Restored Section 12A Registration Rejection for Fresh Examination After Natural Justice Lapse: ITAT

Dawat-e-Islami Hind Vs CIT (ITAT Varansi)

Varanasi ITAT Restores 12AB Registration Matter; Holds CIT(E) Must Confront Alleged ‘Specified Violations’ Before Rejecting Registration

The Varanasi ITAT set aside the order of the CIT(Exemption) rejecting the assessee’s application for regular registration under section 12AB and remanded the matter for fresh adjudication, holding that the principles of natural justice were violated as the assessee was never confronted with the alleged “specified violations” under section 12AB(4) before rejection of its application.

The CIT(E) had rejected the registration on the ground that the assessee, a public religious trust, had made substantial donations to other trusts whose objects were allegedly not identical to its own, treating such donations as “specified violations” under section 12AB(4). The CIT(E) also held that the trust deed did not authorise the assessee to make donations to other trusts.

The Tribunal found that the CIT(E)’s approach was unduly pedantic, observing that complete identity of every clause in the objects of the donor and donee trusts is not required. It held that if the objects of the donee trust are broadly aligned with those of the donor trust, donation towards furtherance of such similar objects constitutes valid application of income. The Tribunal also held that the CIT(E) was factually incorrect in observing that the trust deed contained no enabling clause for donations, noting that several clauses expressly empowered the trust to render assistance to other institutions pursuing similar objectives.

Since the assessee had not been issued any notice specifically alleging “specified violations” or given an opportunity to explain the donations before its registration was rejected, the Tribunal held that the order suffered from a breach of natural justice. It accordingly restored the matter to the CIT(E) with directions to specifically confront the assessee with the alleged violations, consider its explanation, and pass a fresh order in accordance with law. The appeal was allowed for statistical purposes

FULL TEXT OF THE ORDER OF ITAT VARANSI

This is an appeal against the order of the ld. CIT(Exemption) rejecting the application for registration under section 12A(1)(ac)(ii) of the Income Tax Act, 1961 and also cancelling any registration granted earlier under section 12AB/12A of the Act. The grounds of appeal are as under:-

“1. That Ld. CIT(E) erred to mention in the order that there is no clause in the trust-deed of the appellant which states that trust will give donations to other trusts. Whereas, the objects of the appellant include to support, give donation and maintain the trust/societies which are engaged in spreading the Islamic education or promotion and dissemination of spiritual teaching of Islam. Hence. rejection of registration application of the appellant is against the facts, unjustified and without jurisdiction.

2. That the objects of the appellant clearly provide to make payment of expenses or give assistance by donation or otherwise to other trust, society or other organization for spreading the islamic education or promotion and dissemination of spiritual teaching of Islam. During the year, appellant incurred expenses and gave donations to other trust for fulfilment of the objects of the trust, hence Ld. CIT(E) erred to reject the registration application filed under section 12A(1)(ac)(ii) of the Act for procedural and other reasons.

3. That the objects of the donee-trusts were also religious in nature and to promote religious education amongst the general public. Since objects of the appellant and done-trusts were similar, accordingly, Ld. CIT(E) erred to invoke aforesaid provisions of the Act for rejecting the application of the appellant, filed under section 12A(1)(ac)(x) of the Act.

4. That the provisions of sub-section (4) of section 12AB of the Act is not applicable in the facts and circumstances of the case, hence Ld. CIT(E) erred to invoke aforesaid provisions of the Act for rejecting the application of the appellant, filed under section 12A(1)(ac)(ii) of the Act.

5. That the appellant reserves right to modify and/or add any other ground or grounds of appeal as the circumstances of the case might require or justify.”

2. The facts of the case are that the aforementioned trust had filed an application on 1.05.2025 for registration under section 12A(1)(ac)(ii) of the Income Tax Act, 1961 in Form No.10AB under rule 17A of the Income Tax Rules, 1962. The assessee had earlier been registered under section 12A on 14.03.2022 on provisional basis. The ld. CIT(Exemption) observed that it was clearly evident from a perusal of the objects of the assessee trust that it was a religious trust. Assessee had also submitted that it was a public religious trust and not a public charitable trust and therefore, it was not required to fulfil the requirements of section 2(15) of the Act. It was further submitted that as per section 12A of the Act, purely religious trusts were also entitled under section 12A and it was not necessary that they should carry out charitable activities. However, the ld. CIT(Exemption) noted that there was no clause in the trust deed which allowed the assessee to give donation to other trusts. Accordingly, vide notices issued, the assessee was specifically required to furnish details of donation given by trust during the last three financial years alongwith a complete list of donees and the purposes of such donations. In response, the assessee submitted that it had given the donations during F.Y. 2023 and 2024 and F.Y. 2024-25 as under:-

