitted that the impugned order passed by the CIT(E) travels beyond the limited scope of enquiry prescribed under section 12AB(1)(b) of the Act. It was contended that while considering an application for registration, the CIT(E) is required only to examine the genuineness of the charitable activities and compliance with other laws which are material for achieving the charitable objects. Since the impugned order does not contain any adverse finding regarding either the genuineness of the assessee’s activities or the charitable nature of its objects, the rejection of the application on any other ground is beyond the jurisdiction conferred by the statute. It was further submitted that neither the provisions of the Income-tax Act nor the order granting registration dated 30.08.2023 require the assessee to obtain the prior approval of the CIT(E) before amending its objects. The only requirement is to make an application where the modified objects do not conform to the conditions of registration and that too within the prescribed time. Therefore, the CIT(E) erred in rejecting the application on the ground that prior approval had not been obtained. The Ld. AR further contended that section 12A(1)(ac)(v) has no application to the facts of the present case. It was submitted that the assessee had removed “microfinance” from its name and objects pursuant to the directions of the RBI and had completely discontinued such activities. The remaining objects continue to be charitable within the meaning of section 2(15) and conform to the conditions of the existing registration. Therefore, the modifications do not attract section 12A(1)(ac)(v). It was also pointed out that the impugned order nowhere records any finding that the amended objects are not charitable in nature.

4. Without prejudice to the above submissions, the Ld. AR argued that the requirement of obtaining prior approval had become legally impossible. The amendments to the Memorandum and Articles of Association could be effected only after obtaining approval from the Registrar of Companies. Immediately thereafter, the assessee intimated the CIT(E) regarding the changes through its communications dated 08.11.2025, 17.12.2025 and 19.03.2026. Hence, the assessee could not be faulted for not obtaining a prior approval which had become impossible in law. The Ld. AR also submitted that the CIT(E) cannot approbate and reprobate. While the notices issued during the proceedings recognised the assessee by its amended name, the impugned order ignored the same and referred to the old name, thereby adopting inconsistent stands in respect of the very same changes. Lastly, it was submitted that denial of registration would expose the assessee to the severe consequences of section 115TD relating to tax on accreted income. Such drastic consequences, it was argued, cannot be imposed merely on account of an alleged procedural lapse when the assessee otherwise satisfies the substantive requirements for grant of registration.

5. The ld DR on the other hand argued that the amendment carried out to the objects by the assessee fundamentally changes the nature of activities of the assessee and therefore would fall squarely within the scope of section 12A(ac)(v) of the Act. The ld DR further argued that the requirement to make an application under the said section within 30 days is a statutory requirement and since the assessee has been non-compliant to such requirement the CIT(E) has rightly rejected the registration.

6. We have carefully considered the rival submissions and perused the material available on record. There is no dispute that the assessee trust had modified its objects by deleting the object relating to micro-finance activities without making an application under section 12A(1)(ac)(v) of the Act within the prescribed time. Proceeding on the assumption that such modification attracted the provisions of section 12A(1)(ac)(v), the issue that arises for our consideration is whether such non-compliance, by itself, would justify denial of registration under section 12AB of the Act. We notice that section 12A(1)(ac)(v) requires an application to be made within 30 days where the objects of a trust are modified which do not conform to the conditions of registration. However, the consequence of non-compliance with the said provision has to be examined in the light of the scheme of sections 12A and 12AB. A reading of the said provisions does not indicate that every violation of section 12A(1)(ac)(v) would, by itself, result in denial of registration without examining whether the trust otherwise satisfies the conditions prescribed under section 12AB. Therefore, the non-compliance with section 12A(1)(ac)(v), though relevant, in our view cannot absolve the CIT(E) of his obligation to examine the eligibility of the trust for registration on the basis of the amended trust deed placed before him.

7. We further notice that the modification in the present case consists only of deletion of one of the objects relating to micro-finance activities. We also notice that the amendments are restrictive where it is in the nature of curative modifications and that they do not add new object of a non-charitable character. In fact the modifications further strengthen the charitable nature of the organisation and the change in the name of the assessee also fortifies the said contention of the assessee. It is not the case of the Revenue that the assessee has introduced any object which is not charitable in nature. The remaining objects continue to remain on the trust deed and it was incumbent upon the CIT(E) to examine whether such objects satisfy the requirements of section 2(15) of the Act and whether the other conditions prescribed under section 12AB stand fulfilled. However, the impugned order proceeds solely on the footing that the assessee had failed to comply with section 12A(1)(ac)(v), without examining the charitable character of the remaining objects.

8. We also find that by the time the application came to be considered by the CIT(E), the modification had already taken effect and the period prescribed for making an application under section 12A(1)(ac)(v) had expired. Consequently, the assessee was no longer in a position to comply with the said requirement. The law does not compel a person to perform impossibility (lex non cogit ad impossibilia). In such circumstances, the impossibility of complying with section 12A(1)(ac)(v) at that stage cannot be construed as permanently depriving the assessee of consideration of its application on merits, particularly when the amended trust deed was already available before the CIT(E). In view of the above discussion, we are of the considered opinion that the CIT(E) was not justified in rejecting the application solely on account of non-compliance with section 12A(1)(ac)(v), without examining the amended objects of the trust and recording a finding as to whether the assessee otherwise satisfies the conditions prescribed for registration under section 12AB of the Act. Further the non-compliance with section 12A(1)(ac)(v) which in the present case is impossible to be corrected, cannot be treated as the sole ground for denying registration. We, therefore, set aside the impugned order and restore the matter to the file of the CIT(E) for fresh adjudication. The CIT(E) shall examine the amended objects, the genuineness of the activities and the fulfilment of the statutory conditions for registration in accordance with law. Needless to state, the assessee shall be afforded adequate opportunity of being heard.

9. The application for approval u/s.80G being consequential to the registration u/s.12A, we remit the appeal filed against the order rejecting approval u/s.80G also back to the CIT(E) with similar directions. It is ordered accordingly.

10. In result both the appeals of the assessee are allowed for statistical purposes.