ITAT Jaipur Orders Fresh Examination of Section 8 Company’s CSR Activities

Mgidei Foundation Vs ITO (ITAT Jaipur)

Director’s Honorarium Is Not Automatically Siphoning of Funds; CSR Agreements Alone Do Not Establish Business Activity

Background of the Dispute

The assessee was a section 8 company granted provisional registration and provisional section 80G approval on 1 September 2023. Its activities commenced on 1 November 2023.

Applications for regular registration and approval were filed in Form 10AB on 30 September 2025. The CIT(E) rejected both applications on 9 February 2026 and cancelled the provisional registration and approval.

The rejection rested on three grounds: delayed filing, alleged commercial activity through project agreements, and alleged siphoning of funds through honorarium paid to a director. The section 80G rejection additionally relied on denial of section 12AB registration.

Misunderstanding of Provisional Validity Constituted Reasonable Cause

The registration application was due by 30 April 2024, applying the requirement to file within six months of commencement or at least six months before provisional registration expires, whichever is earlier.

The assessee explained that its provisional certificate mentioned three-year validity. Being newly incorporated and making its first regular-registration application, it believed that filing within that period was permissible.

The Tribunal applied the condonation proviso inserted in section 12A(1)(ac), effective from 1 October 2024, since the application was filed after that date.

The CIT(E)’s reliance on the availability of chartered accountants did not answer the explanation. Professional assistance does not automatically convert a bona fide misunderstanding into wilful default. There was no finding of deliberate delay or any advantage obtained through it.

Applying Collector, Land Acquisition v. Mst. Katiji, the Tribunal condoned the delay and directed that the registration application be treated as timely. It also condoned delay in the companion section 80G application arising from the same cause.

Contractual Conditions Did Not Conclusively Establish Commerce

The assessee undertook projects concerning nutrition, public health and social development. The CIT(E) treated the project MOUs as commercial contracts because they contained deliverables, conditions, intellectual-property provisions and termination clauses.

The Tribunal held that these features were relevant but not conclusive. Charitable character depends on the activity’s nature and purpose and the applicable limb of section 2(15).

The CIT(E) had neither identified that limb nor examined whether the commercial-activity proviso was attracted. The Tribunal emphasised that the proviso concerns the advancement of any other object of general public utility, with receipts tested for the relevant previous year.

There was also a factual dispute about whether funds received through Alembic CSR Foundation represented CSR funding. The company’s objects, MOUs, project proposals, utilisation certificates and accounts required examination.

The Tribunal therefore left charitable character open for fresh adjudication. It did not declare all CSR implementation receipts charitable or exempt.

Payment to a Director Is Not Prohibited Merely by Relationship

The CIT(E) questioned honorarium of ₹6,60,000 during FY 2024–25 and ₹1,80,000 in August 2025 paid to director Shri Gokul Verma for the Suposhan project.

The assessee claimed that he possessed over 23 years’ experience in public health, nutrition and maternal and child health. It stated that payments were project-specific, approved by the Board, recorded in the books and subjected to TDS.

The CIT(E) inferred siphoning because no degree or expertise certificate was furnished.

The Tribunal explained that section 13(1)(c) must be read with section 13(2)(c). The statute permits payment to a specified person for services actually rendered. The relevant inquiry is whether services were provided and whether remuneration exceeded what could reasonably be paid.

Absence of a qualification certificate was only one circumstance. The CIT(E) had not examined the services, evidence of performance or reasonableness of remuneration. Its additional reference to director’s rent was neither discussed nor quantified.

The Tribunal further noted that section 13(1)(c) refers to “such part of income” applied for prohibited benefit. Whether the facts established a specified violation or non-genuine activities required proper examination.

Rejections and Cancellations Set Aside; Merits Remanded

Both rejection orders were set aside. The CIT(E) was directed to reconsider registration and section 80G approval on merits, with section 80G consideration following the registration decision.

The consequential cancellations of provisional registration and approval were also set aside, subject to the fresh decision. The assessee must cooperate and furnish documents sought.

Both appeals were allowed for statistical purposes. Delay was conclusively condoned, while substantive eligibility remained undecided.

Author’s Comments

The ruling separates payment to a related person from unreasonable benefit to that person. A director’s involvement does not establish siphoning; equally, Board approval and TDS do not themselves establish reasonable remuneration. Evidence of actual services and appropriate compensation remains essential.

Similarly, project accountability through written agreements can coexist with charitable work. Contractual form alone cannot answer the section 2(15) inquiry.

The condonation relief is significant, but three-year provisional validity should not be mistaken for the filing deadline. Finally, this decision grants fresh consideration, not automatic registration or approval. The Foundation must substantiate its activities and payments before the CIT(E).