As regards, the purpose of giving the donations, the donation to Faizan e Madina Education Society was stated to be given for helping the said society to meet the shortfall in payment of stamp duty. It was submitted that the assessee trust had expressed the legitimate interest in utilizing the aforementioned property owned by Faizan e Madina Education Society for the purposes of imparting Islamic education and therefore, the donation had been made for the furtherance of this cause. However, the ld. CIT(Exemption) noted that the donation was not evidenced by an agreement or any acknowledgment by the assessee trust. He further noted that since the assessee trust was not obtaining any title in the property of Faizan e Madina Education Society, but merely utilizing the property, it had no responsibility to bear any legal liability. Furthermore, it could not furnish any evidence in the form of a demand letter, that would establish that the said demand have been raised upon that trust after granting of NOC to the assessee trust. The assessee also submitted that it had paid Rs. 1,27,73,000/-to the Dawat e Islami Hind, Delhi on the grounds that the assessee trust was engaged in similar activities as that of the assessee trust and considering that there was shortfall of funds with the donee trust. The donation was made for the purposes of payment of salary to staff, rent expenses, kitchen expenses etc,. However, the ld. CIT(Exemption) examined the objects of the donee trust and noted that one of the objects of the donee trust was to make arrangements for providing of housing accommodation to the wafood, students and others coming from outside the country and there was no such object mentioned in the trust deed of the assessee trust. Furthermore, he observed that Clause No. (P) of the donee trust was to organize and manage ways and means for eradication of social and villages evils from the society, which was in the nature of a charitable object, which would make the donee trust a public charitable cum religious trust whereas the assessee was a purely religious trust and therefore, the objects of the two trusts were dis­similar. According to him, the donations that were made were a, “specified violation” of sub section 4 of section 12AB of the Income Tax Act, 1961 on this account. The assessee trust also claimed to have donated Rs. 39,88,000/-to Dawat e Islami Hind, Lucknow stating that the donee trust was engaged in similar activities as that of the assessee trust and since there was a shortage of funds available with the donee trust, it had required the same for payment of salary to the staff, payment for rent expenses, kitchen expenses etc,. The ld. CIT(Exemption) examined the objects of the donee trust and noted that Sr. No. 13 of the objects was to open and operate hostels for accommodating foreign Islamic missionaries, which was not among the objects of the assessee trust. He further noticed that Sr. No. 16 and 23 of the donee trust stated among the objectives, organization and managing ways and means for eradication of social and religious evils from the society and also to do more plantation all around India to make more greenery and these were in the nature of charitable objects, which rendered the donee trust as a public charitable cum religious trust whereas the assessee was a purely religious trust. Therefore, the donations to this trust amounted to a, “specified violation” in terms of sub-section 4 of section 12AB of the Income Tax Act. Regarding the Rs. 8 Lacs paid to Rajab Organization, the assessee submitted that the donee trust was engaged in similar activities as the assessee trust and since it had a shortfall, the assessee trust had contributed towards payment of salary to its staff, for rent expenses and for kitchen expenses etc,. Once again, the ld. CIT(Exemption) examined the objects of the said trust and came to the conclusion that Object-C of the donee trust i.e. giving of religious education in accordance with the Holy Quran and Hadees in Madarsas with modern education including English, Mathematics, Science and other subjects amounted to a public charitable object, rendering the donee trust as a public charitable cum religious trust and making the donations to it by a purely religious trust as, “specified violation” of sub section 4 of section 12AB of the Income Tax Act. Regarding the Rs. 13,50,000/- paid to Ramzan Organization, once again, the assessee submitted that donee trust was engaged in similar other activities as that of the assessee trust and it had a shortfall of funds therefore, the assessee trust had rendered assessments to it. Ongoing through the aims and objects, the ld. CIT (Exemption) noticed that there several clauses in the objects of the donee trust that rendered the donee trust to be a public charitable cum religious organization and since the assessee was a purely religious trust, donations to such a trust constituted a, “specified violation” in terms of sub section 4 of section 12AB of the Income Tax Act. Regarding the Rs. 32 Lac paid to Bukhari Foundation, the ld. CIT(Exemption) examined the objects of the donee trust and once again came to the conclusion that various objects within the donee trust rendered it to be a public charitable cum religious trust whereas the assessee was purely a religious trust and since donation to any organization with dis­similar nature and activities was not permissible as per the provisions of Income Tax Act applicable to exempt institutions, therefore, the above said payments was a, “specified violation” in terms of sub-section 4 of section 12AB of the Income Tax Act. Referring to the Rs. 10 Lacs paid to Ahle Bait Foundation, the ld. CIT(Exemption) examined the objects of that trust and again came to the conclusion that it was a public charitable cum religious trust to whom a purely religious trust could not transfer funds without committing, “specified violations” of sub-section 4 of section 12AB of the Income Tax Act. Similarly, with regard to Rs. 80 Lacs paid to AL Madina Trust, the ld. CIT(Exemption) noted that object no. 14 of the donee trust permitted it to open and operate hostels for accommodating foreign Islamic Missionaries and objects at Sr. 17, 19 and 25 fell under the definition of charitable purposes. Since, the first clause was not there in the objects of the assessee trust and the assessee trust was purely a religious trust, the ld. CIT(Exemption) came to the conclusion that the donations made by the assessee trust to the Al Madina Trust constituted, “specified violations” of sub-section 4 of section 12AB of the Income Tax Act. Finally, with regard to the Rs. 30,90,000/- paid to Hanfi Foundation, the ld. CIT(Exemption) noted that several objects of the donee trust fell under the definition of charitable purposes rendering the said trust as a public charitable cum religious trust to which a purely religious trust could not make a donation without committing specified violation of sub-section 4 of section 12AB of the Income Tax Act. In observing all these alleged violations by the assessee trust, the ld. CIT(Exemption) was guided by his belief that there was no clause in the trust deed of the assessee which stated that the assessee trust could give donations to other trusts or make payment on behalf of any other trust. In view of the aforesaid, the ld. CIT(Exemption) recorded his inability to arrive at the satisfaction about the genuineness of the activities carried out by the trust and therefore, he rejected the applications filed in Form No. 10AB for registration under section 12AB/12A of the Act.

