Interest-Free Structured Housing Loans to Poor Persons Qualify

Interest-Free Structured Housing Loans to Poor Persons Qualify as Charitable Relief of Poor under Income Tax Act

Issue

Whether granting interest-free, structured, and repayable housing loans to financially needy individuals for acquiring basic residential accommodation constitutes a charitable activity under ‘relief of the poor’ under Section 2(15) / Section 2(23), making the assessee-trust eligible for registration under Section 12AB / Section 332 and approval under Section 80G / Section 133.

Facts

Rejection of Section 12AB Registration: The CIT(Exemptions) rejected the assessee-trust’s application for renewal of registration under Section 12AB, holding that its organized, repetitive lending with structured sanctions, repayments, and revolving funds was akin to commercial micro-finance or financial intermediation.
CIT(E)’s Observations: The CIT(E) concluded that the absence of interest did not automatically render the activity charitable, lending for property acquisition did not fit within the recognized limbs of Section 2(15), and lending was the trust’s dominant activity rather than an incidental one.
Assessee’s Financial Reconciliation: The assessee placed material on record showing year-wise opening loan balances, fresh disbursements, repayments, and closing balances that broadly reconciled.
Absence of Commercial Charges: Fund-flow statements separately disclosed interest income earned strictly from investments, showing zero income from interest, processing fees, or commissions charged on the housing loans.
Revolving Fund Model: The trust demonstrated that it recovered only the principal amount from beneficiaries and recycled these repayments to extend housing assistance to other needy beneficiaries.
Rejection of Section 80G Approval: The CIT(E) consequentiality rejected the trust’s approval under Section 80G(5) solely because it was dependent upon the outcome of its Section 12AB registration.

Decision

Qualification as ‘Relief of Poor’: Held that interest-free loans provided to financially needy individuals for acquiring basic residential accommodation can constitute ‘relief of the poor’ depending on the actual operation of the scheme.
Non-Commercial Nature of Structured Assistance: Held that the mere fact that assistance is repayable or that the trust follows a structured process for granting and recovering loans does not transform the activity into a money-lending or commercial enterprise.
Remand for Limited Verification (Section 12AB): The matter was remanded to the CIT(E) to perform a limited factual verification of the relevant operational parameters, with directions to grant Section 12AB registration if those parameters are satisfied.
Remand for Section 80G Approval: Held that since the registration under Section 12AB was restored to the file of the CIT(E), the application for approval under Section 80G also requires fresh consideration contingent upon the outcome of the Section 12AB proceedings.

Key Takeaways

Purpose Over Process: A structured procedure and recovery framework do not disqualify an activity from being charitable, provided the underlying objective remains the non-commercial relief of the poor.
Revolving Funds are Charitable: Recirculating recovered interest-free principal amounts to assist new beneficiaries reinforces the charitable character rather than indicating a commercial business.
No Commercial Consideration: The total absence of interest, fees, or administrative charges is crucial evidence in distinguishing charitable financial assistance from commercial micro-financing.
Interdependence of Section 80G and 12AB: Rejection or restoration of Section 80G approval tied directly to Section 12AB registration automatically follows the procedural outcome of the registration proceedings.

IN THE ITAT MUMBAI BENCH ‘E’

Kutchi Jain Foundation

Commissioner of Income Tax (E)^*

Siddhartha Nautiyal, Judicial Member
and Vikram Singh Yadav, Accountant Member

IT Appeal Nos. 4367, 4396, 4411 and 4412 (MUM.) of 2026
[Assessment years 2026-27]

AUGUST 28, 2026

Dharan Gandhi for the Appellant. Smt. Amrita Singh, CIT DR for the Respondent.

ORDER

1. These appeals are filed by the different Assessees against the order of Ld. Commissioner of Income-tax (Exemptions), Mumbai for the Assessment Year 2026-27. Since the facts and issue for consideration are common for all the appeals before us, all the appeals are being disposed of by way of a common order.

ITA Number 4367/Mum/2026, A.Y 2026-27

The assessee has raised the following grounds of appeal:

1. The Ld. CIT(E) has erred in rejecting the Appellant’s application for renewal registration u/s 12AB of the Income Tax Act, 1961.

