Section 13(3) Benefit Alone Cannot Cancel Section 12AB Registration: ITAT Delhi

Santosh Trust Vs ACIT (ITAT Delhi)

Summary: The assessee, Santosh Trust, challenged the rejection of its application for renewal of registration under Section 12AB of the Income-tax Act, 1961 and consequential cancellation of its Section 80G approval. The Trust, engaged in medical education and running Santosh Medical College & Hospital and Santosh Dental College & Hospital, had applied for renewal in Form 10AB. The prescribed authority alleged diversion of funds to Santosh Hospital Pvt. Ltd., a company in which the founder trustee had been a director, and cash deposits of Rs.39 crore during the demonetisation period.

The Tribunal found that the prescribed procedure under Section 12AB(4) had not been properly followed, particularly since the assessee had not been specifically confronted with the demonetisation allegation. On merits, it noted that the cash-deposit issue had already been considered in earlier proceedings and that the payments to Santosh Hospital Pvt. Ltd. arose from an agreement to acquire hospital assets entered into in 2016. The Tribunal held that the alleged benefit to a person covered by Section 13(3), even if established, was governed by Section 13(1)(c) and could not, by itself, be converted into a specified violation under Section 12AB(4). It further found that the payments to the liquidator were made to protect the Trust’s substantial financial interest in the hospital assets and followed the existing acquisition arrangement and directions of the Supreme Court.