THE SALVATION ARMY,BYCULLA, MUMBAI vs. CIT (EXEMPTIONS), MUMBAI, CUMBALLA HILL, MUMBAI

PER PRABHASH SHANKAR [A.M.] :-

The present appeal is preferred by the assessee Trust against the order passed by the Learned Commissioner of Income-tax (Exemptions), Mumbai [hereinafter referred to as “CIT(E)”] pertaining to order passed u/s. 12AB of the Income-tax Act, 1961 [hereinafter referred to as “Act”].

P a g e | 2 ITA No. 6120/Mum/2026 The Salvation Army 2. The grounds of appeal are as under: 1. That on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Exemptions), Mumbai ["Ld. CIT(E)") erred in rejecting the application for renewal of registration under section 12AB of the Income-tax Act, 1961 vide order dated 26.03.2026 passed in Form No. 10AD, without properly appreciating the objects, activities and evidences placed on record by the Appellant. 2. That the Ld. CIT(E) grossly erred in law in treating cancellation of FCRA registration as an automatic and conclusive ground for rejection of registration under section 12AB of the Act, though no such statutory consequence is contemplated either under section 12AB or under any other provision of the Income-tax Act, 1961. 3. That the impugned order is contrary to the scheme of section 12AB, which mandates independent satisfaction regarding the genuineness of activities and adherence to charitable objects, and not mere reliance upon proceedings initiated under another enactment. 4. That the Ld. CIT(E) failed to appreciate that section 12AB(4) can be invoked only where there exists a "specified violation" materially affecting the charitable nature or genuineness of activities of the trust, whereas no such finding has been recorded in the impugned order. 5. That the Ld. CIT(E) erred in concluding that the Appellant had violated conditions material for achieving its objects merely because of FCRA cancellation, without establishing any nexus between the alleged FCRA non-compliances and the charitable activities of the Appellant. 6. That the impugned order has been passed without recording any finding whatsoever that: o the activities of the Appellant are non-genuine; o the activities are not carried out in accordance with its objects; o the income or funds of the trust were misappropriated; o the funds were applied for private benefit; or o the charitable character of the institution had ceased. 7. That the Ld. CIT(E) failed to appreciate that the Appellant has continuously carried out large-scale charitable and religious activities throughout India including educational institutions, hospitals, rehabilitation centres, children homes, leprosy care centres, relief work and welfare programmes, which remained undisputed even in the impugned order. 8. That the Ld. CIT(E) erred in ignoring the detailed submissions filed by the Appellant demonstrating that no foreign contribution had been received

P a g e | 3 ITA No. 6120/Mum/2026 The Salvation Army or utilised after cancellation of FCRA registration dated 28.10.2024 and all charitable activities thereafter were carried out exclusively through domestic funds. 9. That the Ld. CIT(E) failed to appreciate that even after cancellation of FCRA registration, the Appellant continued uninterrupted charitable activities including disaster relief operations during the 2024 Wayanad landslide through local donations and internal resources, thereby conclusively establishing genuineness of activities. 10. That the impugned order proceeds entirely on borrowed satisfaction derived from findings recorded by the FCRA authorities and no independent inquiry, verification or objective satisfaction as required under section 12AB was undertaken by the Ld. CIT(E). 11. That the reliance placed by the Ld. CIT(E) upon alleged FCRA violations is wholly misconceived since the alleged defaults, even if assumed without admitting, are at best procedural and regulatory in nature and do not establish absence of charitable intent or non-genuineness of activities. 12. That the Ld. CIT(E) failed to appreciate the settled legal position that exemption registration cannot be denied merely on suspicion, conjectures or technical violations unless the charitable character of the institution itself stands destroyed. 13. That the impugned order is contrary to the law laid down by the Hon'ble Supreme Court in Ahmedabad Urban Development Authority v. ACIT (2022) 449 ITR 1 (SC), wherein it has been held that violation of another law must materially affect the charitable nature of the institution before adverse action under exemption provisions can be sustained. 14. That the impugned order is further contrary to the principles laid down by the Hon'ble Supreme Court in Ananda Social and Educational Trust v. CIT (2020) 426 ITR 340 (SC), wherein it has been held that the primary test at the stage of registration is examination of charitable objects and genuineness of activities. 15. That the impugned order is arbitrary, bad in law, contrary to facts on record, violative of principles of natural justice and liable to be quashed. 3. Facts emerging from the impugned order reveal that the Trust filed an application in Form 10AB u/s 12A(1)(ac)(ii) on 29.09.2025 seeking renewal of registration under section 12AB of the Act. The ld.CIT(E) after calling for various details and examination thereof observed that the Foreign Contribution (Regulation) Act