2. The Ld. CIT(E) has erred in concluding that granting of interest free loans without profit motive does not constitute “charitable purpose” u/s 2(15) of the Income Tax Act, 1961.

3. The learned CIT(E) erred in travelling beyond the limited scope of enquiry permissible while considering an application under section 12AB, inasmuch as the issue, if any, relating to application of income or allowability of exemption in a particular year could not form the sole basis for refusing renewal of registration.

4. The Ld. CIT(E) has erred in not abiding by the principles laid down in the CBDT Circular No. 100 dated 24.01.1973 which is binding on the income-tax authorities, and therefore the impugned order is bad in law.

5. The Ld. CIT(E) has erred in treating charitable activity of the applicant as a systematic business activity.

6. The Ld. CIT(E) has erred in solely relying upon the information received from faceless assessment unit without independent application of mind thereon.

7. The Ld. CIT(E) erred in rejecting the Appellant’s application for renewal of registration under section 12AB by holding that the activities of the Appellant trust do not constitute a “charitable purpose”, while ignoring the settled principle of consistency, inasmuch as on identical facts in earlier year’s assessments were completed accepting the objects as charitable.

8. Your Appellant craves leave to add, amend, alter, modify or delete all or any of the above grounds of appeal.

Prayer: The Appellant prays that the order rejecting registration of the trust under section 12AB be quashed and the registration of the trust be restored.

2. The brief facts of the case are that the assessee, Kutchi Jain Foundation, is a charitable trust which filed an application in Form No. 10AB on 29.09.2025 under section 12A(1)(ac)(ii) of the Income-tax Act, 1961 (“the Act”) seeking renewal of its registration under section 12AB of the Act. The learned CIT(Exemptions), Mumbai, examined the application with reference to the requirements prescribed under Rule 17A of the Income-tax Rules, 1962. Initially, the CIT(Exemptions) found that the assessee had not furnished the complete set of documents required under Rule 17A(2) and, therefore, issued a notice dated 12.01.2026 asking the assessee to furnish the requisite documents. The assessee thereafter furnished its submissions and supporting material.

3. During the course of the proceedings, the CIT(Exemptions) also received a reference from the Faceless Assessment Unit in connection with the assessment proceedings for A.Y. 2024-25. The Faceless Assessment Unit informed that the assessee was carrying on lending operations on a large scale and was involved in facilitating the purchase and sale of flats, negotiating prices and providing financial assistance by way of loans. The Faceless Assessment Unit further informed that the assessee had received substantial repayments from the beneficiaries which appeared to exceed the amounts actually disbursed and, therefore, indicated a possible element of profit or commission in the transactions. On the basis of this reference, the CIT(Exemptions) formed a prima facie view that the assessee might be carrying on activities of a commercial nature which would fall outside the meaning of “charitable purpose” under section 2(15) of the Act. The CIT(Exemptions), therefore, issued a showcause notice dated 17.03.2026 asking the assessee to explain why its application for renewal of registration under section 12AB of the Act should not be rejected.

4. In response, the assessee explained that it provided housing assistance to financially needy persons by granting interest-free loans for acquiring residential properties. The assessee specifically contended that the beneficiaries themselves purchased the properties directly from independent builders or through resale transactions and the assessee’s role was confined to providing financial assistance. According to the assessee, it sanctioned such assistance only after examining the financial position, eligibility and genuine need of the beneficiary. The assessee further explained that it structured repayment in affordable monthly installments depending upon the repayment capacity of each beneficiary and generally allowed a long repayment period of about 100 months.

5. The assessee further submitted that it did not charge any interest, commission, processing fee, service charge or any other consideration from the beneficiaries. It submitted that, where any installment cheque issued by a beneficiary was dishonored, the assessee recovered only the actual bank charges levied upon it and did not impose any additional or penal charge. The assessee, therefore, contended that it recovered only the principal amount advanced to the beneficiary together with actual bank charges, wherever applicable, and did not earn any income or profit from the activity. The assessee accordingly submitted that it was not carrying on a money-lending or other commercial activity.

