Eklavya Foundation Vs CIT (Exemption) (ITAT Delhi)
Registration Cannot Be Granted With A “Self-Destruct” Condition—ITAT Directs Unconditional Section 12ab Registration From Original Application Date
Summary: The Delhi Bench of the Income-tax Appellate Tribunal has held that once the Commissioner (Exemptions) is satisfied about the charitable objects and genuineness of the activities of an institution, registration under section 12AB cannot be granted subject to ad hoc conditions contemplating its automatic cessation. Describing the procedure adopted as intended to “harass the applicant,” the Tribunal directed that registration be granted without the disputed condition and with effect from the date of the assessee’s original application. The application under section 80G was separately restored for fresh consideration.
Facts of the case
Eklavya Foundation was established on 26 October 1982 and had previously been registered under section 12A. Its activities included publication and sale of general-interest books under a scheme promoted by the Government to encourage reading habits. The books were not textbooks.
In earlier proceedings, the Revenue had taken the view that the sale of books constituted commercial activity falling outside the definition of “charitable purpose” under section 2(15). Cancellation of the existing registration had consequently been recommended.
The assessee successfully challenged that action before the appellate authorities. The High Court also decided the issue in favour of the assessee and dismissed the Revenue’s appeal.
Thus, this was not an institution seeking registration for the first time. It had existed for more than four decades, previously enjoyed registration and had a judicially recognised track record.
First application rejected
The Foundation filed Form 10AB on 23 September 2025, seeking registration under section 12A(1)(ac)(ii). The CIT (Exemptions) issued a questionnaire dated 22 January 2026 seeking details, documents and clarifications.
The assessee filed a partial response. However, the CIT(E) held that the requested information had not been fully furnished to establish the charitable nature of the objects and genuineness of the activities. The application was rejected, though liberty was granted to file a fresh application with the necessary particulars.
On similar reasoning, the application for approval under section 80G(5)(ii) was also rejected.
Registration subsequently granted with conditions
The assessee filed a fresh application. On examining the material furnished with the second application, the CIT(E) granted registration under section 12AB but attached several conditions.
Most of them were general conditions. However, clause 12 recorded that the assessee was engaged in the advancement of an object of general public utility and that its commercial receipts from the sale of teaching and learning material exceeded the limit of 20%.
Registration was made subject to the assessee updating its returns for the financial years specified in the order within 90 days. The condition further provided that, on failure to do so, the section 12A registration would cease to be valid.
The assessee challenged both the rejection of the original applications and the conditional registration granted on the subsequent application.
Assessee’s contention
The assessee argued that adequate opportunity had not been provided before rejection of its original application. If further information was required, the CIT(E) ought to have called for it rather than reject the application and compel the assessee to apply afresh.
It was contended that because registration was granted only on the subsequent application, the Foundation would lose exemption for the intervening period.
The assessee further argued that there was no statutory power to grant registration subject to conditions providing for its automatic withdrawal. Whether the proviso to section 2(15) applied and whether exemption should be denied in a particular year were matters for assessment, not grounds for imposing a self-cancelling condition at the registration stage.
Reliance was also placed upon CBDT Circular No. 21 of 2016, which clarified that violation of the receipts threshold may result in denial of exemption for the relevant year, but cancellation of registration is not mandatory unless the statutory grounds for cancellation are independently satisfied.
Tribunal’s decision
The Tribunal noted that the Foundation had existed since 1982, had previously enjoyed registration and had succeeded in earlier litigation concerning the sale of books.
In those circumstances, the CIT(E) ought to have considered the original application with due regard to its history and afforded a proper opportunity to furnish any missing information. Rejecting the application and merely permitting a fresh one was held to be improper.
The Tribunal therefore directed that the registration subsequently granted should take effect from 23 September 2025, the date of the original application.
Regarding conditional registration, the Tribunal observed that the CIT(E), on the one hand, had accepted the objects and activities as genuine but, on the other hand, imposed additional conditions enabling withdrawal of the registration.
No material had been brought on record showing that the Foundation was carrying on activities contrary to its objects. The disputed condition, particularly clause 12, was therefore described as superficial and unjustified.
The Tribunal held:
“The conditions for grant of registration cannot be imposed at the time of granting registration itself.”