P a g e | 4 ITA No. 6120/Mum/2026 The Salvation Army (FCRA) registration granted to the applicant had been cancelled by the Competent Authority vide order dated 28.10.2024. The said cancellation had been effected on account of serious violations of the provisions of the FCRA.A detailed examination of the findings recorded by the FCRA authority revealed that the applicant trust had, inter-alia; (i) Received foreign contribution for purposes other than those for which the association was registered under FCRA; thereby violating Section 11 of FCRA; and (ii) Failed to furnish annual return in Form FC-4 reflecting the details and source of foreign contribution received in the designated bank account and the purpose and manner of its utilisation, in violation of section 18 of the FCRA, r.w.s. 17 of the Rules, made there under.Thus, its activities were found to be not carried out in accordance with all or any of the conditions subject to which it was registered under FCRA. Further, violation of the provisions of the FCRA, 2010, which is a law material for the purpose of achieving the objects of the Trust, attracted the rigours of “specified violation” as defined under section 12AB(4) of the Act. The cancellation of FCRA registration by the competent authority is a conclusive indicator of non-compliance with such material law. 3.1 According to him, grant or renewal of registration under section 12A/12AB of the Act is contingent upon the satisfaction of the

P a g e | 5 ITA No. 6120/Mum/2026 The Salvation Army competent authority regarding (i) the objects of the trust or institution, (ii) the genuineness of its activities, and (iii) compliance with other laws which are material for achieving its objects. The applicant had failed on all these counts. In view of such violations by the applicant, theapplication seeking registration under section 12AB of the Act was rejected.

P a g e | 6 ITA No. 6120/Mum/2026 The Salvation Army 29.09.2025 seeking renewal of registration under section 12AB of the Act. The ld. CIT(E) issued a show cause notice proposing rejection/cancellation of registration substantially on the basis that the FCRA registration granted to it had been cancelled by the competent authority under the FCRA. In response ,it was submitted inter alia thatthere existed no provision under the Act providing automatic cancellation or rejection of registration merely because of FCRA cancellation, the activities of the assessee continued to remain genuine, there was no diversion or misuse of charitable funds, no foreign contribution was received or utilised after cancellation of FCRA registration andall charitable activities were continued through domestic resources and local contributions.It was further demonstrated continuation of extensive charitable operations after FCRA cancellation includingoperation of 318 local churches, support to ministers and pensioners,operation of 16 educational institutions,running of children homes and rehabilitation centres,operation of century-old leprosy care centres,hospitals and healthcare institutions, relief and rehabilitation activities during Wayanad landslides through domestic donations.It also placed on record audited financial statements, activity reports, affidavits, documentary evidences, copies of registration certificates

P a g e | 7 ITA No. 6120/Mum/2026 The Salvation Army anddetailed notes explaining charitable activities undertaken by the institution.

4.2 The ld.AR contended that despite such extensive evidences and submissions, the ld.CIT(E) rejected the renewal application principally on the ground that cancellation of FCRA registration amounted to violation of another law material for achievement of the objects of the trust and therefore constituted a "specified violation" under section 12AB(4) of the Act. However, he failed to record any independent finding thatthe charitable activities of the assessee were not genuine, the activities were contrary to the stated objects, the funds were misapplied, any private benefit was derived orthe charitable character of the institution had ceased.The impugned order merely reproduces observations from the FCRA proceedings and mechanically concludes that the assessee failed conditions prescribed under section 12AB of the Act, without independently examining the charitable nature, objects and activities of the institution.

4.3 It was argued that the alleged FCRA issues, even assuming without admitting, are regulatory and procedural in nature and do not establish cessation of charitable activities or loss of charitable character. It was further contended that the Hon'ble Supreme Court in Ahmedabad

P a g e | 8 ITA No. 6120/Mum/2026 The Salvation Army Urban Development Authority v. ACIT (2022) 449 ITR 1 (SC), Ananda Social and Educational Trust v. CIT (2020) 426 ITR 340 (SC),has clearly held that registration proceedings under section 12AA/12AB primarily require examination of objects and genuineness of activities and not mere technical or collateral violations under other enactments. The impugned order is unsustainable in law, contrary to settled judicial principles and liable to be quashed. The ld.AR has also paced strong reliance on the decision Tulsi Eye Hospital, Mumbai ITA No. 3769 & 3768/Mum/2026 dated 30 June, 2026 wherein on similar facts ,the claim of registration was remanded back to ld.CIT(E) with certain directions.