6. The assessee also submitted the nature of its fund mechanism. According to the assessee, repayments received from earlier beneficiaries were again deployed for providing housing assistance to other needy beneficiaries. The assessee contended that the recycling of charitable funds merely enabled it to continue and enlarge its charitable activity and could not, by itself, convert the activity into a business. In support of this contention, the assessee furnished the figures of loans advanced and repayments received during the preceding three financial years. For F.Y. 2022-23, against loan repayments of Rs. 7,35,97,728/-, the assessee advanced fresh loans of Rs. 9,52,47,736/-; for F.Y. 2023-24, against repayments of Rs. 9,19,60,829/-, it advanced fresh loans of Rs. 14,39,12,345/-; and for F.Y. 2024-25, against repayments of Rs. 11,72,79,977/-, it advanced fresh loans of Rs. 17,10,66,520/-. The assessee thus sought to demonstrate that, in each of these years, fresh financial assistance exceeded the repayments received and it continued to deploy substantial funds towards the charitable activity.

7. The assessee also furnished ledger accounts of three beneficiaries to demonstrate that it recovered only the principal amount advanced and did not recover any interest or other income. It further relied upon its Profit and Loss Account to contend that it had not earned any commission, processing charges, fees or similar income from these transactions. The assessee accordingly submitted that it was neither carrying on a business within the meaning of section 11(4) nor undertaking any systematic activity with a profit motive.

8. The assessee further relied upon CBDT Circular No. 100 dated 24.01.1973. The assessee pointed out that the CBDT had recognised that advancement of loans could constitute application of income towards charitable purposes where the advancement of such loans formed part of the activities undertaken for fulfilment of the charitable objects of the trust. The assessee submitted that the principle contained in the Circular concerning loans granted for educational purposes equally supported its case because it granted interest-free housing assistance to needy persons without charging any fee, commission or interest. The assessee also relied upon the decision of the Hon’ble Karnataka High Court in CIT v. Saraswath Poor Students Fund [1984] 150 ITR 142 (Karnataka), wherein the Court considered financial assistance to poor and deserving students by way of loans and scholarships in the context of charitable activity.

9. The CIT(Exemptions), however, rejected these explanations. The CIT(Exemptions) observed that the assessee systematically identified beneficiaries, sanctioned loans, prescribed structured repayment schedules and continuously recycled the amounts recovered through a revolving fund. According to the CIT(Exemptions), the organized, repetitive and continuing nature of these operations possessed the characteristics of financial intermediation and was akin to micro-financing. The CIT(Exemptions) took the view that the mere absence of interest or a profit motive would not make the activity charitable if the inherent nature and character of the activity remained commercial or business-like.

10. The CIT(Exemptions) further held that the lending activity constituted a substantial and dominant part of the assessee’s operations. According to him, the assessee failed to establish that the activity of granting loans was merely incidental to its charitable objects. On the contrary, CIT(Exemptions) considered the structured mechanism of providing housing loans, facilitating acquisition of properties and securing repayment as showing that lending constituted a core activity of the assessee. He thus treated the scale, continuity and organized manner of the activity as factors indicating that the assessee was conducting systematic lending operations rather than merely applying its income towards charity.

11. The CIT(Exemptions) also rejected the assessee’s reliance upon CBDT Circular No. 100 dated 24.01.1973. The CIT(Exemptions) interpreted the Circular to mean that where granting of loans itself assumes the character of the primary or dominant activity, it could amount to carrying on a money-lending business. He further distinguished the Circular on the ground that it dealt with advancement of loans in the field of education, whereas the assessee was providing financial assistance for housing and other purposes. On this basis, the CIT(Exemptions) held that the assessee could not derive any benefit from the Circular.

12. The CIT(Exemptions) similarly distinguished the decision of the Hon’ble Karnataka High Court in Saraswath Poor Students Fund (supra) on the ground that the said case concerned financial assistance to students for education, whereas the assessee was providing financial assistance for acquiring immovable properties. The CIT(Exemptions) took the view that facilitating housing transactions and providing financial assistance for acquisition of immovable property did not fall within any recognised limb of “charitable purpose” under section 2(15) of the Act. He further observed that the pattern and magnitude of the transactions, the facilitation of purchase of flats and the financial arrangements entered into with the beneficiaries indicated an organized activity having elements of commercial facilitation.