It accordingly directed the CIT(E) to grant registration without the disputed condition.
The section 80G matter was restored to the CIT(E) for fresh consideration after affording the assessee a proper opportunity of hearing.
Author’s comments
The decision draws an important distinction between registration of a charitable institution and allowability of exemption in a particular assessment year.
At the registration stage, the authority examines the charitable nature of the objects, genuineness of activities and compliance with other prescribed requirements. Whether receipts from an activity exceed the 20% threshold under the proviso to section 2(15), and the resulting tax consequences, ordinarily require examination with reference to the facts and figures of each year.
Even if exemption is denied for a particular year, registration does not automatically cease. Cancellation must follow the substantive grounds and procedure prescribed under section 12AB. An administrative condition cannot create an additional mode of automatic cancellation outside the statute.
The ruling should not be understood as prohibiting every condition appearing in a registration order. Conditions merely reiterating statutory obligations may be valid. What the Tribunal disapproved was a specific, prejudicial and self-executing condition which treated the institution as having breached the commercial-receipts restriction and threatened cessation of registration without following the prescribed cancellation procedure.
The subsequent grant of registration also weakened the basis of the initial rejection. Once the CIT(E) ultimately accepted the objects and activities as genuine, the institution should not ordinarily lose continuity merely because complete information was not obtained during the first application proceedings, particularly when a proper opportunity could have cured the deficiency.
The order contains two apparent drafting errors. The original application date is stated once as 23 September 3025, though the correct date is 23 September 2025. Further, the direction in paragraph 10 refers to the “CIT(A)” granting registration, whereas the competent authority involved was the CIT (Exemptions).
The section 80G relief is not automatic. That issue has only been remanded, and the CIT(E) must now examine the application independently on the relevant material.
The central principle remains significant: registration cannot be granted with one hand and made liable to automatic extinction with the other. Any subsequent cancellation must be based on statutory grounds, evidence and due process.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI
1. These appeals are filed by the assessee against the order passed by the ld. Commissioner of Income-tax (Exemptions), Delhi [for short ‘ld. CIT (E)] dated 23.03.2026under section 12AB(1)(b)(ii)(B) and 80G of the Income-tax Act, 1961 (for short ‘the Act’) in ITA Nos.5737/Del/2026 and 5738/Del/2026 respectively. The assessee also filed appeal being ITA No.6327/Del/2026 against the order passed by the ld. CIT (E) dated 23.03.2026 under section 12AB(1)(b) of the Act.
2. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order.
3. ITA No.5737/Del/2026 : Brief facts of the case of this appeal are the applicant filed an application dated 23.09.2025 in Form 10AB for registration u/s 12A(1)(ac)(ii) of the Act. The applicant was issued a questionnaire dated 22.01.2026 with a direction to furnish certain details/documents/clarifications in support of its request for registration u/s 12A(1)(ac)(ii) of the Act. In response, part reply was filed by the assessee. Ld. CIT (E) observed that as the applicant has failed to submit details/information required by the notice referred above, in support of genuineness of the activities and charitable objects, the application filed in Form 10AB for grant of registration u/s 12A(1)(ac)(ii) is hereby rejected. However, he gave liberty to the applicant that it is at liberty to file application again for approval u/s 12A of the Act with necessary justification.
4. ITA No.5738/Del/2026 : Ld. CIT (A), on the similar lines as discussed in the aforesaid appeal being ITA No.5737/Del/2026, rejected the application filed for grant of approval u/s 80G(5)(ii).
5. ITA No.6327/Del/2026 :In this appeal, the assessee was aggrieved with the approval granted with conditions. After considering the details filed by the assessee in second application for grant of registration, ld. CIT (E) held that after considering the application of the applicant and the material available on record, the applicant is hereby granted registration/approval for the assessment year(s), mentioned at serial no.8 above subject to the conditions mentioned in row number (12); the taxability, or otherwise, of the Income of the applicant would be separately considered as per the provisions of the Income Tax Act, 1961; this order is liable to be withdrawn by the prescribed authority if it is subsequently found that the activities of the applicant are not genuine or if they are not carried out in accordance with all or any of the conditions subject to which it is granted, if it is found that the applicant has obtained the approval by fraud or misrepresentation of facts or if it is found that the assessee has violated an condition prescribed in the Income Tax Act, 1961. Further, ld. CIT (E) granted the approval subject to above conditions which are given at page 3 & 4 of the ld. CIT (E)’s order.
