ANNAI TRUST,TIRUCHIRAPPALLI vs. COMMISSIONER OF INCOME TAX (EXEMPTION), CHENNAI

आयकरअपीलीयअधिकरण,‘A ’न्यायपीठ,चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI श्रीएसएसविश्वनेत्ररवि, न्याविकसदस्यएवंश्रीएस.आर.रघुनाथा, लेखासदस्यकेसमक्ष BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./ITA No.1114/Chny/2026 ननिाारणवर्ा / Assessment Year: 2027-28 Annai Trust The Commissioner of Income- Malliyampattu Post vs. tax (Exemptions) Konarsathiram Road Chennai. Somarasampettai Tiruchirappalli – 620 102. (प्रत्यर्थी/Respondent) [PAN:AAATA7520K] (अपीलार्थी/Appellant) अपीलार्थीकीओरसे/Appellant by : Shri. R.Santhanu, CA प्रत्यर्थीकीओरसे/Respondent by : Ms.R.Anita, CIT सुनवाईकीतारीख/Date of Hearing : 21.08.2026 घोर्णाकीतारीख/Date of Pronouncement : 27.10.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : The present appeal has been preferred by the assessee against the order dated 29.12.2025 passed by the Learned Commissioner of Income Tax (Exemptions), Chennai [hereinafter referred to as “the Ld.CIT(E)”], rejecting the application of the assessee for renewal of registration u/s.12AB of the Income- tax Act, 1961 (hereinafter referred to as “the Act”), relevant to the Assessment Year (AY) 2027-28.

:-2-: ITA. No.1114/Chny/2026 2. The brief facts of the case are that the assessee, Annai Trust, is a public charitable trust engaged in the socio-economic empowerment of poor and marginalised women through the promotion of Self-Help Groups (SHGs) and the facilitation of their access to institutional credit. One of the objects of the trust, as set out in para 16.8 of the trust deed, is “to motivate people to form self help groups and co-operative societies and encourage them to identify and utilize locally available resources for their development and community.” The trust was granted registration u/s.12AB of the Act, which was valid till 31.03.2026. Accordingly, on 19.06.2025, the trust filed an application in Form No.10AB u/s.12A(1)(ac)(ii) of the Act for renewal of the registration.

Particulars FY 2021-22 (Rs.) FY 2022-23 (Rs.) FY 2023-24 (Rs.) Gross income 53,40,152 60,49,754 65,37,324 Surplus / (Deficit) (23,490) 95,697 2,23,509

:-3-: ITA. No.1114/Chny/2026 receipts show that the activity is carried on in a systematic and organised manner with a clear nexus between the services rendered and the income earned (para 4.2.3); that about 69% of the total receipts consist of bank incentives, so that the trust primarily functions as an intermediary (para 4.2.4); that its functions are akin to those of a Business Facilitator or service provider acting as an agent of the bank (para 4.2.5); that its income is consideration for services, not voluntary contributions or charitable grants (para 4.2.6); that the dominant purpose test is not satisfied (para 4.2.7); that the activities do not fall under “advancement of any other object of general public utility”, relying on the decision of the Hon’ble Gujarat High Court in CIT v. Ahmedabad Rana Caste Association (para 4.2.8); and that, the receipts from such activities exceeding 20% of the total receipts, the proviso to section 2(15) of the Act is attracted (paras 4.2.10 and 4.2.11).

“1. General Ground 1.1 The order passed by the learned Commissioner of Income Tax (Exemptions), Chennai under section 12AB rejecting the application for renewal of registration under section 12A(1)(ac) (ii) is contrary to law, facts, and circumstances of the case and is liable to be quashed. 2. Jurisdictional Error in Invoking Proviso to Section 2(15) 2.1 The learned CIT(E) erred in law in rejecting the renewal application by invoking the proviso to Section 2(15) of the Income-tax Act, 1961, alleging that the Appellant is engaged in activities in the nature of trade, commerce or business. 2.2 The learned CIT(E) failed to appreciate that at the stage of grant or renewal of registration under Section 12AB, the scope of enquiry is confined to: (a) the objects of the Trust; and (b) the genuineness of activities carried on. 2.3 The learned CIT(E) erred in travelling beyond the limited scope of Section 12AB by examining the applicability of the proviso to Section 2(15), which is relevant only at the stage of assessment and computation of exemption under Sections 11 and 12. 3. Failure to Appreciate Charitable Objects

