Interest-Free Loans Cannot Alone Deny Section 12AB Registration: ITAT Delhi

Om Welfare Society Vs CIT (Exemptions) (ITAT Delhi)

Summary: ITAT Delhi allowed both appeals of Om Welfare Society, an educational society in existence since 2007, and directed the CIT(E) to grant registration under Section 12AB while reconsidering its Section 80G application in accordance with law. The CIT(E) had rejected registration principally because the Society borrowed substantial funds on interest while advancing interest-free amounts to related and other entities, including ₹6.64 crore to Shri Banke Bihari Educational Trust in FY 2023-24 and ₹11.29 crore to Gyankund Trust to Educate and to Serve in FY 2024-25, and had gone so far as to allege that the Society was extending benefits to related entities and providing entries to business entities to launder money.

The Tribunal noted that the Society had been registered under Section 12A since 26 November 2008 and had substantially expanded its charitable educational activities, including running a university and school. Following Seth Pannalal Charitable Trust v. CIT, it held that the registration authority had gone too far into the financial affairs of the institution; deviations in application of funds may have consequences at the assessment stage but do not by themselves justify rejecting registration where the charitable objects and genuineness of activities are established. Relying also on the Supreme Court’s decision in Ananda Social & Educational Trust v. CIT and the Punjab & Haryana High Court ruling in CIT v. Yadvindra Public School Association, the Tribunal reiterated that at the registration stage the CIT(E) must examine the charitable nature of the objects and genuineness of activities and cannot assume the role of the Assessing Officer.

Since the Society’s predominant activity was education, expressly included within “charitable purpose” under Section 2(15), and it had carried on such activities for years, registration under Section 12AB was directed to be granted. As the Section 80G application had been rejected consequentially because Section 12AB registration was denied, the CIT(E) was directed to evaluate Section 80G approval afresh as per law.

Cases Discussed

FULL TEXT OF THE ITAT DELHI ORDER

The assessee has filed appeals against the order of the learned Commissioner of Income Tax (Exemptions), Chandigarh [“ld. CIT(E)”, for short] even dated 31.10.2025 u/s 12AB and 80G of the Income Tax Act, 1961 (for short ‘the Act’) respectively.

2. Brief facts of the case are, the assessee filed an application in Form 10AB for permanent registration of the society u/s 12A(1)(ac)(iii) of the Income Tax Act, 1961 (in short ‘the Act’) for assessment year 2025-26. However, the application filed by the assessee is rejected by observing as under:

“3.6 The reply of the assessee along with the documents submitted by it was perused. The assessee replied to most of the queries but conveniently skipped the query about justification of advancing loans to other parties related or otherwise while itself paying interest on borrowed money (multiple loan and O/D accounts). As per financial statements furnished by the applicant (reproduced below), it can be seen that there is a pattern every year where it has consistently been paying interest on borrowed money to banks whereas on the other hand it has been giving unsecured and interest-free loans to other entities.

3.7 It is worthwhile to see certain extracts of bank ledgers filed by the applicant which show facts enumerated in para 3.4.

3.8 Even a cursory glance of financial statement would throw up a pattern of practice of advancing interest bearing funds to other parties related or otherwise entirely interest free. In FY 2022-23, it can be seen that it has advanced Rs. 2,51,05,236/ to related entity Om Welfare & Education Trust and Rs. 3,50,00,000/to Sombir.

FY 2023-24 Financial statements reproduced below reveal the same pattern:

In FY 2024-25, the pattern continues showing disregard for the financial propriety in respect of Trust money.

4. As can be seen from above, the applicant has paid a huge amount of Rs. 3,52,67,830/- as interest on borrowed money in FY 2022-23, Rs. 3,84,73,971/- in FY 2023-24 which increased to Rs. 5,17,12,238/- in FY 2024-25. In blatant disregard to fiscal discipline being a charitable entity, the applicant has advanced substantial amounts interest free to other entities including Rs. 6,64,60,000/- to Shri Banke Bihari Educatinal Trust in FY 2023-24 and Rs. 11,29,30,000/- to Gyankund Trust to Educate and to serve in FY 2024-25 which are not even charitable entities and are not registered under section 12A with the Income Tax Department. The applicant is doing all this with the exempt income on which it is paying zero tax.