P a g e | 9 ITA No. 6120/Mum/2026 The Salvation Army Mumbai(supra). Relevant portions of the order are reproduced for the sake of brevity as under:

“2. The facts leading to the present appeals, as borne out from the impugned order passed by the learned CIT(E), are that the assessee filed an application in Form No. 10AB on 20.09.2025 under section 12A(1)(ac)(ii) seeking renewal of registration under section 12AB of the Act. The learned CIT(E) observed that the application was governed by Rule 17A of the Income-tax Rules, 1962, which prescribes the documents required to accompany an application in Form No. 10AB. …………………………… 3. During the course of examination of the application, the learned CIT(E) noticed that the assessee's renewal of registration under the Foreign Contribution (Regulation) Act, 2010 ("FCRA") had been rejected by the competent authority vide order dated 28.10.2024. The impugned order reproduces the findings recorded by the FCRA authority, wherein it was stated that during the renewal proceedings an enquiry conducted through the Central Security Agency revealed that the address furnished by the assessee corresponded to another NGO, namely Mission for Vision, and that both entities had common trustees. Though the association explained that the premises had been voluntarily provided by one of its trustees for functioning as its head office and for conducting outreach activities including free eye check- up camps and surgeries for rural beneficiaries, the competent authority observed that the registered address of the association did not correspond with the address disclosed in Form FC-3C, indicating inconsistency and suppression of material facts. Consequently, the renewal application under the FCRA was rejected under section 16(2) read with section 12(4)(f)(iii) of the Foreign Contribution (Regulation) Act, 2010. 4. The learned CIT(E) further recorded that the revision application preferred by the assessee against the aforesaid order before the competent authority was also rejected vide order dated 10.09.2025. According to the learned CIT(E), violation of the provisions of the Foreign Contribution (Regulation) Act, 2010 constituted violation of a law material for achieving the objects of the trust and attracted the provisions relating to "specified violation" under section 12AB(4) of the Act. The learned CIT(E) observed that grant or renewal of registration under sections 12A/12AB is contingent upon satisfactionregarding the objects of the trust, genuineness of its activities and compliance with other laws which are material for achieving its objects. Holding that the assessee had failed to satisfy the requirement relating to compliance with such material laws, the learned CIT(E) rejected the application for renewal of registration under section 12AB vide order dated 26.03.2026 on the ground of violation of a law material for achieving the objects of the trust under section 12AB(1)(b) of the Act.

P a g e | 10 ITA No. 6120/Mum/2026 The Salvation Army 6. Aggrieved by the aforesaid orders, the assessee has preferred the present appeals ……………………………….. 7. During the course of hearing, the learned Authorised Representative ("AR") for the assessee submitted that the learned CIT(E) rejected the application solely on the ground that the assessee's application for renewal of registration under the Foreign Contribution (Regulation) Act, 2010 had been rejected by the competent authority. It was submitted that while rejecting the application, the competent authority under the FCRA had granted liberty to the assessee to submit a fresh application upon fulfilling the prescribed eligibility conditions. According to the learned AR, the learned CIT(E) was not empowered to step into the shoes of the competent authority under the FCRA and independently conclude that the assessee had violated the provisions of the FCRA. It was further submitted that the assessee had not received or accepted any foreign contribution governed by the FCRA for the last several years and, therefore, the rejection of renewal of FCRA registration had no bearing upon the genuineness of the assessee's charitable activities or its entitlement to renewal of registration under the Act. 8. Per contra, the learned Departmental Representative ("DR") strongly supported the impugned orders passed by the learned CIT(E). It was submitted that the Joint Director, FCRA, being the competent authority under the Foreign Contribution (Regulation) Act, 2010, had rejected the assessee's application for renewal of FCRA registration after recording findings regarding non- compliance with the provisions of the said Act. According to the learned DR, the learned CIT(E) was justified in relying upon the findings recorded by the competent authority under the FCRA and in concluding that the assessee had failed to comply with a law material for achieving its charitable objects. The learned DR accordingly submitted that the rejection of renewal of registration under section 12AB and the consequential rejection of approval under section 80G were fully justified. 9. We have carefully considered the rival submissions and perused the material available on record, including the impugned orders passed by the learned CIT(E). The controversy involved in the present appeals lies in a narrow compass. The application of the assessee seeking renewal of registration under section 12AB has been rejected primarily on the ground that the competent authority under the FCRA had rejected the assessee's application for renewal of FCRA registration. The rejection of approval under section 80G is purely consequential upon such rejection under section 12AB. 10. Before proceeding further, it would be relevant to refer to the findings recorded by the learned CIT(E) in paragraph 4 of the impugned order, which read as under: "It is pertinent to note that grant or renewal of registration under section 12A/12AB of the Act is contingent upon the satisfaction of the competent authority regarding (i) the objects of the trust or

