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Judgment
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of Learned Commissioner of Income-tax(Exemption) Delhi [“Ld. CIT(E)”, for short] dated 18.06.2025 raising following grounds of appeal :-
“1 The order u/s 12AB(1)(b)(ii)(B) of the Act rejecting & cancelling the registration is bad in law.
2 The learned (IT (Exemptions) has erred in law as well as on facts in rejecting the Appellant's application for regular registration under section 12A(l)(ac)(iii) of the Act and in cancelling the provisional registration granted on 30.10.2024, without properly appreciating the facts, evidence, objects, and activities of the Appellant.
3 The learned (IT (Exemptions) has grossly erred in holding that the appellant is "mainly engaged in trading" and not in carrying out charitable activities and it does not satisfy the conditions of Section 12AB of the Act.”
At the time of hearing, ld. AR of the assessee brought our attention to the facts of the case and also submitted his submissions. He submitted that the assessee filed present appeal against the order passed by CIT(E), Delhi rejecting the application filed by the assessee u/s 12A(1)(ac)(iii) of the Income-tax Act, 1961 (for short ‘the Act’) and the provisional registration granted on 20.03.2024.
He submitted that the assessee is a section 8 company incorporated under the Companies Act, 2013 on 14.02.2024 and the copy of Certificate of Incorporation is placed at paper book pg. 8. He further submitted that copy of MOA and AOA are also placed at PB pg. 9-35. He submitted that the assessee has been granted provisional registration on 30.10.2024 u/s 12A(1)(ac)(vi) of the Act for 3 AY, i.e., AY 2025-26 to AY 2027-28, copy of which is placed on record. Thereafter, the assessee has applied for regular registration on 31.12.2024 u/s 12A(1)(ac)(iii) of the Act. He submitted that the ld.CIT(E), Delhi has issued notice on 23.01.2025 which has been duly replied by the assessee vide reply dated 07.02.2025along with supporting evidences. Thereafter, the ld. CIT(E) has issued notice on 02.06.2025 requiring further information, which has been duly replied by the assessee. He submitted that thereafter, the ld.CIT(E), Delhi passed the impugned order u/s 12AB(1)(b)(ii)(B) of the Act rejecting the assessee's application for regular registration u/s 12A(1)(ac)(iii) and simultaneously cancelling the provisional registration earlier granted, primarily alleging that the activities of the assessee were commercial in nature and not charitable within the meaning of section 2(15) of the Act.
Ld. AR further submitted his submissions which are placed on record in the form of written submissions and the same is reproduced below :-
“(1)Activities of the assessee are charitable in nature.
8.The primary objects of the assessee, as evident from its AOA (PB pg. 25-35) and submissions before the Ld. CIT(E) (PB pg. 45), are directed towards environmental conservation, ecological restoration, research, community welfare and livelihood support of ecosystem-dependent communities, which squarely fall within the meaning of "charitable purpose" under section 2(15) of the Act.
9.The main activities of Charobar Foundation are as under:
Supporting and organising communities for preparation and implementation of conservation action plans relating to land, ecosystem, flora, fauna, avifauna, soil, water, environment and agri-biodiversity.
Encouraging, promoting and carrying out scientific, social-scientific and economic research and assessments concerning environment, ecological conservation, pastoralism and allied communities.
Providing livelihood opportunities and support to ecosystem-dependent communities such as pastoralists, forest-dwelling communities and similar rural groups.
Creating awareness about pastoralism and biodiversity conservation through limited sale of small merchandise such as T-shirts, hats, mugs, coasters and note-pads purely as a medium of awareness.
Undertaking and facilitating activities, goods or services conducive to promotion of environment and the moral, cultural, livelihood, physical and general welfare and development of people without discrimination.
Carrying out ecological restoration of grasslands, thorn forests and village commons; revival of indigenous sheep wool value chains; promotion of indigenous wool and non-bovine milk products; research and experiments for removal of invasive species and sustainable use of indigenous wool; and other allied social and environmental activities in furtherance of the main objects.
10.The above activities are inherently environmental, educational and community-oriented in nature and fall within the recognised limbs of section 2(15), namely preservation of environment, relief of the poor and advancement of general public utility.
11.The engagement with wool, milk and other pastoral products is not an independent trading venture but a means of livelihood facilitation and awareness generation for vulnerable rural communities.
12.Thus, the nature, scope and intent of the assessee's activities clearly establish that it exists and operates for charitable purposes within the meaning of section 2(15) of the Act.