3. The assessee is aggrieved with this order of the ld. CIT(Exemption) and has accordingly come in appeal before us. Sh. Dharmendra Kumar, C.A. (hereinafter referred to as the ld. AR), appearing on behalf of the assessee trust, submitted that the assessee was a religious trust registered on 28^th March, 2019 through its settler Mr. Abu Talaha in the office of Sub-Registrar, Sadar-3, Varanasi. It was involved in running religious educational institutions across Mirzapur, Varanasi, Chandauli, Gorakhpur and other parts of the Uttar Pradesh. The aims and objects of the assessee trust included providing spiritual teaching Islam for the general public of India. Furthermore, apart from spiritual teachings, students studying in the religious educational institutions being run by the assessee were also provided with basic modern education in the fields of Mathematics, Science, Social Science, Environmental Studies, English and other vernacular languages especially because they were from weak financial background and could not afford to go to other schools to obtain quality education. Accordingly, the assessee trust provided assistance to such children by giving them religious education as well as education in respect of various subjects related to general studies so that such children could nurture themselves in society. The assessee trust had earlier been registered 12A(1)(ac)(i) r.w.s. 12AB(1)(a) of the Act from the assessment years 2022­23 to 2026-27. In accordance with the provisions of section 12A(1)(ac)(ii) of the Act, the assessee had submitted an application for renewal of registration under section 12AB of the Act. In compliance to the various notices all the information requested for by the ld. CIT(Exemption) had been submitted. The details of these were contained from clauses 6 to 9 of the statement of facts contained on pages 5 to page 13 of the paper book submitted by the assessee trust. Subsequently, the ld. CIT(Exemption) had rejected the applications submitted by the assessee on the ground that there was no clause in the trust deed which empowered the assessee to give donations to other trusts. The other reason given by the ld. CIT(Exemption) for the rejection of registration was that the assessee had given donations to other trusts where the objects were not entirely similar or where the trusts were performing dissimilar activities to the assessee, thereby constituting, “specified violations” of sub-section 4 of section 12AB of the Income Tax Act. The ld. AR submitted that the ld. CIT(Exemption) was incorrect in his assumption of the facts. Our attention was invited to clauses 4, 5, 7, 13, 15, 19, 20 & 21 which in his opinion permitted the assessee trust to render assistance to trusts having similar objects. Furthermore, the ld. AR submitted that as per the procedure laid down under the Income Tax Act, “specified violation” can only be observed after the issuance of a notice under section 12AB(4) and therefore, only thereafter could any, “specified violation” be observed. The ld. AR argued that in none of the notices issued by the ld. CIT(Exemption), had any, “specified violation” been confronted to the assessee. The ld. AR took us through the various notices that had been issued by the ld. CIT(Exemption) during the proceeding in question, to point out that the assessee had never been confronted with, possible violations of section 12AB(4) and therefore, had never been given an opportunity to point out to the ld. CIT(Exemption) how there was in fact, “specified violation”. The ld. AR also drew our attention to the various replies filed by the assessee in response to the queries that had raised by the ld. CIT(Exemption). To demonstrate that every question that had been asked for had been duly replied by the assessee trust. He then drew our attention to pages 638, 572, 595, 755, 681 and 735 of his paper book, which contained the objects of the various donee trusts to demonstrate that the objects of these donee trusts were broadly aligned with that of the assessee trust. The ld. AR argued that it could never be the case that the objects of two trusts would be exactly similar in every respect but if the objects were broadly similar then it could not be said that income derived from property held under trust had been applied for objects that were other than the objects of the trust or institution. It was submitted that the criteria adopted by the ld. CIT(Exemption) to insist that every single clause in the respective trust deed should match with each other before considering that they were extended to trusts that basically existed for similar objectives, was a case of being too pedantic. The ld. AR submitted that since the objects of the donee trusts were broadly aligned to the objects of the assessee trusts, the ld. CIT(Exemption) should have held that the donations made by the assessee trust were for the purposes of the objects of the assessee trust. The ld. AR further submitted that the giving of money to a trust with similar objectives was in itself application of income as per the provisions of the Income Tax Act. Furthermore, he argued that at the stage of granting of exemption, Courts had held that the CIT(Exemption) could not go into the nitty gritty of application of income but rather should focus on the objects of the trust and the genuineness of the activity. Accordingly, it was prayed that the decision of the ld. CIT(E) being based on a pedantic approach, should be discarded and the assessee should be granted registration because in effect, the ld. CIT(E) had not been able to point out a single genuine case of diversion of trust funds to any activity other than the objects of the trust.