13. The CIT(Exemptions) thereafter examined the matter from the perspective of renewal of registration under section 12AB of the Act and held that the assessee was required to establish both that its objects were charitable and its activities were genuine. The CIT(Exemptions) held that the activities actually carried on by the assessee were not in conformity with the definition of “charitable purpose” under section 2(15) of the Act. He further observed that deployment of the assessee’s funds in what he described as “non-specified modes” indicated non-compliance with the statutory requirements and, on that basis, invoked violation of section 13(1)(d) read with section 11(5) of the Act. The CIT(Exemptions) held that the assessee’s activities could not be regarded as genuine for the purposes of section 12AB of the Act.

14. The assessee is in appeal before us against the order passed by CIT(Exemptions) dismissing the application of the assessee.

15. We have heard the rival submissions and carefully perused the material placed before us. The main controversy before us is whether the activity of providing financial assistance by way of interest-free repayable loans to financially needy persons for acquisition of residential houses can be regarded as a charitable activity within the meaning of section 2(15) of the Act or whether, as held by the learned CIT(Exemptions), the systematic and organized manner in which the assessee carries on this activity makes it a lending or micro-finance business disentitling the assessee to registration under section 12AB of the Act.

16. At the outset, section 2(15) defines “charitable purpose” inclusively and specifically covers, inter alia, “relief of the poor”, “education”, “medical relief” and “advancement of any other object of general public utility”. The first three limbs operate independently of the residuary limb of advancement of any other object of general public utility. Therefore, where an activity in its true substance constitutes relief of the poor, the proviso relating to activities in the nature of trade, commerce or business attached to the limb of general public utility does not determine its charitable character.

17. We therefore have to first identify the true nature of the activity rather than its nomenclature. Merely describing an outgoing as a “loan” cannot make it a money-lending business, just as describing an outgoing as “aid” cannot automatically make it charitable. We have to examine the class of persons whom the assessee assists, the purpose for which it advances the money, the conditions upon which the assessee grants assistance, the financial return, if any, which the assessee derives from the transaction and the manner in which it applies the amounts recovered.

18. In the present case, the assessee has submitted that it receives applications from persons requiring assistance for acquiring a residential house; the management examines the income of the proposed beneficiary, his financial position, his family dependants and his housing requirement; and only thereafter sanctions financial assistance. According to the assessee, beneficiaries generally belong to relatively low-income groups and require a limited amount, normally in the range of approximately Rs. 5 lakh to Rs. 10 lakh, to bridge the gap between their own resources or bank finance and the amount necessary for acquiring a residential house. The assessee has further submitted that it does not itself purchase or sell flats, does not act as a builder or broker and does not earn any consideration from the property transaction. The beneficiary purchases the residential property and the assessee only provides financial assistance. These are relevant features while determining the real character of the activity.

19. We are unable to accept the proposition adopted by the learned CIT(Exemptions) that financial assistance for acquiring an immovable property can never fall within any limb of charity under section 2(15) of the Act. Section 2(15) of the Act does not prescribe that relief to an economically weaker person must necessarily take the form of an outright grant. Nor does the provision exclude assistance for securing a basic residential house merely because such assistance results in acquisition of immovable property by the beneficiary. The statutory test is the charitable purpose which the activity serves. If a trust assists financially needy persons to secure basic housing and the assistance genuinely operates as economic relief without generating commercial return for the trust, the mere fact that the relief takes the form of a recoverable loan instead of an outright donation cannot, by itself, destroy its charitable character.

20. In this regard, CBDT Circular No.100 dated 24.01.1973 is also of relevance. The Circular states, in the context of educational assistance, that advancement of a loan can constitute application of income towards a charitable object and the mere fact that the amount is repayable does not necessarily convert the transaction into money-lending. The Circular deals with educational loans and, therefore, cannot mechanically be extended as if it expressly decides the present issue of housing assistance. However, it recognises an important principle relevant to the present controversy, viz. that a repayable financial assistance is not inherently incompatible with charity. The nature of the underlying object and the manner in which the activity is conducted remain determinative.

21. The Hon’ble Karnataka High Court in Saraswath Poor Students Fund (supra) also held financial assistance by way of loans and scholarships to poor and deserving students in the context of a charitable activity. Though that judgment was delivered in the field of education and does not directly decide the issue of housing assistance before us, it again demonstrates that the presence of an obligation to repay does not, by itself, make the assistance commercial.