(2) No adverse finding regarding the aim. object and genuineness of the trust by the CIT(E)
13.There is no adverse finding regarding the aim, object and genuineness of the trust by the CIT(E) and the object of the trust can be held from the bye laws or the trust teed of the trust as held by the Hon'ble Allahabad High Court in the case of Commissioner of Income-tax Versus Red Rose School, 2007 (2) TMI 575 that unless the objects of the Trust apparently make out that they are not in consonance with the public policy or that they are not the objects of any charitable purpose, registration cannot be refused on this ground. Further reliance is placed on the basis of following judicial pronouncements:
ITAT Delhi in the case of Apna Jahan Charitable Trust, 2026 (1) TMI 969, dated 15.12.2025
ITAT Chennai in the case of Sree Raja Rajeshwari Educational Trust, [2025] 179 Taxmann.com 505
Calcutta High Court in the case of CIT(E), Kolkata Vs. Contai Rotary Community Welfare Trust, [2022] 134Taxmann.com 210
Shri Krishna Education and Welfare Trust vs Commissioner of Income-tax, Hissar, [2009] 27 SOT 331 (Delhi), Dated-28.11.2008
Ms. Sree Anjaneya Medical Trust Versus Commissioner of Income Tax, 2016 (3) TMI 30 - Kerala High Court, Dated-11.02.2016
(3) CIT(E) does not have jurisdiction to reject the application merely on the basis of suspicion and conjecture
14.The objective of section 12A is to examine the genuineness of the objects of the Trust and though, while examining the genuineness, the income as well as resources of the Trust may be taken into consideration but any suspicion as to these facts cannot be the sole criteria for rejecting an application under Section 12A of the Act
15.Reliance is placed on the basis of following judicial pronouncements:
Commissioner of Income-tax-I, Ludhiana vs Baba Kartar Singh Dukki Educational Trust, [2014] 42 taxmann.com 17 (Punjab & Haryana), Dated :- 08.10.2013
4.We have heard counsel for the parties, perused the impugned order as well as the order passed by the Commissioner of Income Tax and the substantial questions of law but find no reason to hold that the impugned order suffers from any error or raises a substantial questions of law much less questions of law framed by the revenue. The object of Section 12AA of the Act is to examine the genuineness of the objects of the Trust and though while examining genuineness, the income as well as resources of the Trust may be taken into consideration but any suspicion as to these facts cannot be the sole criteria for rejecting an application under Section 12A of the Act.This apart, there appears to be a misconception amongst officers exercising power under Section 12AA of the Act that if a trustee is a life long member of a Trust, it automatically raises an inference that the Trust is not charitable. The fact that a trustee is a life member, may be relevant but cannot by itself lead to a finding that the Trust is not charitable.
Savior Charitable Trust vs Commissioner of Income-tax, Rohtak, [2010] 7 taxmann.com 34 (Delhi), Dated:- 20.08.2010
Shri Krishna Education and Welfare Trust vs Commissioner of Income-tax, Hissar, [2009] 27 SOT 331 (Delhi), Dated:-28.11.2008
(4) CIT(E) does not have jurisdiction to analyse the transactions of trust
16.It is pertinent to note that CIT(E) power is limited to making enquiries regarding the object, aim of the trust and once the genuineness of the trust is not in doubt and nature of its object being charitable, application for registration cannot be rejected.
17.The enquiry by the Commissioner shall remain restricted to the examination, as to whether the assessee, who has moved the application for registration under section 12A, is actually in the activities which are genuine. Genuineness of the activities of the trust or the institution has to be seen, keeping in mind the objects thereof, which necessarily means that the Commissioner shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or the institution
18.Reliance is placed on the basis of following judicial pronouncements:
Commissioner of Income-tax Versus Red Rose School , 2007 (2) TMI 575 - Allahabad High Court, Dated:- 07.02.2007
The enquiry by the Commissioner shall remain restricted to the examination, as to whether the assessee, who has moved the application for registration under section 12A, is actually in the activities which are genuine. Genuineness of the activities of the trust or the institution has to be seen, keeping in mind the objects thereof, which necessarily means that the Commissioner shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or the institution
Aggarwal Mitra Mandai Trust vs Director of Income-tax (Exemption), New Delhi, [2007] 106 ITD 531 , Dated:-29.09.2006
Hardayal Charitable & Educational Trust Versus Commissioner of Income Tax- II, Agra, 2013 (3) TMI 377 - Allahabad High Court, Dated:- 15.03.2013
(5) Proviso to Section 2(15) is to be examined at the stage of assessment and not at the stage of registration
19.It is respectfully submitted that the proviso to section 2(15) of the Act, which prescribes limits on receipts from trade, commerce or business for organisations claiming "advancement of any other object of general public utility" - is intended to be examined year-wise at the time of assessment and not at the stage of granting or rejecting registration under section 12A/12AB.
(a)Reliance is placed on CBDT Circular No. 21/2016 dated 27.05.2016
20.CBDT Circular No. 21/2016, (placed at CLC pg. 1-2) clarifies this very point: " ... it shall not be mandatory to cancel the registration already granted ... merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution."