5 In view of the above discussions, it becomes quite evident that the applicant is not working as a charitable institution and indulging in extending benefits to its related entities and providing entries to other business entities with a view to launder money. Accordingly, the application filed by the applicant for registrant u/s 12AB of the Act is hereby rejected and this rejected will also supersede any registration granted u/s 12AB of the Act by any authority at any earlier time.”

3. Aggrieved with the above order, the assessee is in appeal before us raising the following grounds of appeal in ITA No. 8278/Del/2025:

“1. That the learned Commissioner of Income Tax (Exemptions), Chandigarh has grossly erred both in law and on facts in not granting approval under section 80G(5) of the Act.

2. That the impugned order has been made in an arbitrary and whimsical manner and that too without giving any personal hearing and proper opportunity of being heard much less a fair opportunity and as such the order passed is against the principles of natural justice.

3. That finding of the learned Commissioner of Income Tax (Exemptions), Chandigarh that “in absence of any registration under section 12AB doesn’t meet the requirement for approval as mandated by section 80G(5) of the I.T. Act 1961. Accordingly, the request for grant of approval u/s 80G cannot be decided on the merits of the case and, therefore, declined” is arbitrary, unjustified and not in accordance with law.

It is, therefore, prayed that it be held that the appellant is a charitable society and, is therefore entitled to registration u/s 80G(5) of the Act. It be further held that, the impugned order is not based on correct appreciation of the statutory provisions of law and thus, the order is totally untenable both on facts and in law.”

4. Grounds of appeal in ITA No. 8279/Del/2025:

“1. That the learned Commissioner of Income Tax (Exemptions), Chandigarh has grossly erred both in law and on facts in rejecting the application for registration of the appellant society u/s 12A(1)(ac)(iii) of the Act.

2. That the learned Commissioner of Income Tax (Exemption) has failed to appreciate that, while examining the application under section 12A of the Act, the scope was to merely examine the objects of the society and, whether income received by the assessee society is liable to be considered under section 11 and 12 of the Act and, not whether the income is actually exempt under section 11 and 12 of the Act and therefore rejection of application of the assessee society is wholly misconceived.

3. That order dated 31.10.2025 u/s 12A(1)(ac)(iii) of the Act holding that appellant is not entitled to registration u/s 12A of the Act further establishes that impugned order suffers from inherent contradiction and, infirmities both factual and, legal apart from lack of application of mind and, thus such an order is an illegal order, which deserves to be quashed as such.

4. That furthermore the learned Commissioner of Income Tax (Exemption) has failed to appreciate that, while examining the issue of registration under section 12A of the Act, the scope was to merely examine the genuineness of activities of the society and, whether they are being carried out in accordance with the objects of the society and therefore cancellation of registration of the assessee society is wholly misconceived

5. That, the learned Commissioner of Income Tax (Exemptions) has failed to appreciate that appellant is a charitable society engaged in running of educational institution since the year 2007 and therefore, both in law and on facts, the activities of the appellant society were genuine and in accordance with the objects of the appellant society.

6. That finding of the learned Commissioner of Income Tax (Exemptions) that “The reply of the assessee alongwith the documents submitted by it was. perused. The assessee replied to most of the queries but conveniently skipped the query about justification of advancing loans to other parties related or otherwise while itself paying interest on borrowed money (multiple loan and O/D accounts)” is not based on correct appreciation of facts on record and therefore unsustainable.

7. That further finding of the learned Commissioner of Income Tax (Exemptions) that “in blatant disregard to fiscal discipline being a charitable entity the entity, the applicant has advanced substantial amounts interest-free to other entities including Rs. 6,64,60,000/- to. Shri Banke Bihari Educational Trust in FY 223-24 and Rs. 11,29,30,000/- to Gyankund Trust to Educate and to serve in FY 2024-25 which are not even charitable entities and are not registered under section 12A with the Income Tax Department” is also not based on correct appreciation of facts on record and therefore unsustainable.

8. That conclusion of the learned Commissioner of Income Tax (Exemptions) that “in view of the above discussions, it becomes quite evident that the applicant is not working as a charitable institution and indulging in extending benefits to its related entities and providing entries to other business entities with a view to launder money. is factually incorrect, legally misconceived and unsustainable.

9. That further conclusion of the learned Commissioner of Income Tax (Exemptions) that “the application filed by the applicant for registration u/s 12AB of the Act is hereby rejected and this rejection will also supersede any registration granted u/s 12AB of the Act by any authority at any earlier time” is not based on correct appreciation of facts on record and therefore unsustainable.

10. That the findings and conclusions contained in the order of the learned Commissioner of Income Tax (Exemptions) are based on surmises, conjectures, suspicion and, irrelevant and extraneous considerations and, therefore untenable.

11. That various adverse findings recorded in the impugned order are factually incorrect, legally misconceived and untenable

12. That even otherwise the learned Commissioner of Income Tax (Appeals) passed the order without granting personal hearing and sufficient proper opportunity to the appellant and therefore the same is contrary to principle of natural justice and hence vitiated.

It is therefore, prayed that the order dated 31.10.2025 passed by the learned Commissioner of Income Tax (Exemptions) be held to be without jurisdiction and, therefore be quashed as such. It be also held that order dated 31.10.2025 u/s 12A(1(ac) (iii) of the Act is illegal, arbitrary, unjustified, malafide and a colourable exercise of authority without application of mind. without granting proper opportunity to the appellant and therefore vitiated.”

5. At the time of hearing the ld. AR of the assessee submitted that, the issue involved in the instant appeal is no longer res-integra. It is submitted that the Hon’ble Delhi Bench of Tribunal in the case of Seth Pannalal Charitable Trust v. CIT in ITA No. 3097/D/2025 dated 4.2.2026 reported in 217 ITD 269 (pages 44-51 of JPB) in the context of section 12A read with section 12AB of the Act has held as under:

“6. On hearing both sides we further find that primarily the competent authority has doubted the activities on the basis of manner of use of funds but the moot question is whether at the stage of considering application for registration u/s 12A the scope of inquiry requires or provides powers to examine the financial aspects of the applicant. In this regard we are of the considered view that certainly to the extent that the financial aspect of the applicant relate to the understanding of genuineness of the activities the competent authority can certainly examine the issue but otherwise it is the genuineness of activities as a whole as reflected from the documents incorporating the applicant institution seeking the registration u/s 12A which can only indicate the dominant purpose of the institution, its composition and its prospective activities which indicate the intention of settlers or founding members of the institution seeking registration u/s 12A of the Act, to achieve the objectives.

7. After appreciating the impugned order of Id. Competent Authority we find that the allegation is that the major portion donations are made onlyin the month of March every year for which there is a justification that it is only once the assessee has an account of what would be the surplus or otherwise, that the assessee would consider making the donations if any or not.

7.1 The competent authority doubts donations being in the denominations of Rs.1.51,000, Rs.2,51,000/- and Rs. 5,00,000/- and allegedly same point out towards circular transactions. However, as a matter of practice such donations are in such denominations only being considered sacrosanct and otherwise to the figures are not reflecting some scrupulous activities.

7.2 The competent authority has observed that the some of the donations have been made to non-registered trust for which there is little doubt that charitable trust can make donations to other charitable trust and Instruction No. 1132 of CBDT dated 05.01.1978 specifically refers to the same and which seems to have escaped the attention of competent authority.

7.3 As with regard to Trust receiving the donations from Shiv Shakti Inter Globe Exports amounting to Rs.5,00,000/- on 04.02.2020 and that on same day the amount was donated 10 Shree Hanuman Sewa Samiti Taraori. We find no reason to doubt the activities being not genuine as there is no allegation or evidence to establish that the entity receiving the donations was non existent or non functional.

