Shiksha Trust Vs CIT (ITAT Bangalore)
₹67.40 Crore Preschool Fees Raise Questions, but Four Days Is No Fair Hearing: Bangalore ITAT Restores 12AB Application
Summary:
The assessee, Shiksha Trust, was a public charitable trust formed with the stated object of promoting education & running schools. It filed Form 10AB on 19 August 2025, seeking charitable registration. The Tribunal’s order initially refers to the application as one u/s 12AA, but its operative direction requires the assessee to establish eligibility for registration u/s 12AB.
The financial details initially furnished by the trust showed corpus of ₹1 lakh, other liabilities of ₹86,69,749 & other assets of ₹87,69,749. The trust reported nil receipts for the financial years ending in 2022 & 2023.
However, material subsequently examined by the CIT(E) indicated that the trust had commenced preschools during FY 2024-25 at Bangalore & in Ranga Reddy District, Telangana. The trust reportedly collected fees aggregating to ₹67,40,21,417.
The CIT(E) considered this amount abnormally high for preschool activities. According to him, the receipts required verification with reference to bank statements, number of students, fees charged per child & other supporting documents. In the absence of complete records, he formed a prima facie view that the activities appeared to be commercial operations carried on under the guise of education.
The application was rejected through an order dated 23 March 2026. The trust challenged the rejection before the Bangalore Tribunal.
Issue before the Tribunal
The principal issue was whether the CIT(E) was justified in rejecting the registration application on the prima facie ground that collection of ₹67.40 crore indicated commercial activity.
The connected procedural issue was whether the assessee had been granted a reasonable & effective opportunity of hearing, considering that the CIT(E) issued notice only on 5 March 2026 & required the trust to furnish extensive details within four days.
The Tribunal was required to balance two considerations: the genuine need to verify the unusually high fee collections & the trust’s right to adequate time to furnish records before its application was rejected.
Assessee’s submissions
The assessee submitted that it was a genuine educational trust running schools & preschools in furtherance of its charitable objects. Its activities were educational in nature & not undertaken for private profit.
It contended that the registration application was rejected without granting sufficient time to compile & furnish the required information. The notice dated 5 March 2026 referred to a change in the incumbent CIT(E) & allowed only four days to respond.
The information demanded was extensive, including bank statements, student strength, fee structure, activity details & reconciliation of receipts. The trust argued that it could not reasonably assemble & submit all such material within four days.
The assessee therefore sought restoration of the application so that it could establish the educational nature of its activities & explain the fee collections through complete documentary evidence.
Revenue’s contentions
The Revenue supported the rejection order. The trust’s earlier financial records showed nil receipts, while the subsequent material reflected fee collections exceeding ₹67 crore. Such a substantial change required a satisfactory explanation.
The CIT(E) was entitled to verify whether the trust was genuinely carrying on education or operating preschools on commercial lines. Since complete records were not furnished, the trust had failed to establish its eligibility for charitable registration.
The Revenue therefore contended that the CIT(E)’s concerns regarding the scale & nature of the receipts were legitimate.
Tribunal’s findings & legal reasoning
The Tribunal accepted that the fee collection of ₹67.40 crore required detailed verification. Registration could not be granted merely because the trust’s constitutional documents described its objects as educational. The actual activities, fee structure, utilisation of receipts & absence of a profit motive had to be examined.
At the same time, the Tribunal found that the opportunity granted by the CIT(E) was inadequate. The assessee was given only four days to respond to the notice issued on 5 March 2026. The limited time arose partly because of a change in the incumbent authority & because the application was approaching the statutory deadline of 31 March 2026.
The administrative change or impending limitation could not justify depriving the assessee of a meaningful opportunity to place its case on record. Rejection based on absence of documents was premature when adequate time had not been granted to furnish them.
The Tribunal therefore adopted a balanced approach. It neither directed immediate grant of registration nor upheld the rejection. Instead, it restored the application to the CIT(E) for fresh investigation & examination.