6. Aggrieved with the above orders, the assessee is in appeal before us raising following grounds, the main issues raised by the assessee are in appeal no: ITA No.5737,5738 and 6327/Del/2026 in which the assessee is aggrieved with the grant of registration with conditions u/s 12AB of the Act and denial of registration u/s 80G of the Act. The relevant grounds are reproduced below:
ITA No.5737/Del/2026
1 . That having regard to the facts and circumstances of the case, Ld. CIT(E) has erred in law and on facts in rejecting the registration u/s 12A(1)(ac)(ii) and that too without appreciating the facts and circumstances of the case and in violation of principles of natural justice and by recording the incorrect facts and findings and without appreciating/considering the submissions and evidences filed by the assessee.
2. That in any view of the matter and in any case, action of Ld. CIT(E) in rejecting the registration u/s 12A(1)( ac )(ii), is bad in law and against the facts and circumstances of the case and is contrary to the principles of natural justice as the impugned order has been passed without granting adequate opportunity of hearing and by recording incorrect facts and findings.
ITA No.5738/Del/2026
1. That having regard to the facts and circumstances of the case, Ld. CIT(E) has erred in law and on facts in rejecting the approval u/s 80G(5)(ii) and that too without appreciating the facts and circumstances of the case and in violation of principles of natural justice and by recording the incorrect facts and findings and without appreciating/considering the submissions and evidences filed by the assessee.
2. That in any case and in any view of the matter, action of Ld. CIT(E) in rejecting the approval u/s 80G(5)(ii), is bad in law and against the facts and circumstances of the case and is contrary to the principles of natural justice, as the impugned order has been passed by recording incorrect facts and finding and the appellant ought to have been granted the benefit of approval under the said section.
ITA No.6327/Del/2026
1. That having regard to the facts and circumstances of the case, Ld. CIT(E) has erred in granting conditional registration under section l2AB(1 )(b) of the Income Tax Act, 1961, despite there being no provision under the Act for attaching such conditional registration and thus Ld. CIT(E) ought to have allowed the registration without any condition.
2. That having regard to the facts and circumstances of the case, Ld. CIT(E) has further erred in not appreciating that the assessee society had duly fulfilled all the requisite conditions prescribed under the law for grant of registration under section 12AB and there existed no adverse material warranting imposition of any condition while granting registration.
3. That having regard to the facts and circumstances of the case, impugned order has been passed by recording incorrect facts and findings, without proper appreciation of the material available on record, and is therefore arbitrary, unjustified and contrary to the facts of the case.
4. That having regard to the facts and circumstances of the case, impugned order has also been passed in violation of the principles of natural justice, as adequate and proper opportunity of being heard was not afforded to the assessee before imposing the alleged conditions while granting registration.
5. That in any view of the matter and in any case, action of Ld. CIT(E) in granting conditional registration U/S 12AB, is bad in law and against the facts and circumstances of the case.
6. That having regard to the facts and circumstances of the case, Ld. CIT(E) has erred in law and on facts in holding that the applicant being involved in advancement of GPU has commercial receipts exceeding 20% by way of sale of teaching learning material and further erred in giving direction in para 12 of the impugned order and that too without any basis and without appreciating the facts and circumstances of the case.
7. At the time of hearing, Ld AR of the Assessee submitted that when the assessee filed the application for seeking registration u/s 12AB and 80G, the Ld CIT(E) had rejected the same even though the assessee had submitted the relevant information, in case he needs further information, he could have given proper opportunity to the assessee before rejecting the applications. He was perturbed with the fact that the assessee would loose the exemption for the interim period for the reason that the Ld CIT(E ) had subsequently granted conditional registration when the assessee had filed fresh application. He further submitted that Ld CIT(E ) granted conditional registration u/s 12AB which is not proper, in this regard he brought to our notice various decisions of ITAT and Hon’ble HCs, wherein it was held that such conditional registration cannot be granted. He brought to our attention pages 177, 178 and 192 of the case law paper book the various decisions. He further brought to our notice the CBDT circular no. 21 of 2016, wherein it was clearly directed that when there is violation of the conditions for which the registration was granted, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the grounds prescribed under the Act. In this regard he submitted that the issue of denial of exemption is the assessment matter but the same cannot be extended while granting registration. He submitted that the authorities do not have power to grant conditional registration. He prayed that suitable direction may be granted as per law.
