Bhartiya Education Society vs ITO(Exemption)

“1.

That having regard to the facts and circumstances of the case and in law, the impugned order dated 20.01.2026 passed by the Ld. Commissioner of Income Tax (Exemptions), Chandigarh rejecting the application for registration u/s 12AB of the Income Tax Act 1961 (the Act) is bad on facts and in law and liable to be quashed.

2.

That having regard to the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Exemptions) erred in law in exceeding the scope of enquiry permissible u/s 12AB, by examining the application of income and drawing adverse conclusions regarding alleged diversion of funds, instead of restricting himself to satisfaction regarding the charitable objects, and the genuineness of activities of the appellant society.

3.

That having regard to the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Exemptions) has failed to appreciate that advancement of temporary loans/advances, even if assumed, does not ipso facto establish diversion of funds or non-genuine activities, particularly in absence of any finding that such funds were applied for personal benefit of specified persons.

4.

That having regard to the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Exemptions) erred in holding that the appellant is deriving personal gains and that the institution is a façade, without bringing any cogent material or evidence on record, and without establishing any direct nexus between the alleged advances and violation of charitable objects and, thus, such findings are based on mere suspicion, conjectures, and surmises.

5.

That having regard to the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Exemptions) erred in rejecting the application on the ground of lack of documentary evidence without granting adequate opportunity or specifying the exact deficiencies required to be fulfilled, thereby violating principles of natural justice.

6.

That the appellant craves the leave to add, modify, amend, or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

“At the outset, it is respectfully submitted that at the stage of registration under section 12AB, the Commissioner is required to examine only the charitable objects and genuineness of activities of the institution. Questions relating to application of income, alleged violation of section 13, or tax treatment of specific transactions fall within the jurisdiction of the Assessing Officer during assessment proceedings and cannot constitute grounds for refusal of registration.

3.1

It is respectfully submitted that registration proceedings and assessment proceedings are two different and distinct stages for granting exemption under section 11 and 12 of the Act to an assessee.

It is well-settled law that the scope of the inquiry by CIT(E) under Section 12AB is narrow, limited, and confined to the above two aspects. The registration stage is not an assessment proceeding. The CIT(E) is not empowered, at the stage of considering an application for registration, to examine and adjudicate upon questions of application of income, alleged violations of Section 13, and tax treatment of specific financial transactions, because those matters are expressly reserved for the Assessing Officer during assessment proceedings under Sections 11, 12, and 13 of the Act.

3.3

In the present case, the factors considered by the Ld. CIT(E) as stated above are subject matter of assessment and the same may be investigated in detail at the time of assessment proceedings and, therefore, the same could not stand as hindrance while granting registration u/s 12AB of the Act. The provision did not contemplate rejection of registration for alleged financial irregularities or any disputed transactions unless such allegations went to the very root of the genuineness of activities or deviation from the stated objects of the society, which is not here in the case of the appellant.

3.4

It is submitted that the power to refuse registration on the ground that activities of the Society are not genuine is an exceptional power, which can be exercised only where the predominant and substantive activities of the Society are shown to be sham, fictitious, non-existent or a mere facade. It is settled position of law that so long as the core charitable activities for which the Society is established are real, ongoing and carried out in accordance with its objects, registration cannot be refused merely because certain transactions are questioned.

3.5

It is respectfully submitted that there is a distinction between an 'activity' and 'transaction'. What is relevant to be seen at the time of registration of a society is the activities carried out by the said society and not to be carried away by few transactions carried out thereon. There is a clear conceptual distinction between the 'activities' of a Society and the 'transactions' undertaken in the course of administering those activities. The expression 'activities' refers to the overall, substantive and continuing charitable functions carried out by the Society in furtherance of its stated objects, whereas transactions are incidental or ancillary acts through which such activities are operationalized. In law the genuineness of activities is required to be examined in a holistic and broad manner having regard to whether the Society is in substance carrying out its charitable objects. Mere issues or disputes relating to individual transactions do not by themselves lead to an inference that the activities are not genuine unless such transactions are shown to fundamentally undermine or negate the charitable character of the Society's functioning. Matters relating to the propriety or tax treatment of a particular transaction are therefore ordinarily addressed at the assessment stage under the relevant provisions of the Act and do not automatically impinge upon the genuineness of the activities as such at the stage of granting of registration u/s 12AB of the Act.

3.6

In the present case, the appellant society is imparting education through its schools, thus, its activities fall within the first fold of definition u/s 2(15), which is per se 'charitable'. The Ld. CIT(E) has not made any comment about the activities as to whether the assessee is engaged in providing education or not. The other requirement of renewal of registration is whether the assessee has violated any other allied law. The Ld. CIT(E) has not commented on that also. The Ld. CIT(E) objection is only about the transaction of loans and advances given to certain persons. The proper forum for examining the treatment of loans/advances, alleged violations of Section 13(1)(c) or Section 13(1)(d), are questions relating to the eligibility for exemption under Sections 11 and 12, is the assessment proceedings before the Assessing Officer and not in the proceeding for registration before the CIT(E). Hence, the Ld. CIT(E) was not justified in rejecting the application of the appellant society for renewal of registration u/s 12AB of the Act. It is humbly submitted that the appellant society is eligible for registration u/s 12AB of the Act.

3.7

Without prejudice to the above primary contention, it is also submitted that the advances referred to in the impugned order were made wholly in connection with the running and administration of the schools and not for conferring any private benefit. The position of loans/advances as on 31.03.2024 and their purposes can be summarized as under:

33.

In regard to the genuineness of the activities of the trust or the institution, whose objects do not run contrary to public policy and are, in fact, related to charitable purposes, the Commissioner is again empowered to make enquiries as he thinks fit. In case the activities are not genuine and they are not being carried out in accordance with the objects of the trust/society or the institution, of course, the registration can again be refused. But on mere presumptions and on surmises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made.

34.

Section 12AA, which lays down the procedure for registration, does not speak anywhere that the Commissioner, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution.