Charitable Registration Cannot Be Cancelled For Disputed Transactions Alone: ITAT New Delhi

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 11 March held that the registration of a charitable institution under Section 12AB of the Income Tax Act cannot be cancelled merely on the basis of alleged irregularities in certain financial transactions, as long as the core charitable activities continue to be genuine.

A Bench comprising Judicial Member Challa Nagendra Prasad and Accountant Member M. Balaganesh restored the charitable registration of Richmond Educational Society and set aside the order of the Principal Commissioner of Income Tax, observing that financial transactions alone cannot justify cancellation.

The ITAT held:

“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 cancelled merely because certain transactions are questioned.”

Richmond Educational Society is a charitable institution engaged in running educational institutions such as The Millennium School, Noida, The Sriram Millennium School, and The Millennium School, Meerut.

The society had earlier been granted registration under Sections 12AA and 12AB of the Income Tax Act, as its primary objective of imparting education qualifies as a charitable purpose.

Following a search operation conducted in 2023 in the group connected to the trustees, the tax department alleged certain irregularities, including payment of high salary to an individual, alleged bogus expenditure and billing, an advance of Rs. 20 crore for school infrastructure, and alleged off-book cash transactions.

Based on these allegations, the Principal Commissioner cancelled the society's registration under Section 12AB(4), claiming that the transactions resulted in benefits to related parties and thus constituted “specified violations.”

The Tribunal observed that the core activity of the society, imparting education through functioning schools, was never disputed by the department. The allegations related only to specific financial transactions and not to the fundamental charitable purpose of the institution.

The Tribunal clarified that there is a legal distinction between the activities of a trust and individual transactions undertaken in carrying out those activities. Financial irregularities or benefit to related parties may be examined during assessment proceedings, but they do not automatically render the charitable activities non-genuine.

Emphasising that registration cannot be cancelled merely because certain transactions are disputed, the Tribunal concluded that the tax authorities had failed to establish that the society's activities were non-genuine or contrary to its objects.

Accordingly, the cancellation of registration under Section 12AB was held to be unjustified.

Appearance for the Assessee: Shri Gaurav Jain, Adv, Shri Tarun Channa, Adv

Appearance for the Revenue: Ms. Kranti, CIT DR