8. As with regard to loan of Rs.5,00,000/- was given to Shanti Van Gopal Gaushalla on 24.04.2020. We are of the considered view that in helping another trust like Shanti Van Gopal Gaushalla by giving temporary loan is not prohibited under the law. On the contrary, the Trust deed has one of the objects of the Trust to make the donations to other public charitable Trust/institutions who are promoting the same object.

9. In regard to loan of Rs.7,00,000/-, We are of the considered view that receiving loan from the Chairman of the Trust is not prohibited and also the return of the same is not prohibited activity for a Trust. There is no allegation that some benefit has been taken by the Chairman of the Trust instead he has helped the trust.

10. In regard to assessee trust purchasing of rice from Shiv Shakti Interglobe Exports Pvt. Ltd, which is a related company as Sh. Ramesh Chand Gupta Chairman of the Trust is a Director in the said company. We are of the considered view that purchase of rice from Shiv Shakti Inter Globe Exports Pvt. Ltd. which is related to the Chairman is too not some prohibited activity under law more so when same is not doubted for inadequacy. There is no allegation that purchase price for the rice was above the market price or some undue advantage has been taken.

11. Coming to examination of transaction of loan of Rs. 5,00,000/- was received back from Shanti Van Gopal Gaushalla on 04.07.2020 and the balance of the trust was 30,97,931/-and out of the balance a loan amounting Rs. 30,00,000/- given to Shiv Shakti Inter Globe Exports Pvt. Ltd., a related company of the assessee trust on 07.07.2020. The related company returned back the loan on 19.08.2020 with no interest. We are of the considered view that any benefit is given to the Shiv Shakti Inter Globe Exports Pvt. Ltd., that can be the subject matter of an assessment and may not cause rejection of registration. Moreover, advance was given for the purchase of rice. It was never a loan, the amount was only paid for purchase of rice, which was later not purchased and the money was returned back.

12. Coming to FDR amounting Rs. 20,00,000/- was purchased by the assessee trust on 19.11.2020.We are of the considered view that there is nothing wrong in the FDR purchased by the Trust. On the contrary, keeping surplus funds in Bank Deposits is quite reasonable and justified.

13. Then with regard to Loan received from Shiv Shakti Inter Globe Exports Pvt. Ltd. amounting Rs. 9,71,796/-on 27.03.2023, the assessee trust made some donation on 28.03.2023 and 29.03.2023 to other trusts. Competent authority observes that it is not understandable that if Shiv Shakti Inter Globe Exports Pvt. Ltd. which is a related company of the assessee trust want to do some charity than why the company not donated directly to the trust instead of the assessee trust. The same amount Rs. 9,71,796/- was donated by Shiv Shakti Inter Globe Exports Pvt. Ltd. on 30.03.2023 from which the assessee trust repaid the loan. Thereafter, some donations amounting to Rs. 11,00,000/-and Rs. 4,00,000/-were received from Shiv Shakti Inter Globe Exports Pvt. Ltd. and the same were further donated by assessee trust to some other trust.

13.1 We are of the considered view that the assessee trust has received amount from company of Chairman and hence, given donation to another Trust as stated hereinabove is legally permissible and there is no bar on this issue.

14. In the light of aforesaid discussion we are of considered view that competent authority has somehow gone too far to examine the financial actions of Trust, to doubt the genuineness of the activity and more specifically the observation in para 8 of the impugned order that “it is difficult to ascertain the genuineness of the activities being carried out by applicant’, it self makes the impugned order unsustainable under law,

15. The competent authority has then erred in also passing an order of ‘superseding’ registration granted u/s 12AB of the Act, without following the due process, u/s 12AB(4) of the Act by referring to ‘specified violation’.

16. We are thus inclined to sustain the grounds and set aside the impugned order and allow the appeal with a direction to Id. Competent Authority to allow the form 10 AB with consequential effects.”

10. It is also submitted that it is undisputed that appellant is engaged in running a university and, a school and, providing education. The details of receipts of school and application of income is tabulated in paras 4-6 of this synopsis.

