ADARSH VIDYA NIKETAN,NAHAN vs. COMMISSIONER OF INCOME TAX(EXEMPTION), CHANDIGARH

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ITA 896/CHANDI/2026Status: DisposedITAT Chandigarh03 August 2026AY 2026-275 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that incurring expenditure on leased premises for maintaining and improving educational infrastructure is not a bar to registration. Such expenditure, if for charitable objects and properly accounted for, does not indicate diversion of funds or non-genuine activities.

What were the facts?

The assessee, an educational institution running a school for over four decades, applied for registration under section 12AB. The CIT(Exemption) rejected the application, citing substantial repair and renovation expenditure on a rented building, which exceeded the annual rent, as evidence of non-genuine activities.

What were the issues?

Whether substantial expenditure on renovation of rented premises, exceeding annual rent, disqualifies an educational institution from obtaining registration under section 12AB. Whether such expenditure, if for improving educational infrastructure, can be considered as evidence of non-genuine activities.

Which sections of the Income-tax Act were involved?

Section 12AB

AI-generated summary — verify with the full judgment below

आयकर अपीलीय अिधकरण,च�ीगढ़ �ायपीठ “ए” , च�ीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: HYBRID MODE �ी लिलत कुमार, �ाियक सद� एवं �ी मनोज कुमार अ�वाल, लेखा सद� BEFORE: SHRI. LALIET KUMAR, JM & SHRI. MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No. 896 /Chd/ 2026 िनधा�रण वष� / Assessment Year : 2026-27 Adarsh Vidya Niketan बनाम The CIT(Exemption) Naya Bazar Chowk, Nahan Chandigarh Himachal Pradesh-173001 �ायी लेखा सं./PAN NO: AABAA4400A अपीलाथ�/Appellant ��थ�/Respondent िनधा�रती की ओर से/Assessee by : Shri Varinder Bhatia, and Shri Ichhet Bhatia, Advocate राज� की ओर से/ Revenue by : Smt. Jai Shree Sharma, CIT, DR (Virtual Mode) सुनवाई की तारीख/Date of Hearing : 20/07/2026 उदघोषणा की तारीख/Date of Pronouncement : 03/08/2026 आदेश/Order PER LALIET KUMAR, J.M: The present appeal has been preferred by the assessee society against the order passed by the Ld. CIT (Exemptions), Chandigarh, whereby the application filed by the assessee under section 12AB(1)(ac)(ii) of the Income-tax Act, 1961 was rejected on the ground that the assessee had incurred substantial expenditure towards repair and renovation of a rented school building, thereby allegedly failing to establish the genuineness of its activities and proper application of its funds. 2. Briefly, the assessee society is an educational institution established with the principal object of imparting education. It has been running a school in District Solan, near Paonta Sahib, Himachal Pradesh, for more than four decades. During the course of proceedings before the Ld. CIT(E), the assessee explained that the school building was an old structure taken on lease and required extensive repairs and renovation to make it suitable for imparting education and to comply with the norms prescribed by the educational authorities. The assessee also submitted that the expenditure was incurred exclusively for improving the school infrastructure and maintaining the premises in a safe, hygienic and functional condition. However, the

Ld. CIT(E), primarily on the premise that the repair expenditure exceeded the annual rent paid by the assessee and that the premises belonged to the landlord, concluded that the activities of the assessee were not genuine and consequently rejected the application for registration. 3. The Ld. AR vehemently assailed the impugned order and submitted that the Ld. CIT(E) had completely misdirected himself in law as well as on facts while rejecting the application for registration. 4. It was submitted that the sole basis for rejecting the application is that the assessee incurred expenditure on renovation and repair of a rented school building. According to the Ld. AR, such reasoning is wholly misconceived because there is no provision under the Income-tax Act which prohibits a charitable educational institution from incurring expenditure on leased premises where such expenditure is incurred exclusively for achieving its charitable objects.

5.

The Ld. AR further submitted that the school has been functioning in the leased premises since the early 1980s. The institution comprises nearly fifty classrooms along with a playground and caters to a large number of students in the region. The annual rent payable by the assessee is merely Rs.6,00,000/-, which is highly nominal considering the size of the campus and the infrastructure available. The lease arrangement has continued for decades, and the meagre rent itself demonstrates that the parties intended that the institution would continue to maintain and preserve the premises. 6. It was further argued that an educational institution cannot be expected to impart education in dilapidated or unsafe buildings. Renovation of classrooms, plastering, flooring, painting, replacement of damaged structures, sanitation facilities and allied repairs are indispensable for maintaining hygiene, safety and compliance with statutory educational norms. Such expenditure cannot, by any stretch of imagination, be regarded as diversion of charitable funds or as expenditure incurred for non-charitable purposes.