P a g e | 11 ITA No. 6120/Mum/2026 The Salvation Army institution, (ii) the genuineness of its activities, and (iii) compliance with other laws which are material for achieving its objects. The applicant has failed on all these counts. In view of the above mentioned violations by the applicant, the undersigned is left with no other option but to reject the application seeking registration under section 12AB of the Act. However, the applicant is at liberty to pursue the remedies available in Statute, without any prejudice." 11. A plain reading of the above findings shows that while the learned CIT(E) has correctly identified the three parameters which are required to be examined while considering an application for registration under section 12AB of the Act, namely, (i) the objects of the trust or institution, (ii) the genuineness of its activities, and(iii) compliance with other laws which are material for achieving its objects, the impugned order does not contain any independent examination or finding on the first two requirements. More importantly, even while dealing with the third requirement, the learned CIT(E) has not recorded any finding as to how the alleged non-renewal of FCRA registration had materially affected the assessee's ability to carry out or achieve its charitable objects. 12. The expression employed by the Legislature is not mere non- compliance with any other law. The statute specifically requires compliance with other laws which are material for achieving the objects of the trust or institution. Therefore, before invoking the provisions of section 12AB on this ground, it was incumbent upon the learned CIT(E) to examine whether the alleged violation had any material bearing on the attainment of the charitable objects of the assessee. Such an exercise is conspicuously absent from the impugned order. 13. It is also noticed that the learned CIT(E) has proceeded on the footing that rejection of renewal of FCRA registration itself constitutes a conclusive violation disentitling the assessee from renewal under section 12AB. In our considered opinion, the impugned order does not distinguish between cancellation of registration under the FCRA and rejection of an application for renewal of FCRA registration. The distinction assumes significance in the facts of the present case. 14. The learned AR has specifically submitted before us that the competent authority under the FCRA, while rejecting the application for renewal, has granted liberty to the assessee to submit a fresh application upon fulfilling the prescribed eligibility conditions. Prima facie, such liberty indicates that the competent authority itself did not foreclose the assessee's entitlement permanently and left open the possibility of obtaining fresh registration upon satisfying the statutory requirements. This aspect has not been examined by the learned CIT(E) while treating the rejection of renewal as a conclusive violation attracting section 12AB of the Act.

P a g e | 12 ITA No. 6120/Mum/2026 The Salvation Army 15. The learned AR has further submitted that the assessee has not received any foreign contribution governed by the provisions of the FCRA for the last several years. In our considered view, this factual assertion assumes considerable importance while examining whether the alleged non-renewal of FCRA registration had any real or material impact upon the assessee's ability to achieve its charitable objects. However, this aspect has neither been examined nor verified by the learned CIT(E). 16. We further find that except referring to the rejection of renewal of FCRA registration, the learned CIT(E) has not recorded any independent finding that the objects of the assessee are not charitable or that its activities are not genuine. Likewise, there is no finding that the alleged non-compliance under the FCRA has resulted in diversion of charitable funds, misuse of foreign contribution, or otherwise materially impaired the attainment of the charitable objects of the assessee. 17. In these circumstances, we are of the considered opinion that thematter requires fresh examination by the learned CIT(E). We, therefore, deem it appropriate to set aside the impugned order passed under section 12AB and restore the matter to the file of the learned CIT(E) for adjudication afresh in accordance with law. The learned CIT(E) shall specifically examine the factual submissions made by the assessee, including the contention that no foreign contribution has been received for the last several years, the legal effect of rejection of renewal vis-à-vis cancellation of FCRA registration, the liberty granted by the competent FCRA authority to submit a fresh application, and, most importantly, whether the alleged non-compliance under the FCRA constitutes non-compliance with a law material for achieving the objects of the assessee within the meaning of section 12AB of the Act. The learned CIT(E) shall also independently record his satisfaction regarding the objects of the trust and the genuineness of its activities in accordance with the statutory requirements after affording adequate opportunity of being heard to the assessee. 18. If, upon such examination, the assessee is otherwise found to satisfy the conditions prescribed under the Act, the learned CIT(E) shall grant renewal of registration under section 12AB in accordance with law. 19. Since the rejection of approval under section 80G is purely consequential upon rejection of registration under section 12AB, the impugned order passed under section 80G is also set aside and restored to the file of the learned CIT(E) for fresh adjudication in conformity with the decision taken in the proceedings under section 12AB.” 7. In the instant case also, it is evident that the ld.CIT(E) concerned rejected the application for registration of the trust solely on the ground that its registration under FCRA had been cancelled by the