:-4-: ITA. No.1114/Chny/2026 3.1 The learned CIT(E) failed to appreciate that the objects of the Trust fall within the definition of "charitable purpose" as defined under Section 2(15) of the Act. 4. No Finding on Non-Genuineness of Activities 4.1 The learned CIT(E) has not recorded any finding that: the activities of the Trust are not genuine; or the activities are not being carried out in accordance with its stated objects. 4.2 In the absence of such finding, rejection of renewal is arbitrary, illegal and unsustainable in law. 5. Misapplication of Proviso to Section 2(15) 5.1 The learned CIT(E) erred in concluding that the Trust is hit by the proviso to Section 2(15) without establishing that: the activities are carried out with a profit motive; and such activities constitute independent business activity divorced from charitable objects. 5.2 The learned CIT(E) failed to appreciate that receipts arising from activities incidental to the attainment of objects do not ipso facto amount to trade, commerce or business. 6. The appellant craves leave to amend, alter or delete any of the above grounds of appeal.”

:-5-: ITA. No.1114/Chny/2026 and they are prohibited from charging any fee to the customers; the trust is therefore precluded from recovering its costs from the beneficiaries, and the service charges from the bank are only a cost-recovery mechanism. Relying on the decision of the Hon’ble Supreme Court in ACIT (Exemptions) v. Ahmedabad Urban Development Authority (2022) 449 ITR 1 (SC), it was submitted that the receipt of fees at cost or with a nominal mark-up does not make an activity one in the nature of business, and that the trust, having a deficit in FY 2021-22 and only marginal surpluses thereafter, even before depreciation, has no profit motive. The proportion of the bank receipts in the total receipts and the 20% limit in the proviso to section 2(15) were stated to be relevant only if the activity is first found to be in the nature of business. It was further submitted that the decision of the Gujarat High Court in Ahmedabad Rana Caste Association relied upon by the Ld.CIT(E) was reversed by the Hon’ble Supreme Court, and that, in any event, the beneficiaries of the trust are poor women irrespective of caste or community. The ld.AR also relied on the order of the Chennai ‘A’ Bench of the Tribunal in Blaze Trust v. CIT (Exemptions) [(2026) 185 taxmann.com 536 (Chennai-Trib.), order dated 07.04.2026], stated to have been rendered on similar facts, and pointed out that the trust had earlier been granted registration u/s.12AB of the Act for the same activities, which have continued without any change. 7. Per contra, the ld.DR supported the order of the Ld.CIT(E) and prayed that the same be upheld. 8. We have heard the rival submissions, perused the order of the Ld.CIT(E) and carefully examined the material available on record. The question for our consideration is whether the Ld.CIT(E) was justified in rejecting the application of the trust for renewal of registration on the ground that its activities are in the nature of trade, commerce or business. 9. On an application u/s.12A(1)(ac)(ii) of the Act, s.12AB(1)(b) requires the Ld.CIT(E) to satisfy himself about the genuineness of the activities of the trust

:-6-: ITA. No.1114/Chny/2026 and its compliance with such requirements of any other law as are material for the purpose of achieving its objects. We find that the Ld.CIT(E) has neither held that the objects of the trust are not charitable nor doubted that the activities described by the trust are actually carried on. The trust was earlier registered u/s.12AB of the Act, and it is not the case of the Ld.CIT(E) that its objects or activities have since changed. The rejection rests entirely on the view that the activities are in the nature of trade, commerce or business, attracting the proviso to section 2(15) of the Act. 10. The proviso to section 2(15) of the Act, by its terms, provides that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce or business, or of rendering any service in relation thereto, for a cess, fee or other consideration, subject to the receipts from such activity not exceeding 20% of the total receipts. The proviso is confined to the residuary limb of “advancement of any other object of general public utility”, and does not apply to the limbs of relief of the poor, education, medical relief and the other specified purposes. The first question, therefore, is whether the activities of the trust fall within “relief of the poor”. 11. The activities of the trust consist of motivating poor and marginalised women to form SHGs, nurturing those groups, educating their members on savings, money management and debt, enabling them to obtain credit from a bank in place of informal moneylenders, and monitoring and handholding the groups thereafter. The beneficiaries are women who are poor and economically vulnerable, identified by their economic condition and not by any personal tie, and the object and effect of the activities is to improve their economic condition. These activities are directed at the economic upliftment of the poor and, in our view, fall within the expression “relief of the poor” in section 2(15) of the Act. That the trust achieves this object by linking the groups with a bank, and is compensated for its work by the bank, does not alter the character of what it does for the beneficiaries. Since the activities fall within “relief of the poor”, the