7.

The Ld. AR submitted that the entire expenditure was incurred through banking channels and was reflected in the books of account. No material has been brought on record by the Revenue to demonstrate that any part of the expenditure was fictitious or that the amount had been diverted for the benefit of any specified

person. The Ld. CIT(E) merely entertained suspicion because the repair expenditure exceeded the annual rent, which by itself can never constitute a valid ground for rejecting registration under section 12AB.

8.

It was therefore prayed that the impugned order deserves to be quashed and the assessee be granted registration under section 12AB. 9. The Ld. DR strongly relied upon the impugned order passed by the Ld. CIT (Exemptions).

10.

It was submitted that the assessee had incurred substantial expenditure on repair and renovation of a property which admittedly did not belong to it. The expenditure incurred during the relevant years was several times higher than the annual rent paid by the assessee. According to the Ld. DR, such expenditure appeared commercially imprudent, particularly in the absence of any contractual obligation requiring the assessee to undertake major structural repairs.

11.

The Ld. DR further submitted that the assessee failed to furnish complete supporting evidence such as bills, vouchers, work contracts and other documentary records to fully substantiate the expenditure before the Ld. CIT(E). Therefore, the Ld. CIT(E) rightly entertained doubts regarding the genuineness of the expenditure and the proper application of charitable funds. 12. It was accordingly contended that the Ld. CIT(E) was justified in holding that the assessee had failed to establish the genuineness of its activities as contemplated under section 12AB and, therefore, the order rejecting registration deserves to be upheld. 13. We have heard the rival submissions, carefully perused the impugned order and examined the material available on record.

13.1 The undisputed position emerging from the record is that the assessee is an educational society running a school in District Solan near Paonta Sahib for more than four decades. The school is operated from leased premises comprising nearly 50 rooms and a playground. The annual lease rent paid by the assessee is only Rs.6,00,000/-. The lease arrangement itself dates back to the early 1980s and has continued uninterrupted for several decades.

13.2 The entire edifice of the impugned order rests upon one solitary circumstance, namely, that the assessee incurred expenditure on renovation and repair of the rented school premises and that such expenditure exceeded the annual rent. In our considered opinion, this reasoning is fundamentally flawed.

13.3 An educational institution cannot effectively discharge its charitable object unless it maintains the infrastructure from which education is imparted. Classrooms, sanitation facilities, playgrounds, roofs, flooring, electrical installations and other basic amenities require continuous maintenance. If the landlord, despite receiving a nominal rent, does not undertake such repairs, it becomes not only reasonable but practically imperative for the educational institution itself to incur the expenditure so that the school remains safe, hygienic and compliant with statutory educational norms.

13.4 The Ld. CIT(E) has proceeded on the erroneous assumption that expenditure incurred on leased premises necessarily disentitles the assessee from registration. Such a proposition has no sanction under the provisions of the Act. The relevant consideration while examining an application under section 12AB is whether the activities of the institution are genuine and whether they are carried out in accordance with its charitable objects. The fact that the expenditure has been incurred on leased premises, by itself, neither establishes diversion of funds nor demonstrates absence of charitable activity. 13.5 More importantly, no evidence whatsoever has been brought before us to indicate that the expenditure incurred by the assessee was utilised for any purpose other than improvement of the educational infrastructure. There is also no material on record to establish that any portion of the expenditure was siphoned off, diverted for private benefit or applied for non-charitable purposes. Mere suspicion arising from the quantum of expenditure vis-à-vis the annual rent cannot substitute legal evidence. 13.6 On the contrary, the material available on record clearly indicates that the expenditure was incurred for renovation and improvement of the existing school infrastructure so as to facilitate continued imparting of education. Such expenditure directly advances the charitable object of education and cannot be construed as a ground to doubt the genuineness of the activities of the assessee.

13.7 We are, therefore, of the considered opinion that the findings recorded by the Ld. CIT (Exemptions) are based on an erroneous appreciation of facts and an incorrect application of law. The impugned order is consequently held to be perverse and unsustainable. Accordingly, we set aside the order passed by the Ld. CIT (Exemptions) and direct the Ld. CIT(E) to grant registration under section 12AB of the Act to the assessee society.

14.

In the result, the appeal filed by the assessee is allowed.

Order pronounced on 03/08/2026

Sd/- Sd/- मनोज कुमार अ�वाल लिलत कुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद�/ ACCOUNTANT MEMBER �ाियक सद� /JUDICIAL MEMBER AG आदेश की �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��थ�/ The Respondent 3. आयकर आयु�/ CIT 4. आयकर आयु� (अपील)/ The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

BY ORDER, ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KENDRIYA SADAN, SECTOR-9A CHANDIGARH

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