11. It is respectfully submitted that, objects of the appellant society are therefore wholly charitable in as much as main object is of providing education which is covered under section 2(15) of the Act. Section 2(15) provides an inclusive definition of the expression “charitable purpose” as under:

“Charitable purpose’ includes relief of the poor, objects of education, medical relief and the advancement of any other object of general public utility.”

Reliance is placed on the following judicial pronouncements to contend that, educational object perse is a charitable object and as such appellant is a charitable trust.

i) 93 ITD 546 (Del) Aryan Educational Society vs. CIT

“6. The next question for our consideration is whether on the facts of the case and in law, the registration under section 12AA of the Act can be refused to the assessee. Considering the scheme of the Act, we are not inclined to accept the reasonings given by the CIT. There is no provision in Chapter III of the Act to the effect that in order to claim exemption, the income of the trust/institution imparting education should be financed either by any subsidy/grant from Govt, or voluntary contribution from the public. The concept of altruism, as argued by the Id. DR, does not fit in the scheme of the Act because it is the settled legal position that dictionary or natural meaning of a word cannot be imported in the statute where such word is defined by the statute. For the purpose of Section 11 or section 12. the words “charitable purpose has been defined in the Act in clause (15) of Section 2. According to this definition, as originally enacted, it includes “relief of poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit”. The words ‘not involving the carrying on of any activity for profit qualified the last category only te “the advancement of any other object of general public utility and did not affect the other objects mentioned in this definition clause. So, the object of ‘education has been declared as object of charitable purpose per se by the legislature and consequently, the concept of altruism cannot be imported in the scheme of the Act. This view is fully supported by the judgment of constitutional bench of the Hon’ble Supreme Court in the case of Surat Art Silk & Cloth Mfrs. Association (supra) wherein it was observed as under. “It is now well settled as a result of the decision of this court in Dharmadeepti v. CIT [1978] 114 ITR 454. that the words “not involving the carrying on of any activity for profit” qualify or govern only the last head of charitable purpose and not the earlier three heads. Where. therefore, the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of “charitable purpose” would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution.”

7. At this stage, it is also pertinent to note that the word “not involving the carrying on of any activity for profit have been omitted from this definition by the legislature by Finance Act, 1983 w.e.f. 1-4-1983. There-fore, after such omission, the element of profit cannot be excluded from the definition of “charitable purpose in Section 2(15) of the Act.

8. The above view is also supported by the legislative intent disclosed in Section 10(22) wherein it has been clearly provided that income of any educational institution cannot be exempted unconditionally if such institution also exists for the purpose of profit. According to this provision, if any educational institution is running on commercial basis then income of such educational institution cannot be exempted from taxation. However, such institution can claim exemption under sections 11 and 12 as element of profit is not excluded by the legislature. The reason is obvious because financial affairs of such institution are well controlled by the provisions of Sections 11 and 13 of the Act. Section 11 clearly provides that in order to claim exemption, such institution must apply 75% of its income for the charitable purpose. The surplus, if any, has to be invested in the specified assets. Further, exemption can be denied if the provisions of Section 13 are violated, therefore, if there is any violation of either of the provisions of Section 11 or section 13, then, the profits of such institution would be taxable. Further, the fact that only 75 per cent of income is to be applied for charitable purpose itself shows that element of profit is not excluded from the definition of charitable purpose for the purpose of sections 11 and 12″

ii) 104 TTJ 127 (Del) Shavak Shiksha Samiti vs. CIT ii)

iii) ITA No. 5009/D/2007 M/s Aggarwal Sabha Meham vs. CIT

iv) 27 SOT 331 (Del) Shri Krishna Education and Welfare iv) Trust vs. CIT

v) 212 CTR 394 (All) CIT v. Red Rose School

vi) 330 ITR 480 (Kar) DIT v. Garden City Educational Trust.

vii) 340 ITR 322 (Del) DDDIT v. Shanti Devi Progressive Education Society

viii) 127 ITD 164 (Del) O.P. Jindal Global University v. CIT

ix) 68 SOT 433 (Delhi) Meritta Welfare Trust v. CIT

12. It is submitted that, according to section 12AA(1)(b) of the Act, the learned Commissioner of Income Tax at the time of registration has to restrict himself to ‘two aspects”.

