LRG NAIDU EDUCATIONAL AND CHARITABLE TRUST,COIMBATORE vs. CIT EXEMPTIONS, CHENNAI

ITA 2768/CHNY/2026Status: DisposedITAT Chennai21 September 202619 pages
AI SummaryRemanded

What were the facts?

The assessee, LRG Naidu Educational and Charitable Trust, filed an appeal against the order dated 31.03.2026 passed by the Commissioner of Income Tax (Exemption), Chennai. The Commissioner denied the trust registration under Section 12AB of the Income Tax Act, 1961. The denial was based on the Commissioner's view that the trust's plotted sale of Tirupur property constituted a commercial activity in the nature of business, trade, or commerce. The assessee contended that the sale was a prudent mode of realizing value from an old, non-yielding asset to convert it into liquid funds for charitable objects, not an independent commercial activity driven by profit motive. The trust deed permitted such sales, and a court order from the Principal District Judge, Tirupur, also authorized the sale after development into house sites.

What did the Tribunal hold?

The Tribunal held that the Commissioner erred in denying registration under Section 12AB solely based on the plotted sale of the Tirupur property. The Tribunal noted that the sale of the land was undertaken after obtaining approval from the Principal District Judge and a resolution passed by the trustees. The object behind the alienation was to monetize an idle asset for the trust's charitable objects. The Tribunal referred to Board Instruction No. 883 dated 24.09.1975, which considers investment of net sale consideration in fixed deposits as utilization for charitable purposes. It also cited High Court decisions in *CIT v. Hindustan Welfare Trusts*, *CIT v. East India Charitable Trust*, and *CIT vs. Ambalal Sarabhai Trust No.3* supporting this view. Crucially, the Tribunal emphasized that at the stage of granting registration under Section 12AB, the Commissioner should primarily examine the objects of the trust and the genuineness of proposed activities, not conduct a full assessment of taxability. Relying on the Supreme Court's decision in *Ananda Social and Educational Trust vs. CIT*, the Tribunal stated that the registration stage is for examining whether the objects are charitable and activities are genuine, not for assessing actual past activities contrary to objects or taxability. The order of the Learned CIT(Exemption) was set aside and restored to the file of the Learned CIT(Exemption) for de novo disposal, to grant registration under Section 12AB after due verification of the charitable nature of objects and genuineness of activities, and absence of specified violations.

What were the issues?

1. Whether the plotted sale of the Tirupur property by the appellant-trust constitutes a commercial activity in the nature of business, trade, or commerce, thereby disentitling it to registration under Section 12AB of the Income Tax Act, 1961? Assessee's Arguments: - The sale of the Tirupur property was undertaken solely to convert an old, non-yielding asset into liquid funds for the trust's charitable objects. It was not an independent commercial activity or driven by profit motive. - The sale was a prudent mode of realizing value from a trust asset, authorized by Clause 14 of the Original Trust Deed and a Court Order in Trust O.P. No. 46 of 2018. - The dominant object of the trust is charitable, and any incidental profit from the sale does not destroy its charitable character, citing *Addl. CIT v. Surat Art Silk Cloth Manufacturers Association*. - The Commissioner erred in treating a single asset realization transaction as decisive against the trust, contrary to the settled legal position that registration stage is not a full merits assessment of taxability, relying on *Ananda Social and Educational Trust v. CIT*, *CIT v. Red Rose School*, and *Fifth Generation Education Society v. CIT*. - The trust's objects are charitable (education, medical relief), and the sale proceeds are to be used for these objects, satisfying the requirement of public benefit, citing *CIT v. Andhra Chamber of Commerce* and *Ahmedabad Rana Caste Association v. CIT*. Revenue's Arguments: - The revenue, through the Commissioner, viewed the plotted sale of land as a commercial activity in the nature of business, trade, or commerce, leading to the rejection of the registration application.

Which sections of the Income-tax Act were involved?

Section 12AB,Section 11(1A),Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHENNAI BENCHES, CHENNAI BENCH: D

Pronounced: 21.09.2026

PER INTURI RAMA RAO, ACCOUNTANT MEMBER :

This appeal filed by the appellant-trust directed against the order of the Learned Commissioner of Income Tax(Exemption), Chennai denying grant of registration u/s.12AB of the Income Tax Act, 1961 dated 31.03.2026. 2. The Assessee raised the following grounds of appeal :

“A. The Impugned Order in Form No. 10AD dated 31.03.2026 passed by the learned Commissioner of Income Tax (Exemptions), Chennai, is contrary to law, facts and materials on r

The order continues below.

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