4. On the other hand, Sh. Koushlendra Tewari, CIT DR (hereinafter referred to as the ld. DR) pointed out that the ld. CIT(Exemption) had in fact discussed each trust deed and the objects contained therein before coming to the conclusion that the objectives of the assessee were different from the objectives of the donee trust. It was important to look into what was the main activity of the assessee trust. The ld. CIT(Exemption) had pointed out that the trust was a purely a religious trust, whereas donations were being given to trusts which were running hostels and schools i.e. those which were partly religious and partly charitable. In the circumstances, the ld. CIT(Exemption) was justified in holding that there was a specified violation of notice because the income of the trust had been applied for objects that were other than the objects of the trust or institution. Accordingly, he prayed that the order of the ld. CIT(Exemption) deserved to be upheld.

5. We have duly considered the facts and circumstances of the case and the arguments made by both parties. We note that the stand of the ld. CIT(Exemption) to insist that there must be complete alignment between each and every clause of the assessee trust to the donee trust is a pedantic approach which is not necessary to determine whether the donation is given to a trust having similar objectives. In our view, if the objects of another trust were broadly aligned with the objects of the assessee trust, it would be sufficient application of income to give donations for the furtherance of the objective of that trust which were similar to the assessee trust. It is further noted that the ld. CIT(Exemption) is incorrect in holding that there is no clause in the objects of the assessee trust that provide for giving of donation to other trusts. We note that the clauses 4, 5, 7 & 15 clearly permit the assessee trust to render assistance to other institutions for furthering certain objects. We also note that the ld. CIT(Exemption) has not specifically confronted the assessee with any allegation of, “specified violation” or given the assessee trust an opportunity to respond to such allegation before actually passing the order denying registration to the assessee trust. We believe the same to be a mis-carriage of the principle of natural justice and therefore, after considering the facts of the case and the arguments of the ld. AR, we believe it to be in the interest of justice to restore the matter back to the file of the ld. CIT(Exemption). The ld. CIT(Exemption) may confront the assessee with the details of the alleged violation, as observed by him and afford the assessee an opportunity to rebut his allegations. He may thereafter consider the matter in the light of explanations offered by the assessee and pass a fresh order in accordance with law. Accordingly, the matter is restored to the file of the ld. CIT(Exemption) for de novo consideration.

6. In the result, the appeal of the assessee is allowed for statistical purpose.

Order pronounced on 27.07.2026 in the open Court.