a) OBJECTS OF THE SOCIETY

b) GENUINESS OF THE ACTIVITIES

14. Having regard to the aforesaid, the appellant seeks to judgement of Hon’ble Apex Court in the case of Ananda Social & Educational Trust v. CIT reported in 426 ITR 340 (pages 33-37 of JPB) wherein it has been held as under:

9. Section 12AA undoubtedly requires the Commissioner to satisfy himself about the objects of the trust or institution and genuineness of its activities and grant a registration only if he is so satisfied. The said section requires the Commissioner to be so satisfied in order to ensure that the object of the trust and its activities are charitable since the consequence of such registration is that the trust is entitled to claim benefits under sections 11 and 12 of the Act. In other words, if it appears that the objects of the trust and its activities are not genuine that is to say not charitable the Commissioner is entitled to refuse and in fact, bound to refuse such registration.

10. It was argued before us that the Commissioner is required to be satisfied about two things firstly that the objects of the trust and secondly, its activities are genuine. If there have been no activities undertaken by the trust then the Commissioner cannot assess whether such activities are genuine and therefore, the Commissioner is bound to refuse the registration of such a trust.

11. We have given our anxious consideration to the above submissions made by Ms. Aishwarya Bhati, learned Senior Counsel appearing for the appellant Director of Income-tax and find that it is not possible to agree with the same. The purpose of section 12AA of the Act is to enable registration only of such trust or institution whose objects and activities are genuine. In other words, the Commissioner is bound to satisfy himself that the object of the Trust are genuine and that its activities are in furtherance of the objects of the Trust, that is equally genuine.

12. Since section 12AA 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 12AA 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 found to have undertaken activities contrary to the objects of the Trust.

13. We therefore find that the view of the Delhi High Court in the impugned judgment is correct and liable to be upheld.”

15. The appellant also seeks to place reliance on the judgment of Hon’ble Punjab & Haryana High Court in the case of CIT v. Yadvindra Public School Association reported in 488 ITR 327 (pages 38-41 of JPB) wherein it has been held as under:

“2. The respondent/assessee had challenged the refusal of registration of the association under section 12AA of the Act, passed by CIT, Patiala vide order dated 25.09.2009. The Commissioner of Income Tax observed that the society had not been carrying on with any charitable activity as the society was not imparting education as a charitable purpose within the meaning of Section 2 (15) of the Act. The society had already been granted approval under Section 10 (23)(vi) of the Act but mere approval does not automatically entitle the assessee to registration under section 12AA of the Act. Furthermore, it was for the assessee to show before the authorities that the society was carrying out charitable activities. The CIT relied upon the judgment passed by the Supreme Court in Municipal Corporation of Delhi v. Children Book Trust (1992) 3 SCC 390/[1992] 63 Taxman 385 (SC) wherein, it was held that there is no charity unless there is an element of subsidy or alimonies for the poor and needy. Whereas, in the present case it is apparent from the accounts and net surplus generated by the society, that there is no element of subsidy or alimony involved.

3. The Tribunal in appeal set aside the order of the CIT(A) relying on the judgment passed in Baba Gandha Singh Education Trust v. Commissioner of Income-tax ITA No.357/Chandi/2010 & ITA No. 803/Chandi/2009/[2012] 20 taxmann.com 111 (Chandigarh). The relevant extract of the said judgment is reproduced as under: –

“The observations of Hon’ble Supreme Court quoted from para 82 of the aforesaid judgment to the effect that -“what we want to stress is where a society or body is making systematic profits, even though that profit is utilized only for charitable purposes, yet it cannot be said that it could claim exemption” deserves to be read in conjunction with the express provisions of the third proviso to S. 10(23) (vi) of the Act which stipulate the retention of 15 per cent of the profits of the total income after quantification thereof, of the educational institution earned in each year provided 85 per cent of the total income is spent for the objects of the society. Infact, the judgment rendered by Hon ‘ble the Supreme Court in Children Book Trust case (supra) on the facts and in the circumstances of the case of the petitioner-society herein, is not at all applicable by virtue of the applicability of the mechanism contained in the third proviso to S. 10(23(vi) of the Act. It may be clarified that Hon’ble the Supreme Court had decided the case of Children Book Trust (supra) under the Delhi Municipal corporation Act, 1957 and had not dealt with the provisions of S. 10(23 (vi) of the Act which are a complete code in itself interalia providing a mechanism for the utilization of surpluses and prior to the utilization determination of the existence of the educational institution solely for educational purposes and not for making profit.”