22. We will now study the importance of the fact that the assessee does not charge interest. In our view, the absence of interest is a material circumstance, although it cannot be treated as the sole or conclusive test. A person may carry on an organized activity without a profit motive, while in another factual situation even an apparently concessional lending activity may contain substantial commercial elements. We therefore cannot accept the assessee’s submission in its absolute form that absence of profit or interest “itself” proves charity. At the same time, where the trust advances its own charitable funds to economically needy beneficiaries, does not charge interest, commission, processing fee, service charge or consideration of any nature, does not share in the appreciation of the property, and recovers only the amount advanced so that the same fund can again assist another needy beneficiary, these factors strongly negate the essential commercial attributes ordinarily associated with a moneylending or financing business.

23. The distinction becomes important in view of the judicial treatment of micro-finance activities. Courts and Tribunals have not adopted a rule that every micro-finance activity is charitable or that every such activity is commercial. The decisions is dependent upon the actual economic substance of the arrangement. Where loans are advanced to weaker sections as an instrument for their economic upliftment and the operations lack commercial or profit-oriented attributes, Courts and Tribunals have recognised the possibility of charitable character. On the other hand, where the institution charges interest and conducts the financing activity substantially on commercial lines, the charitable claim may fail. The recent judgment of the Hon’ble Calcutta High Court in Pranab Micro Services Federation v. Principal Chief CIT [2026] (Calcutta)[25-03-2026] held that where assessee, a Section 8 company, sought registration under section 12AB, Commissioner (Exemptions) rejected application as it failed to explain its microfinance operations, did not specify interest rates, and had not undertaken substantial charitable activities, since microfinance involved commercial elements such as charging interest, it would not qualify as a charitable purpose under section 2(15),of the Act and as assessee failed to establish absence of profit motive, rejection was upheld.

24. The facts before us, subject to verification of the accounts, stand on a different footing because the Revenue itself has not identified any interest, commission, processing charge or other return earned by the assessee from these housing advances.

25. We also find merit in the assessee’s contention that an activity does not become commercial merely because the assessee conducts it in an organised and structured manner. A charitable institution dealing with a significant number of beneficiaries necessarily requires an objective process for receipt of applications, verification of financial need, sanction of assistance, maintenance of accounts and recovery of amounts which are repayable. Therefore, the learned CIT(Exemptions), in our view, cannot infer a commercial character merely from the fact that the assessee followed an organised process, obtained post-dated cheques, monitored repayments or recycled recoveries.

26. The assessee has explained that it does not take a mortgage or any conventional security over the beneficiary’s property and does not execute a formal commercial loan agreement. The assessee takes post-dated cheques and, in certain cases, asks the housing society to record that the beneficiary acquired the property with financial assistance from the assessee so that the property may not be transferred without the assessee’s knowledge or permission until repayment. The assessee explained that it follows these steps only to secure repayment of the charitable fund so that it can redeploy the money for other beneficiaries. We find nothing inherently commercial in a charitable trust adopting reasonable safeguards to protect funds which it has advanced. Prudence in preservation of charitable funds cannot be equated with carrying on a financing business.

27. We next examine whether the material furnished before us supports the assessee’s statement that it recovers only the principal amount. This question is important because the very show-cause notice issued by the learned CIT(Exemptions) was on the premise that the repayments were substantial and appeared to exceed the amounts actually disbursed, suggesting a profit or commission element. The assessee specifically controverted this premise and stated that the learned CIT(Exemptions) had misunderstood a revolving loan fund, because recoveries in a particular year necessarily include instalments relating to loans sanctioned in earlier years.

28. The year-wise statements show that for F.Y. 2024-25, the assessee had an opening loan balance of Rs. 26,69,05,518/-. During the year, the assessee gave fresh loans of Rs. 15,72,21,520/- and received repayment of Rs. 11,42,89,977/-, leaving a closing loan balance of Rs. 30,98,37,061/-. Thus, the figures are properly reconciled, as the opening loan balance plus fresh loans given during the year, after reducing the repayments received, gives the closing loan balance. The same position is seen in the earlier years. For F.Y. 2023-24, the opening loan balance was Rs. 22,56,37,002/-, fresh loans were Rs. 13,17,89,345/-, repayments were Rs. 9,05,20,829/- and the closing balance was Rs. 26,69,05,518/-. Similarly, for F.Y. 2022-23, the opening balance was Rs. 21,19,38,994/-, fresh loans were Rs. 8,61,97,736/-, repayments were Rs. 7,24,99,728/- and the closing balance was Rs. 22,56,37,002/-. These figures prima facie show that the amounts received from the beneficiaries have been reduced from the outstanding loans and have not been treated as income earned by the assessee.