Cases Discussed

• Collector, Land Acquisition, Anantnag & Anr. Vs Mst. Katiji & Ors. (Supreme Court) — [1987] 167 ITR 471 (SC). Applied for a liberal, common-sense and substantial-justice-oriented approach to condonation of delay where reasonable cause is established.

FULL TEXT OF THE ORIGINAL ORDER OF ITAT JAIPUR

1. These two appeals by the Assessee are directed against two orders of the learned Commissioner of Income Tax (Exemptions), Jaipur [hereinafter referred to as “the learned CIT(E)”], both dated 09.02.2026, passed in Form No. 10AD. By the first order, the learned CIT(E) rejected the application of the assessee for registration under section 12AB of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) and cancelled its provisional registration. By the second order, the learned CIT(E) rejected the application of the assessee for approval under clause (iii) of the first proviso to section 80G(5) of the Act and cancelled its provisional approval. Since the facts are common and the second order rests substantially on the first, both appeals were heard together and are disposed of by this common order for the sake of convenience. The appeals have been filed within the time allowed under section 253(3) of the Act.

2. The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 in ITA No. 492/JPR/2026 (section 12AB) read as under:

1. On the facts and in circumstances of the case as well as in the law, the ld. CIT(E) has erred in rejecting the final registration application u/s 12AB of the Income Tax Act, 1961. Such denial of registration is incorrect as well as invalid in law hence deserves to be quashed.

2. On the facts and in the circumstances of the case and in law, the ld. CIT (E) has grossly erred in rejecting the application for registration u/s 12AB by refusing to condone the delay in filing Form No. 10AB, without duly appreciating and adjudicating upon the bona fide and reasonable causes leading to such delay. The delay was neither wilful nor deliberate, but caused by circumstances beyond the control of the appellant. Therefore, rejection of the registration application on this ground is unjustified, and contrary to the provisions of law, hence deserves to be quashed.

3. On the facts and in circumstances of the case as well as in the law, the ld. CIT(E) has further erred in rejecting the application for registration by erroneously characterizing the appellant’s charitable activities as business or commercial activities, without properly appreciating the true nature, objects, and manner of such activities. Therefore, the rejection of the registration application on this ground is bad in law hence deserves to be annulled.

4. On the facts and in circumstances of the case as well as in the law, the ld. CIT(E) has again erred in rejecting the registration application on the ground of Non-Genuineness of Activities and siphoning off fund. However, the activities as well as utilization of funds by the trust are completely genuine and explainable. Therefore, the denial of registration on this basis is completely irrational, illogical and against the principle of natural justice hence deserves to be reversed.

5. On the facts and in circumstances of the case as well as in law, the ld. CIT(E) has erred in cancelling the provisional registration u/s 12A of the Income Tax Act, 1961. Such cancellation of provisional registration is incorrect as well as unlawful hence deserved to be retracted.

6. That the appellant reserves the right to add/ alter/ modify/ delete any or all grounds at any time before the hearing.

The grounds of appeal raised in ITA No. 493/JPR/2026 (section 80G) read as under:

1. On the facts and circumstances of the case as well as in law, the ld. CIT(E) has erred in rejecting the application for approval u/s 80G of the Income Tax Act, 1961. Such denial of approval is incorrect as well as invalid in law hence deserves to be quashed.

2. On the facts and circumstances of the case as well as in law, the ld. CIT(E) has grossly erred in rejection the application for approval u/s 80G of the Income Tax Act, 1961 on the ground of non-registration u/s 12AB of the Act. Such reason for denial of approval is unlawful hence deserves to be deleted.

3. On the facts and circumstances of the case as well as in law, the ld. CIT(E) has further erred in rejection the application for approval u/s 80G of the Income Tax Act, 1961 by refusing to condone the delay without duly appreciating and adjudicating upon the bona fide and reasonable causes leading to such delay. The delay was neither wilful nor deliberate, but caused by circumstances beyond the control of the appellant. Therefore, rejection of the registration application on this ground is unjustified, and contrary to the provisions of law, hence deserves to be quashed.

4. On the facts and circumstances of the case as well as in law, the ld. CIT(E) has also erred in rejecting the application for approval u/s 80G of the Income Tax Act, 1961 by erroneously characterizing the appellant’s charitable activities as business or commercial activities, without properly appreciating the true nature, objects, and manner of execution of such activities. Therefore, the denial of approval on this basis is bad in law hence deserved to be deleted.

5. On the facts and circumstances of the case as well as in law, the ld. CIT(E) has further erred in rejection the application for approval u/s 80G of the Income Tax Act, 1961 on the ground of non-genuineness of activities and siphoning off fund. However, the activities as well as utilization of funds by the trust are completely genuine and explainable. Therefore, the denial of approval on this basis is completely irrational, illogical and against the principle of natural justice, hence deserves to be annulled.