21.The Board further advised that, "if in any particular year, the specified cut-off is exceeded, 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."
22.The aforementioned clarificatory position clearly indicates that the proviso's threshold condition is a matter of assessment year compliance and not a condition precedent for registration itself.
(b)Further Reliance is placed on recent Budget 2026 amendments
23.This legislative intent has been reaffirmed in the recent Budget 2026 amendments to the New Income-tax Act, 2025 (placed at CLC pg. 3-7). Section 351 of the Act, which defines "specified violation" by a registered non-profit organisation, originally included commercial activity violations (i.e., carrying out commercial activities in contravention of sections 346) as a ground that may attract cancellation of registration.
24.However, recognising that including such commercial activity-based breaches as "specified violations" could lead to automatic cancellation of registration, contrary to the long-standing policy under the Income-tax Act, 1961, the Budget 2026 has proposed removal of that reference from Section 351.
25.This amendment (effective from 1 April 2026) aligns the treatment of commercial receipts with the pre-existing policy that exceeding the commercial receipts threshold does not by itself warrant cancellation of registration, but only affects the exemption for that particular year.
26.Thus, both the CBOT Circular and the Budget 2026 amendment highlight that the proviso to section 2(15) and related commercial-activity conditions are not to be enforced at the registration stage.
Ld. AR further relied on the decision of the coordinate Bench of ITAT in the case of Seth Panna Lal Charitable Trust in ITA No.3097/Del/2025 order dated 04.02.2026 and submitted that the facts in the aforesaid case is similar to the facts of the present case and pleaded to allow the appeal following the precedent.
In view of his above submissions, he pleaded that the order of ld. CIT (E) be set aside and the ld. CIT (E) be directed to allow the application of the assessee for regular registration u/s 12A(1)(ac)(iii) of the Act.
On the other hand, ld. DR of the Revenue objected to the submissions of the assessee and relied on the order of ld. CIT (E).
Considered the rival submissions and material placed on record. We observed that ld. CIT (A) observed in his order that as per financial statement,assessee is mainly involved in trading of Desi Oon(Wool), Milk, leather, dung & other crafts item and this activity is purely commercial without any iota of charity involved and further observed that from this trading/commercial activity; the assessee has received Rs.38.52 lakhs in financial year 2024-25, which is 72.2% of its total receipts and overall the company is highly profitable entity and is generating 22.5% of profit, which is not a trail of charitable organization; and accordingly ld. CIT (A) held that the activities undertaken by the applicant society is not for charitable purpose and does not fall under the provision of section 2(15) of the Act, thus the assessee has failed to prove that the activities undertaken during the previous year for charitable purpose is as per the provision of section 2(15) of the Act and rejected the grant of registration.
We further find that primarily the competent authority has doubted the activities on the basis of manner of use of funds/profit earned but the moot question is whether at the stage of considering application for registration u/s 12A the scope of inquiry requires or provides powers to examine the financial aspects of the assessee. In this regard, we are of the considered view that certainly to the extent that the financial aspect of the applicant relate to the understanding of genuineness of the activities the competent authority can certainly examine the issue but otherwise it is the genuineness of activities as a whole as reflected from the documents incorporating the assessee seeking the registration u/s 12A which can only indicate the dominant purpose of the institution, its composition and its prospective activities which indicate the intention of settlers or founding members of the institution seeking registration u/s 12A of the Act, to achieve the objectives.
Further we observed that the facts in the case of Seth Pannalal Charitable Trust (supra) is exactly similar to the present case and coordinate Bench has decided the issue in favour of the assessee. For the sake of brevity, we are reproducing the relevant paras of the aforesaid order :-
“14.In the light of aforesaid discussion we are of considered view that competent authority has somehow gone too far to examine the financial actions of Trust, to doubt the genuineness of the activity and more specifically the observation in para 8 of the impugned order that “it is difficult to ascertain the genuineness of the activities being carried out by applicant’, it self makes the impugned order unsustainable under law.
15.The competent authority has then erred in also passing an order of ‘superseding’ registration granted u/s 12AB of the Act, without following the due process, u/s 12AB(4) of the Act by referring to ‘specified violation’.
16.We are thus inclined to sustain the grounds and set aside the impugned order and allow the appeal with a direction to ld. Competent Authority to allow the form 10 AB with consequential effects.”
Respectfully following the decision of the coordinate Bench and in the light of aforesaid discussion, we are of considered view that competent authority has somehow gone too far to examine the financial to doubt the genuineness of the activity and accordingly, we set aside the impugned order and allow the appeal with a direction to ld. Competent authority to allow registration with consequential effects.
In the result, the appeal of the assessee is allowed for statistical purposes with the above directions.