29. The fund-flow statements for F.Ys. 2022-23, 2023-24 and 2024-25 also support the assessee’s case. The assessee has separately shown the repayment of housing loans on the receipts side and fresh housing loans on the payment side. The assessee has also separately shown interest income from its investments, fixed deposits and transactions in mutual funds. However, these statements do not show any interest, commission, processing fee or similar income from the housing loans. Therefore, from the material placed before us, it prima facie appears that the assessee has received only repayment of the loans earlier given to the beneficiaries and has not earned any interest, commission or other income from such loans.

30. At the same time, we clarify that an aggregate reconciliation cannot, as a matter of accounting principle, irrefutably establish the terms of each and every individual loan. The assessee has stated that it also furnished individual beneficiary ledgers and that those ledgers show recovery only of principal. The learned CIT(Exemptions), however, has not identified a single beneficiary account in which the assessee advanced one amount but recovered a higher amount towards interest, commission or profit. Nor has he identified any entry in the Profit and Loss Account showing income from the housing loans. In these circumstances, a generalized suspicion that recoveries “appear” to exceed disbursements cannot survive merely because the annual recoveries include repayment of loans granted in earlier years. The correct comparison is not between fresh loans granted in one particular year and repayments received in that very year; the comparison has to take into account the opening outstanding principal, fresh disbursements, repayments and closing outstanding principal.

31. The assessee had obtained registration under section 12AA on 21.03.2006 and subsequently obtained registration under the new regime in Form No.10AC on 28.05.2021. The assessee has submitted that its object clause expressly includes assistance for housing and there has been no change in those objects.

32. We may also clarify the meaning of “relief of the poor” in the present context. The expression cannot reasonably be confined only to persons who are wholly destitute or without any source of income. Economic need is relative to the nature of the relief being provided. A person may have some income and yet lack the financial capacity to obtain basic residential accommodation without assistance. At the same time, every person acquiring a property cannot automatically be described as a beneficiary falling within “relief of the poor”.The charitable character therefore depends upon a genuine and consistently applied means-based selection process. The material placed before us shows that the assessee examines the income, dependants, housing requirement and financial capacity of an applicant before sanctioning assistance. So long as the assessee restricts the scheme in substance to persons who genuinely require financial assistance for obtaining reasonable residential accommodation, the activity can fall within “relief of the poor”. If, on the other hand, the assessee were to finance property purchases indiscriminately without regard to financial need, the same conclusion would not necessarily follow.

33. We now come to the learned CIT(Exemptions)’ further observation regarding section 13(1)(d) read with section 11(5) of the Act. The learned CIT(Exemptions) has stated in general terms that the assessee deployed funds in “non-specified modes”, but has not identified the particular investment or deposit, the amount involved or the manner in which it violated section 11(5). This reasoning cannot be sustained merely by treating loans granted in furtherance of charitable objects as investments.

34. In view of the material placed before us, we find that the learned CIT(Exemptions) proceeded primarily upon three assumptions: first, that repayments exceeded disbursements and therefore contained an element of profit or commission; second, organized and repetitive lending necessarily assumed the character of micro-finance business; and third, financial assistance for acquisition of residential property could not fall within any limb of charitable purpose. The material before us prima facie does not support these assumptions. The year-wise reconciliation clarifies why repayments in a particular year cannot be compared merely with disbursements made during that same year; the financial statements do not disclose interest, commission or processing income from beneficiaries; and the statutory definition in section 2(15) of the Act does not exclude housing assistance from “relief of the poor” merely because assistance takes the form of a recoverable, interest-free advance.

35. In view of the foregoing discussion, we are unable to agree with the learned CIT(Exemptions) that the activity of granting loans for acquiring residential properties, by itself, takes the assessee outside the meaning of “charitable purpose” under section 2(15) of the Act. We have already held that an interest-free loan granted to a financially needy person for acquiring basic residential accommodation can, depending upon the manner in which the scheme is actually operated, constitute “relief of the poor”. The fact that the assistance is repayable or that the assessee follows a structured procedure for granting and recovering such assistance does not, by itself, make the activity a money-lending or commercial activity.

36. At the same time, we find that the charitable character of such activity cannot be decided merely from the description of the scheme as an “interest-free housing loan”. What is material is the actual manner in which the assessee selects the beneficiaries, grants the loans and recovers the amounts. The learned CIT(Exemptions) rejected the application mainly on a general inference that the organised and repetitive nature of the activity was akin to micro-financing. In our view, this is not sufficient. The correct approach is to examine the actual transactions and determine whether the assessee is genuinely providing financial assistance to needy persons without earning any profit, interest, commission or other consideration.

37. The material placed before us prima facie supports the assessee’s case. The year-wise statements show that the opening loan balances, fresh loans, repayments and closing loan balances broadly reconcile. The fund-flow statements also separately disclose interest income from investments but do not disclose any interest, commission or processing charges from the housing loans. The assessee has further stated that it recovers only the principal amount from the beneficiaries and recycles such recoveries for providing assistance to other beneficiaries. However, these aggregate figures by themselves cannot decisively establish the manner in which every individual loan has been granted and recovered. We therefore consider it appropriate that the learned CIT(Exemptions) verifies the actual working of the scheme before granting registration.

38. We accordingly hereby modify the conclusion and hold that, though we accept the assessee’s legal contention in principle that interest-free housing assistance to financially needy persons can constitute a charitable activity within the meaning of section 2(15) of the Act, we hereby direct the learned CIT(Exemptions) to carry out a limited factual verification of the relevant parameters and direct him to grant registration if those parameters are found to be satisfied.

39. During the course of hearing, with the assistance of the learned Counsel for the assessee, we have examined a couple of agreements on a sample basis and we are of the prima facie view that the activities seem to be of a charitable character. However, considering the nature and scale of the activity, we are of the considered view that the learned CIT(Exemptions) may examine a slightly larger and reasonable sample of beneficiary files and agreements, though there is no requirement to examine each and every transaction. The verification shall remain limited and may broadly cover the following aspects:

(a)

The learned CIT(Exemptions) shall examine a reasonable sample of beneficiary applications, sanction documents, agreements and supporting records to verify whether the beneficiaries are financially needy persons and whether the assistance has been given for acquiring residential accommodation in accordance with the objects of the assessee.

(b)

The learned CIT(Exemptions) shall verify from the sampled beneficiary accounts whether the assessee has recovered only the principal amount advanced and has not charged any interest, commission, processing fee, service charge, penalty or other financial return. Mere recovery of actual bank charges or expenses, without any mark-up, shall not be treated as a profit element.

(c)

The learned CIT(Exemptions) shall examine the sampled agreements to verify whether the assessee merely takes reasonable measures to secure repayment of the charitable funds and does not acquire any commercial interest in the property or receive any commission, brokerage, referral fee or other benefit from the beneficiary, builder, developer, broker or seller.

(d)

The learned CIT(Exemptions) shall also broadly verify from the books of account that the amounts recovered from beneficiaries form part of the revolving fund and are utilised for providing similar housing assistance to other eligible beneficiaries.

40. We further make it clear that the learned CIT(Exemptions) shall not reject the assessee’s claim merely because the activity is carried on systematically or on a substantial scale. The number of beneficiaries, magnitude of the funds involved, maintenance of a structured procedure, obtaining post-dated cheques and monitoring of repayments are relevant factual circumstances but are not, by themselves, sufficient to establish commerciality. The decisive consideration is whether, looking at the activity as a whole, the assessee provides genuine financial relief to the intended class of needy beneficiaries without deriving any profit or other commercial benefit.

41. If, upon the above verification, the learned CIT(Exemptions) finds that the assessee selects beneficiaries on the basis of genuine financial need; grants the loans for acquiring reasonable residential accommodation; recovers only the principal amount together with reimbursement of actual out-of-pocket expenses, if any, without any mark-up; does not charge interest, commission, processing fee, penal charges or any other consideration; does not receive any direct or indirect benefit from builders, sellers or beneficiaries; and redeploys the recovered amounts towards its charitable objects, the activity shall be treated as charitable in nature and the learned CIT(Exemptions) shall grant renewal of registration under section 12AB in accordance with law.