6. On the facts and in circumstances of the case as well as in law, the ld. CIT(E) has erred in cancelling the provisional approval u/s 80G of the Income Tax Act, 1961. Such denial of provisional approval is incorrect as well as unlawful hence deserved to be retracted.

7. That the appellant reserves the right to add/ alter/ modify/ deleted any or all grounds at any time before the hearing.

3. Briefly stated, the facts of the case are that the assessee is a company registered under section 8 of the Companies Act, 2013. It was granted provisional registration under sub-clause (vi) of clause (ac) of section 12A(1) of the Act and provisional approval under clause (iv) of the first proviso to section 80G(5) of the Act, both on 01.09.2023. As per the details in Form No. 10AC noted by the learned CIT(E), the assessee commenced its activities on 01.11.2023. On 30.09.2025, it filed two applications in Form No. 10AB, one under sub-clause (iii) of section 12A(1)(ac) of the Act and the other under clause (iii) of the first proviso to section 80G(5) of the Act. The learned CIT(E) issued a notice dated 05.11.2025 and a show cause notice dated 06.01.2026, fixing the hearing on 13.01.2026. The assessee filed its replies. The learned CIT(E) was not satisfied and rejected both applications for the reasons summarised below:

4. Aggrieved by the above orders, the assessee is in appeal before us. The learned Authorised Representative (hereinafter referred to as “the learned AR”) filed a paper book of 168 pages and submitted that the assessee is a newly incorporated section 8 company and the application was its first compliance under the amended provisions. The provisional registration certificate mentioned a validity period of three years, and the assessee understood that the application for regular registration could be filed within that period. The delay was the result of this bona fide misunderstanding and was neither wilful nor deliberate. The learned CIT(E) had the power to condone it. On merits, the learned AR submitted that the assessee acts only as an implementing agency of CSR projects in the fields of nutrition, public health and social development, and that such receipts carry no element of trade, commerce or business. As regards the honorarium, it was submitted that Shri Gokul Verma has over 23 years of experience in public health, nutrition and maternal and child health, that the payment was project specific and was made only out of the CSR project funds, and that it was approved by the Board of Directors, accounted for in the books and subjected to TDS. The approval under section 80G of the Act was denied mainly as a consequence of the rejection under section 12AB of the Act. It was prayed that both orders be set aside.

5. The learned Departmental Representative (hereinafter referred to as “the learned DR”) relied on the orders of the learned CIT(E). The learned DR supported the findings of the learned CIT(E) on the delay, on the nature of the activities and on the honorarium paid to the director, and urged that no interference is called for.

6. We have heard both the parties and perused the material on record, including the paper book. Three issues arise: (i) whether the delay in filing Form No. 10AB deserves to be condoned; (ii) whether the activities of the assessee are in the nature of business; and (iii) whether the honorarium paid to a director shows that the activities are not genuine. The fate of the section 80G application and of the cancellation of the provisional registration and approval follows from these.

Delay in filing Form No. 10AB

7. Under sub-clause (iii) of section 12A(1)(ac) of the Act, an entity holding provisional registration must apply at least six months before the expiry of the provisional registration or within six months of the commencement of its activities, whichever is earlier. The activities of the assessee commenced on 01.11.2023, after the provisional registration of 01.09.2023. The application was therefore due by 30.04.2024, as noted by the learned CIT(E), and was filed on 30.09.2025. The delay is not in dispute. The Finance (No. 2) Act, 2024 inserted the following proviso to section 12A(1)(ac) of the Act with effect from 01.10.2024:

“Provided that where the application is filed beyond the time allowed in sub-clauses (i) to (vi), the Principal Commissioner or Commissioner may, if he considers that there is a reasonable cause for delay in filing the application, condone such delay and such application shall be deemed to have been filed within time”

8. The application was filed after 01.10.2024, so the proviso squarely applies. The learned CIT(E) did advert to condonation but declined it for two reasons: that no bona fide reason was shown, and that the assessee had the support of chartered accountants. Neither reason meets the explanation actually offered. The assessee is a section 8 company incorporated in 2023 and this was its first application for regular registration. Its explanation was specific: the provisional certificate showed a three year validity, and the assessee believed that it could apply within that period. The rule of “whichever is earlier” in sub-clause (iii) is easily missed by a new entity. Nothing was found to show that the delay was deliberate or that the assessee gained any advantage from it. The engagement of a professional does not by itself turn a bona fide misunderstanding into a wilful default. The proviso is beneficial in nature; it was introduced so that genuine entities do not lose registration only for missing a procedural timeline.

9. The approach to such delays is settled by the Supreme Court in Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC). The relevant principles in paragraph 3 of the judgment read as under:

“2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.

