Rajnandgaon Leprosy Hospital & Clinic Vs ITO (Exemption) (ITAT Raipur)
Section 12AB: Registration Rejection Set Aside; CIT(E) Asked to Await High Court’s Decision on FCRA Cancellation
Background of the Dispute
The assessee challenged the order dated 28 March 2026 passed by the Commissioner of Income Tax (Exemption), Bhopal, rejecting its application for renewal of registration.
According to information available with the Commissioner, the assessee’s registration under the Foreign Contribution (Regulation) Act had been cancelled following information from a Central Security Agency. The information alleged that the hospital was using treatment provided to sick persons to induce conversion to Christianity.
The Commissioner issued notices seeking the assessee’s explanation on this aspect. Since the assessee did not comply with those notices, its application for renewal of registration under section 12A was rejected.
The allegations concerning religious conversion were disputed matters; the Tribunal did not record any finding that they had been established.
The controversy before the Tribunal concerned the opportunity to be afforded to the assessee and the relevance of pending High Court proceedings concerning the FCRA cancellation.
Registration Requires Both Scrutiny and Opportunity
The Tribunal discussed the public welfare purpose underlying the registration and exemption provisions applicable to charitable trusts and societies.
It observed that these provisions enable organisations to undertake public charitable activities for their intended beneficiaries. In that context, the Bench referred to the Directive Principles of State Policy as providing guidance for the functioning of a welfare State, although those principles are not enforceable in a court of law.
At the same time, the Tribunal made it clear that the power to grant registration remains with the Department under section 12AB.
Registration can be granted only when the Commissioner is satisfied regarding the genuineness of the objects and the other statutory parameters.
Correspondingly, an applicant must respond to hearing notices and furnish the documents required for examination of its application. The charitable character claimed by an organisation does not remove its obligation to participate in the registration proceedings.
One Final Opportunity Was Necessary
Despite the assessee’s earlier non-compliance, the Tribunal considered it appropriate to provide one final opportunity.
It noted that the Revenue had not brought on record material establishing deliberate and wilful negligence on the assessee’s part in failing to furnish the information sought.
Considering the principles of natural justice and the nature of the registration proceedings, the Tribunal set aside the rejection order and restored the matter to the Commissioner.
The assessee was expressly directed to comply with future hearing notices and present its case on merits under section 12AB. The Commissioner was to examine the relevant statutory conditions and pass an order in accordance with law after providing a proper opportunity of hearing.
The remand therefore carried an obligation on the assessee to cooperate; it did not amount to acceptance of its registration claim.
Pending High Court Proceedings Were Material
The Tribunal added a significant qualification to the remand.
It recorded that the allegation underlying the FCRA cancellation, and the correctness of that cancellation, were pending adjudication before the jurisdictional High Court. The Commissioner’s show-cause notice had also proceeded on that underlying allegation.
The Tribunal considered those matters relevant to determining the assessee’s application under section 12AB.
Accordingly, it observed that it would be appropriate for the Commissioner to await the outcome of the jurisdictional High Court proceedings and thereafter proceed with the registration matter.
Thus, the decision required more than a fresh hearing on the existing record. It recognised that the pending judicial determination concerning the foundation of the Commissioner’s objection could bear upon the subsequent registration decision.
Scope of the Decision
The appeal was allowed for statistical purposes, subject to the terms of the remand.
The Tribunal neither granted registration under section 12AB nor decided whether the FCRA cancellation was valid. It also did not determine whether the allegations of religious conversion were correct.
Those distinctions are central to understanding the relief. The rejection was set aside on natural justice grounds, while the substantive eligibility for registration remained open for examination.
Author’s Comments
The ruling balances the Department’s duty to examine serious adverse information with the applicant’s right to a meaningful hearing.
Information concerning cancellation under another regulatory law may warrant an explanation and scrutiny. However, the underlying allegation must be examined through the applicable statutory process. In this case, its correctness was also awaiting consideration by the jurisdictional High Court.
The Tribunal’s approach avoids treating that disputed foundation as conclusively settled while the related judicial proceedings remain pending.