42. On the other hand, if the learned CIT(Exemptions) finds any departure from the above factual position, he shall examine its nature, extent and impact in accordance with the provisions of sections 2(15), 11, 12 and 13 of the Act and shall pass a reasoned order after giving the assessee an adequate opportunity of being heard. A minor or isolated discrepancy shall not, by itself, lead to rejection of registration without examining whether it affects the genuineness and overall charitable character of the activities.

43. Accordingly, we allow the grounds raised by the assessee for statistical purposes and restore the matter to the file of the learned CIT(Exemptions) for the limited verification indicated above. The learned CIT(Exemptions) shall thereafter decide the application afresh in accordance with law and in the light of our observations hereinabove.

44. In the result, the appeal filed by the assessee is allowed for statistical purposes.

ITA Number 4396/Mum/2026

45. This appeal is with respect to the rejection of the assessee’s application for approval under section 80G of the Act.

46. We find that the assessee’s application for approval under section 80G is connected with its registration under section 12AB of the Act. In the assessee’s appeal relating to registration under section 12AB, we have restored the matter to the file of the learned CIT(Exemptions) for fresh consideration and for carrying out the factual verification directed by us therein. Since the issue relating to registration under section 12AB has been restored to the file of the learned CIT(Exemptions), we find that the assessee’s application for approval under section 80G also requires fresh consideration depending upon the outcome of the proceedings under section 12AB of the Act.

47. Accordingly, the appeal of the assessee in ITA No. 4396/Mum/2026 is allowed for statistical purposes.

ITA Number 4411/Mum/2026

The assessee has raised the following grounds of appeal:

1. The Ld. CIT(E) has erred in rejecting the Appellant’s application for renewal of registration u/s 12AB of the Income Tax Act, 1961.

2. The Ld. CIT(E) has erred in concluding that granting of interest free loans without profit motive does not constitute “charitable purpose” u/s 2(15) of the Income Tax Act, 1961.

5. The Ld. CIT(E) has erred in treating charitable activity of the applicant as a systematic business activity.

6. The Ld. CIT(E) has erred in solely relying upon the information received from faceless assessment unit without independent application of mind thereon.

8. Your Appellant craves leave to add, amend, alter, modify or delete all or any of the above grounds of appeal.

Prayer: The Appellant prays that the order rejecting registration of the trust under section 12AB be quashed and the registration of the trust be restored.

48. We find that the facts and the issue involved in the present appeal are similar to those considered by us in the assessee’s connected appeal in ITA No. 4367/Mum/2026, wherein we have restored the matter to the file of the learned CIT(Exemptions) for fresh consideration and verification in terms of the directions given therein. Therefore, for the same reasons, we restore the matter in the present appeal also to the file of the learned CIT(Exemptions), with a direction to examine and decide the same afresh in accordance with law and in the light of our findings and directions in ITA No. 4367/Mum/2026, after giving adequate opportunity of being heard to the assessee.

49. Accordingly, the appeal of the assessee in ITA No. 4411/Mum/2026 is allowed for statistical purposes.

ITA Number 4412/Mum/2026

50. We find that the present appeal in ITA No. 4412/Mum/2026 relates to the assessee’s application for approval under section 80G of the Act. We further find that in the assessee’s connected appeal in ITA No. 4411/Mum/2026 relating to registration under section 12AA of the Act, we have already restored the matter to the file of the learned CIT(Exemptions) for fresh consideration. Since the issue of approval under section 80G is connected with the issue of registration under section 12AA, we consider it appropriate to restore the present matter also to the file of the learned CIT(Exemptions). The learned CIT(Exemptions) shall decide the assessee’s application for approval under section 80G afresh in accordance with law, after the decision taken in the proceedings relating to registration under section 12AA of the Act and after giving adequate opportunity of being heard to the assessee.

51. Accordingly, the appeal of the assessee in ITA No. 4412/Mum/2026 is allowed for statistical purposes.

52. In the combined result, all appeals filed by the assessee are allowed for statistical purposes