8. On the other hand, Ld DR submitted that the assessee had not submitted the relevant information while seeking registration. He supported the findings of the Ld CIT(E ) while granting the registration, it is within his power to lay conditions particularly when the assessee may not confirm to the conditions for grant of registration earlier. He objected to the submissions made by the Ld AR.
9. Considered the rival submissions and material placed on record. We observed that the assessee society was established on 26th October 1982. This society was granted registration u/s 12A. The revenue, in the past, held that the assessee society was engaged in the sale of books which are in the general interest books, which the government was promoted this scheme to encourage the reading habit and none of them are in the nature of textbooks. Therefore, they treated the same as not falling under the definition of charity u/s 2(15) of the Act and also it was recommended to cancel the registration granted earlier. The same was contested before the appellate authorities by the assessee and the same was decided in favour of the assessee. In appeal the Hon’ble High Court also held in favour of the assessee and dismissed the appeal of the revenue. That being the case, this is not the first time the assessee was seeking the registration. Therefore, the authorities should have considered the application with due respect and given proper opportunities to the assessee to file the relevant information before rejecting the application. Since the initial application vide application dated 23.09.2025 was rejected due to non-submission of information as per the notice issued in this regard and at the same time, liberty was given to the assessee to file proper application in due course. In our view, the same is not proper. Therefore, the registration granted subsequently to the assessee vide order dated 22.05.2026 should be with effect from the date of initial application filed by the assessee vide application dated 23.09.3025 .
10. Since the registration was granted with conditions u/s 12AB on the basis of new application filed by the assessee, on which the assessee had filed the present appeal vide ITA No. 6327/Del/2026. We noticed that the annexure enclosed with the registration granted u/s 12AB consist of 12 clauses. Which contained various conditions, most of them are general but in clause no 12, the conditions mentioned with the caveat that it is engaged in advancement of GPU has commercial receipts exceeding the commercial receipt exceeding 20% by way of sale of teaching learning materials and accordingly registration is granted subject to the condition that the assessee shall update its return of income for the financial years as specified in the order within 90 days of receipt of this order, failing which registration u/s 12A shall cease its validity. After considering the above registration process, in our view, one hand the officer is satisfied with the objects and activities of the society and on the other hand, he is framing additional conditions to withdraw the registration. The whole process adopted to harass the applicant, particularly the society which was in existence since 1982 and also registration was granted in the past and particularly when they demonstrated proper track record. There is no material brought on record to show that the society was indulged in any activity which is against the objects of the society. That being the case, the way the registration granted with such superficial conditions was not proper. Therefore, the conditions mentioned for granting registration particularly point no 12 is unjustified and in our view, the cancellation of the society can be carried only by due process of law. The conditions for grant of Registration cannot be imposed at the time of granting registration itself. The society was granted registrations earlier. Hence, once the objects and activities are genuine, it cannot deny the registration, we direct the Ld CIT(A) to grant the registration without any condition as discussed above.
11. With regard to the appeal filed by the assessee against the rejection of the registration u/s 80G, since we directed the Ld CIT(E ) to grant registration u/s 12AB and also it was granted registration u/s 80G in the past, we are inclined to remit the same back to the Ld CIT(E ) to consider the application filed by the assessee and grant the same as per law after considering the relevant material on record. It is needless to say that the assessee may be given proper opportunity of being heard. In the result, appeal filed by the assessee challenging the rejection of registration is allowed for statistical purposes.
12. In the result, appeals filed by the assessee vide ITA Nos. 5737/Del/2026 and 6327/Del/2026 are allowed and the appeal filed vide ITA No. 5738/Del/2026 is allowed for statistical purposes.
Order pronounced in the open court on this 18TH day of September, 2026