3. “Every day’s delay must be explained” does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational common sense pragmatic manner.

4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.”

10. Applying the above principles, we are satisfied that the assessee has shown a reasonable cause for the delay in filing Form No. 10AB under section 12A(1)(ac)(iii) of the Act. The delay is condoned and the application shall be treated as filed within time. The application under clause (iii) of the first proviso to section 80G(5) of the Act was filed on the same day and its delay arises from the very same cause. The learned CIT(E) treated it as non maintainable only on account of limitation. When the cause has been accepted for one application, there is no reason to reach a different conclusion for its companion filed on the same day for the same reason. We therefore condone the delay in the section 80G application as well, and hold that it shall also be treated as filed within time and maintainable. Ground No. 2 in ITA No. 492/JPR/2026 and Ground No. 3 in ITA No. 493/JPR/2026 are allowed.

Business activity

11. The learned CIT(E) held that the assessee is a contractor and not a charitable institution, mainly from the form and conditions of the MOUs. The assessee, on the other hand, says that it implements CSR projects on nutrition and public health and that the receipts are applied to those projects. In our considered view, the question whether an activity is charitable turns on its nature and purpose and on the limb of section 2(15) of the Act under which it falls. The fact that the work is done under a written agreement, with conditions, deliverables and a termination clause, is relevant but not conclusive either way. The impugned order does not identify the limb of section 2(15) of the Act under which the activities fall, nor does it examine whether the proviso to section 2(15) of the Act is at all attracted. That proviso applies to the residuary limb of advancement of any other object of general public utility, and the receipts it refers to are tested with reference to the previous year concerned. The learned CIT(E) also recorded that the assessee did not receive any CSR funds from corporate entities, as the funds came through Alembic CSR Foundation, while the assessee asserts the contrary. These are questions of fact that require examination of the objects of the company, the MOUs, the project proposals, the utilisation certificates and the accounts. It is for the learned CIT(E) to examine it in the first instance. We therefore refrain from recording any finding on this issue and leave it open for a fresh decision.

Honorarium to the director

12. The learned CIT(E) treated the honorarium of Rs 6,60,000 and Rs 1,80,000 paid to Shri Gokul Verma as siphoning of funds because no degree or certificate of his expertise was filed. Section 13(1)(c) of the Act must be read with section 13(2) of the Act, which lays down when income or property shall be deemed to have been applied for the benefit of a person referred to in section 13(3) of the Act. Clause (c) of section 13(2) of the Act reads as under:

“(c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services;”

13. The statute thus does not forbid payment to a specified person for services actually rendered. The test is whether the services were in fact rendered and whether the amount is in excess of what may reasonably be paid for them. The absence of a degree or certificate is one circumstance, but the impugned order does not examine the services claimed, the evidence of their rendering, or the reasonableness of the amount. The order also refers to “rent” paid to the director, but no such payment is discussed or quantified anywhere in it. Further, the consequence that section 13(1)(c) of the Act itself provides is confined to “such part of income” as is so applied. Whether, on the facts found, the payment amounts to a specified violation or shows that the activities are not genuine, so as to deny registration, is a matter to be decided on a proper examination of the facts. That examination is yet to take place.

Conclusion and directions

14. In view of the above, the impugned orders cannot be sustained. The rejection rests in part on the refusal to condone the delay, which we have now condoned, and in part on findings on business activity and genuineness which call for fresh factual examination. We therefore set aside both orders of the learned CIT(E) dated 09.02.2026 and restore the application under section 12A(1)(ac)(iii) of the Act and the application under clause (iii) of the first proviso to section 80G(5) of the Act to the file of the learned CIT(E) for a fresh decision on merits in accordance with law. Since registration under section 12AB of the Act bears on the approval under section 80G of the Act, the learned CIT(E) may take up the section 80G application after deciding the section 12AB application. The learned CIT(E) shall be free to examine the nature of the activities, the genuineness of the activities, the honorarium and any other aspect that the learned CIT(E) considers relevant, and shall not be influenced by any observation in this order, which is made only for the purpose of deciding these appeals. The assessee shall be given a reasonable opportunity of being heard and shall cooperate by filing the documents called for. The cancellation of the provisional registration and of the provisional approval, being a consequence of the rejections, is also set aside and shall abide by the fresh decision. Grounds No. 1, 3, 4 and 5 in ITA No. 492/JPR/2026 and Grounds No. 1, 2, 4, 5 and 6 in ITA No. 493/JPR/2026 are allowed for statistical purposes. The last ground in each appeal is general and needs no adjudication.

15. In the result, both the appeals filed by the Assessee are allowed for statistical purposes.

Order pronounced in the open court on 08.10.2026