4. This Court in Commissioner of Income Tax, Patiala v. Baba Banda Singh Bahadur Education Trust. Fatehgarh ITA No. 94 of 2011 alongwith CIT v. Young Scholar’s Educational Society ITA No. 21 of 2011/[2024] 162 taxmann.com 806/299 Taxman 145 (Punjab & Haryana), while dismissing the Appeal of the revenue and upholding order of ITAT further observed that the Commissioner was required to examine the aforesaid factors while granting approval of registration under Section 10 (23C) of the Act and the same factors would also be required to be considered for the cancellation of registration already granted to the educational institutions, while examining the case under Section 12AA of the Act, of course, taking into consideration the conditions provided therein also.

5. The Supreme Court in Ananda Social & Educational Trust v. Commissioner of Income tax 2020 (17) SCC 254/[2020] 114 taxmann.com 693/272 Taxman 7/426 ITR 340 (SC) laid down the scope of Section 12AA and observed that for the purpose of allowing registration under Section 12AA of the Income Tax Act, 1961, the authority shall examine whether the object of the society is of charitable nature or not, and whether the activities being performed by the society are genuine. The relevant para is quoted below:-

“12. Since section 12AA 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 Comm issioner proposes to cancel the registration of a trust under sub-section (3) of section 12AA 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 con trary to the objects of the trust.

6. Thus, at this stage of registration, the Commissioner of Income Tax is required to examine the objectives of the trust and genuineness of its activities.

8. In the present case, we find that the institute has been able to satisfy that it has already been registered under Section 10 (23) (vi) to be an educational institute and Section 12AA pertains to registration of the trust. Since the respondent institute is a duly registered educational trust and whatever earnings it receives are also utilized for the purpose of advancement of education, the institution could not have been denied the benefit of Section 12AA as mentioned in Ananda Social Educational Trust’s case (supra).

9. We, therefore, do not find any error committed by the Income Tax Appellate Tribunal holding the respondent entitled for registration under Section 12AA. The appeal is accordingly dismissed. Compliance of the order passed by the ITAT be now done expeditiously.”

The aforesaid judgment has been affirmed by the judgment of Hon’ble Apex Court in the case of CIT v. Yadvindra Public School Association reported in 488 ITR 332 (pages 42-43 of JPB).

16. Reliance is placed on the following judgments:

i) 212 CTR 394 (All) CIT vs. Red Rose School

ii) 9 SOT 636 (Bom) St. George Educational Trust vs. DIT[E]

iii) 13 SOT 54 (Del) (URO) Acharya Sewa Niyas Uttaranchal vs. CIT

iv) ITA No. 1089/09 in the case of Shri Krishna Education and Welfare Trust vs. CIT

v) 118 TTJ 823 (Del) Dharma Sansthapak Singh (Niyas) vs. CIT

vi) Order of Hon’ble ITAT in the case of M/s Aggarwal Sabha Meham vs. CIT in ITA No. 5009/D/2007 dated 29.05.2009 approved by Hon’ble High Court of Punjab & Haryana dated 27.08.2010

vii) 117 ITR 284 (AP) Governing Body of Rangaraya Medical College”

6. On the other hand, the ld. ‘DR’ relied on the order of the ld. CIT(E).

7. Considered the rival submissions and materials placed on record. We observed that the assessee is in existence from 21.05.2007 onwards, the assessee was granted registration u/s 12A on 26.11.2008 and since then assessee is doing charitable activities. We observed from the chart tabulating gross receipts of the society at page 5 of the synopsis filed before us. We observed that the assessee has grown substantially over the years, a glance of the receipts and expenditure of the society will indicate the growth and imparting of charitable activities.