P a g e | 13 ITA No. 6120/Mum/2026 The Salvation Army Competent authority. He did not utter a single word on the merits of the case otherwise, as to the genuineness of trust qua its charitable activities,compliance with the various object clauses etc.and whether the alleged non-compliance under the FCRA constitutes non-compliance with a law material for achieving the objects of the assessee within the meaning of section 12AB of the Act.as It is also not evident from the impugned order that the cancellation of registration by the FCRA is permanent or the assessee was allowed some leverageto make a fresh claim of registration after taking into account specific charges imposed on it.Theld.AR before us has submitted that the licence of the assessee is reviewed after three years so to find out its conformity with the requirements therein. Therefore, certain liberty has been granted by the competent FCRA authority subject to periodical review,

7.1 We find that in the above quoted order of the coordinate bench in the case of Tusli Eye Hospital(supra)as well, the registration of the trust was denied on identical rejection of its licence by FCRA. It was noticed that as in the instant case, the ld.CIT(E ) did not examine other relevant facts of the case including its genuineness of its activity and compliance with the objects. In this case, the ld.CIT(E) has not taken any consideration of the fact that the trust is very old and is well known for its charitable activity.

P a g e | 14 ITA No. 6120/Mum/2026 The Salvation Army 8. In the light of above discussion and also in view of the cited decision of the coordinate bench on identical issue restoring the case to the ld.CIT(E ), we are of the considered opinion that the matter likewise requires fresh examination by the ld.CIT(E).A mere violation of FCRA, or other laws does not automatically disqualify a trust unless it directly impedes charitable objectives. The burden shifts to the tax authority to prove materiality, not merely cite a regulatory rejection.

8.1 We, therefore, deem it appropriate to set aside the impugned order passed under section 12AB of the Act to him for adjudication afresh in accordance with law. The ld. CIT(E) would specifically examine the factual submissions made by the assessee, including the contention that only a minor portion of the foreign contribution had been received during the year, the liberty granted by the competent FCRA authority to review the rejection of licence as alsowhether the alleged non- compliance under the FCRA constitutes non-compliance with a law material for achieving the objects of the assessee within the meaning of section 12AB of the Act in the light of stated objects of the trust and the genuineness of its activities in accordance thereof. He must evaluate the contentions of the assessee that no foreign contribution had been received or utilised after cancellation of FCRA registration dated 28.10.2024 and all charitable activities thereafter were carried out

P a g e | 15 ITA No. 6120/Mum/2026 The Salvation Army exclusively through domestic funds. Rejection with liberty to reapply indicates a curable defect, not a permanent disqualification. Tax authorities must distinguish between procedural lapses and substantive violations under FCRA. Accordingly, the ld.CIT(E) would pass order afresh de novo. Needless to state, the assessee would be allowed adequate opportunity of being heard. The grounds of appeal are therefore, allowed for statistical purposes.

Order pronounced in the open court on 06/10/2026.

Sd/- Sd/- (BEENA PILLAI) (PRABHASH SHANKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: म ुंबई/Mumbai ददनाुंक /Date 06.10.2026 Lubhna Shaikh / Steno

आदेश की प्रतितलति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant प्रत्यर्थी / The Respondent. 2. 3. आयकर आयुक्त / CIT

P a g e | 16 ITA No. 6120/Mum/2026 The Salvation Army 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीय अतिकरण/ ITAT, Bench, Mumbai.