The assessee was directed to substantiate that it was carrying on genuine educational activities & was eligible for registration u/s 12AB. It was also specifically required to furnish a complete reconciliation of the ₹67.40 crore fee receipts.
The CIT(E) was authorised to verify the bank statements, student strength, fee charged per child, utilisation of funds & other relevant material before deciding the application afresh on merits after granting a proper opportunity of hearing. The appeal was allowed for statistical purposes.
Practical implications
The ruling confirms that high fee collection alone does not conclusively establish commercial activity, but it justifies detailed scrutiny. Educational trusts must demonstrate that their dominant purpose remains education rather than profit generation.
The trust should now furnish branch-wise student data, fee schedules, bank reconciliation, audited accounts, expense details, related-party payments, surplus utilisation & evidence showing that funds are applied towards educational objects.
The decision also reinforces that a notice allowing only four days for extensive compliance may violate natural justice. However, restoration is not equivalent to registration. The trust still carries the burden of explaining the extraordinary receipts.
The central principle is that large educational receipts require verification, but suspicion cannot replace a fair hearing-especially when the applicant is given only four days to explain ₹67.40 crore.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT BANGALORE
1. This appeal has been filed by the assessee trust, Siksha Trust, against the order dated 23 March 2026 passed by The Commissioner of Income Tax (Exemption), Bangalore. By that order, the assessee’s application for registration under section 12AA of the Act was rejected on the ground that the trust had started preschools in the financial year 2024–25 at Bangalore and in Ranga Reddy District, South Telangana. The fee collection of ₹67,40,21,417 was considered abnormally high and required verification with relevant bank statements, number of students, fees charged per child, and other supporting details. Prima facie, the learned CIT(E) held that the trust’s activities appeared commercial in nature under the guise of educational activity. Accordingly, the application was rejected, leading the assessee to file this appeal before us.
2. We heard the learned authorised representative, Shri P.R. Suresh, Chartered Accountant, appearing for the assessee, and Shri N S Sashidhara CIT DR the learned Departmental Representative appearing for the Revenue.
3. Briefly stated, the assessee is an educational trust engaged in running schools. It applied to the learned Commissioner of Income Tax (Exemption) for registration under section 12AA of the Income Tax Act. The learned CIT(E) issued a notice on 5 March 2026, stating that there had been a change in incumbent and directing the assessee to submit the required information within four days.
4. The assessee is admittedly a public charitable trust formed to promote education and run schools. However, Form No. 10AB, filed on 19 August 2025, was not accompanied by complete records before the learned CIT(E). The details of assets and liabilities showed a corpus of ₹1 lakh, other liabilities of ₹86,69,749, and other assets of ₹87,69,749. The assessee reported nil receipts for the financial years ending in 2022 and 2023.
5. However, the details placed before us show that the assessee is running schools. The learned CIT(E) also noted that the trust had started preschools in financial year 2024–25 at Bangalore and in Telangana, with fee collections of ₹67.40 crores.
6. According to the CIT(E), this amount was abnormally high and required verification through bank statements, student numbers, fees charged per child, and related records. The learned CIT(E) was therefore of the prima facie view that the assessee’s activities were commercial in nature. We find, however, that the assessee was granted only four days to respond to the notice dated 5 March 2026. Since the matter was becoming time-barred on 31 March 2026 and there had been a change in incumbent, the assessee was not given adequate opportunity to present its case before the learned CIT(E). At the same time, the allegedly high fee collection also requires examination. The assessee must reconcile the fee receipts with its activities and demonstrate before the CIT(E) whether the activities are educational in nature or carried on for profit.
7. Since these issues require fresh investigation and examination, the assessee’s appeal in ITA No. 1721/Bangalore/2026 for assessment year 2025–26 is restored to the file of the learned CIT(E). The assessee is directed to substantiate before the CIT(E) that it is carrying on educational activities and is entitled to registration under section 12AB of the Act. The assessee shall also furnish a reconciliation of the fee receipts, which formed the basis for rejection of its application. The learned CIT(E) may verify the facts and decide the matter on merits after giving the assessee a proper opportunity of hearing.
8. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 27th August, 2026.