Equally, the decision offers no general exemption from compliance with registration notices. The assessee has received a final opportunity and must support its application with the necessary documents and explanations.
The practical significance lies in the terms of the remand: a fair hearing, examination under section 12AB, and consideration of the High Court’s eventual decision on the disputed FCRA issue. The order should not be read as holding that FCRA cancellation is irrelevant to income-tax registration, or that registration follows automatically upon restoration of the application.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal preferred by the assessee emanates from the order of the Ld. CIT(Exemption), Bhopal dated 28.03.2026 for the assessment year 2027-28 as per the grounds of appeal on record.
2. In this case, it was observed by the Ld. CIT(Exemption) that as per information available with his office, FCRA registration of the assessee had been cancelled through information by the Central Security Agency, it was found out that the assessee-NGO, Rajnandgaon Leprosy Hospital and Clinic was providing treatment to sick people and trying to lure them into Christianity in the name of treatment, hence, the assessee was show caused by the office of the Ld. CIT(Exemption) to provide information on this aspect. Since the assessee failed to comply with the notices, hence, application for renewal of registration u/s.12A of the Income Tax Act, 1961 (for short ‘the Act’) was rejected.
3. That so far as principles of natural justice are concerned, this bench had earlier observed in various other similar facts and circumstances that registration and exemption provision of trust/society are the extension of the Directive Principles of State Policy enshrined in the Constitution of India. That though Directive principles of State Policy are not enforceable in the Court of law, however, these principles provides the road map for any welfare State to function and take care of the subject of the State. The registration and exemption provisions enshrined within the Act enables various organization to provide public charitable activities within target group so that the members of the said target group are benefited through the Schemes of the said society/trust and such public charitable activities are performed by these societies irrespective of any religion, cast or creed. At the same time, power to grant registration is always with the Department as per Section 12AB of the Act and only when the Ld. CIT(Exemption) is satisfied regarding the genuinity of the objects and other parameters as per Section 12AB of the Act then registration has to be granted to the assessee applicant. The assessee applicant has to comply with the hearing notices and furnish all the relevant documents for the purpose of Section 12AB of the Act. In a scenario where the assessee fails to comply with the hearing notices, in such circumstances, considering the aforesaid parameters and also principles of natural justice all the more it is important that one final opportunity should be allowed to the assessee. More so, because the Revenue has not brought on record any deliberate and willful negligence on the part of the assessee for non-providing requisite details as asked for by the office of the Ld. CIT (Exemption).
4. Keeping up to the principles of natural justice, therefore, we set aside the order of the Ld. CIT(Exemption) and remand the matter back to his file with a direction to the assessee that it shall comply with the hearing notices before the said authority and represent its case on merits in terms with Section 12AB of the Act and only when the Revenue is satisfied regarding parameters governing the relevant provisions, the Ld. CIT(Exemption) shall thereafter pass order as per law complying with the principles of natural justice.
5. Before parting, we must also state that as emanated in the findings of the Ld. CIT(Exemption), allegation, on which, FCRA of the assessee had been cancelled is that the assessee was alleged to be conversing people into Christianity by providing treatment to sick people and this very allegation, for which, FCRA had been cancelled is pending for adjudication before the Hon’ble Jurisdictional High Court. That again, on this basis only show cause notice had been issued to the assessee by the office of the Ld. CIT(Exemption). That we are on the basis of principles of natural justice, remanded the matter back to the file of the Ld. CIT(Exemption). However, whether it is correct for the authorities to cancel FCRA, whether allegation of conversion is correct or not, all these parameters are relevant for determining the application of the assessee for registration u/s.12AB of the Act since these matters are sub-judice before the Hon’ble Jurisdictional High Court (supra), therefore, though the matter is restored to the file of the Ld. CIT(Exemption), it would be appropriate for the said authority to wait for the outcome of the order passed by the Hon’ble Jurisdictional High Court on this issue and accordingly, procced with the matter in relation to Section 12AB of the Act.
6. That as per afore-stated terms, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 13th October, 2026.