8. From the above, it can be seen that the assessee has imparted the charitable activity in the field of education over the years and from the findings of the ld. CIT(E) we observed that the registration was denied for the reasons that the assessee has borrowed money from the banks and the assessee has advanced certain loans to other related parties without charging any interest since the assessee has borne the interest on those loans given to related parties and according to the ld. CIT(E) which are not for charitable purpose, also those entities were not even charitable entities and are not registered u/s 12A of the Income Tax Act. It was observed that the assessee is miss-using the funds of exempt income on which it is paying zero tax with the above reasons, the application for registration was rejected. After careful consideration, we observed that the coordinate bench in the case of Seth Pannalal Charitable Trust v. CIT (supra) held that the trust has received amount from company of Chairman and given donation to another trust as stated in hereinabove paras is legally permissible and there is no bar on this issue. Further observed that the competent authority has somehow gone too far to exempt financial action of the trust, to doubt the genuineness of the activity and more specifically the observation in para 8 of the impugned order that it is difficult to ascertain the genuineness of the activities being carried out by the applicant, itself makes the impugned order unsustainable under the law. It was further observed that the competent authority has then erred in also passing an order of superseding registration granted u/s 12AB of the Act, without following the due process u/s 12AB(4) of the Act by referring to specified violation. Accordingly, the bench directed the competent authority to grant registration.

9. From the submissions we observed that the assessee is engaged in running university and school, basically providing education. In our considered view the object of the society covered by the inclusive definition of the expression charitable purpose u/s 2(15) of the Act. Further we observed that the Hon’ble Apex Court in the case of Ananda Social & Educational Trust (supra) in which it was held as under:

11. We have given our anxious consideration to the above submissions made by Ms. Aishwarya Bhati, learned Senior Counsel appearing for the appellant Director of Income-tax and find that it is not possible to agree with the same. The purpose of section 12AA of the Act is to enable registration only of such trust or institution whose objects and activities are genuine. In other words, the Commissioner is bound to satisfy himself that the object of the Trust are genuine and that its activities are in furtherance of the objects of the Trust, that is equally genuine.

12. Since section 12AA 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 12AA 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 found to have undertaken activities contrary to the objects of the Trust.

13. We therefore find that the view of the Delhi High Court in the impugned judgment is correct and liable to be upheld.”

10. Further, the Hon’ble Punjab & Haryana High Court in the case of Yadvindra Public School Association (supra) had relied on the decision of Hon’ble Supreme Court in the case of Ananda Social & Educational Trust case. We observed that the similar view was expressed by the various courts that at the time of granting registration, ld. CIT(E) has to satisfy himself on the objects of the trust and genuineness of the activities, he cannot extend himself to the shoes of the Assessing Officer. At this stage if any activities carried on by an institution which is charitable in nature and its activities are genuine, unless there is any deviation which are not considered to be charitable, the relevant expenditure to the extent of non-charitable activities, the same can be disallowed at assessment stage. In the present case, looking at the substantial activities carried on by the assessee to impart the education merely on certain deviation of funds to other institution which are interest bearing funds, that itself cannot be the reason to reject the registration. The competent authority has to verify only charitable objects and its activities in terms of case objects to grant registration and should not indulge in finding reasons to reject the applications for grant of registration. Therefore, in our considered view the assessee has been granted registration over the years and it deserves to be granted registration therefore, we direct the ld. CIT(E) to grant registration and if there is any deviation, the Assessing Officer may be directed to do the needful at the assessment stage. Therefore, we are inclined to direct accordingly.

11. The other appeal relates to registration u/s 80G which were denied for the reasons that the application for registration u/s 12AB was denied. Since, we are directed to grant the registration u/s 12AB, we direct the ld. CIT(E) to evaluate the grant of registration u/s 80G as per law. In the result, the appeal filed by the assessee is allowed as per above terms.

12. In the result, both the appeals filed by the assessee are allowed.

Orders are pronounced in the Open Court on 06.08.2026