:-7-: ITA. No.1114/Chny/2026 proviso to section 2(15) of the Act, including the limit of 20% of the total receipts, is not attracted, and the proportion of the bank receipts in the total receipts, on which the Ld.CIT(E) has placed considerable emphasis, is not determinative. 12. Even if the activities were to be viewed as falling under the residuary limb, we find no basis to hold that they are in the nature of trade, commerce or business. The Hon’ble Supreme Court in ACIT (Exemptions) v. Ahmedabad Urban Development Authority (2022) 449 ITR 1 (SC) has held that, for an entity advancing an object of general public utility, charging amounts at cost or with a nominal mark-up over cost would not be an activity in the nature of trade, commerce or business, and that it would be so only where the charges are markedly or significantly above the cost incurred. In the present case, the trust incurred a deficit of Rs.23,490/- in FY 2021-22, and its surplus in FY 2022-23 and FY 2023-24 was Rs.95,697/- and Rs.2,23,509/-, i.e., about 1.6% and 3.4% of its gross income respectively, even before depreciation. The service charges are paid by the bank, and the trust does not charge the beneficiary women for its services; the regulatory framework of the Reserve Bank of India for the engagement of NGOs in financial inclusion contemplates that the bank pays a reasonable fee and that the intermediary does not charge the customers. There is no material on record to show that the service charges are significantly in excess of the cost of the activities, or that any part of the income has been distributed to or applied for the benefit of the trustees. The mere fact that the activities are carried on systematically, and that there is a nexus between the services rendered and the fee received, does not by itself make them commercial, since any organised charitable activity which is funded by fees would display these features. 13. As regards the reliance placed by the Ld.CIT(E) on the decision of the Hon’ble Gujarat High Court in CIT v. Ahmedabad Rana Caste Association, we find, as pointed out by the ld.AR, that the Hon’ble Supreme Court reversed the view of the High Court that the beneficiaries of that association did not constitute a section of the public. In any event, the beneficiaries of the present trust are

:-8-: ITA. No.1114/Chny/2026 poor women, irrespective of caste or community, and the decision has no application to the facts of the case. Having arrived at our conclusion on the basis of the statutory provisions and the decision of the Hon’ble Supreme Court in Ahmedabad Urban Development Authority (supra), we do not find it necessary to examine the order of the co-ordinate Bench relied upon by the ld.AR. 14. In view of the above, we hold that the activities of the trust fall within “relief of the poor” in section 2(15) of the Act and are not in the nature of trade, commerce or business, and that the Ld.CIT(E) was not justified in rejecting the application for renewal of registration. Accordingly, we set aside the order of the Ld.CIT(E) dated 29.12.2025 and direct the Ld.CIT(E) to grant registration to the trust u/s.12AB of the Act on its application u/s.12A(1)(ac)(ii) of the Act, for the period prescribed under the Act commencing from the AY 2027-28. The Revenue shall be at liberty to examine, in the assessment proceedings of the respective years, whether the income of the trust has been applied for its objects and whether the other conditions for exemption u/s.11 of the Act are satisfied. The grounds of appeal of the trust are allowed. 15. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 27th October, 2026 at Chennai.

Sd/- Sd/- (एसएसविश्िनेत्ररवि) (एस. आर. रघुनार्था) (S. R. RAGHUNATHA) (S.S. VISWANETHRA RAVI) लेखासदस्य/Accountant Member न्याययक सदस्य/Judicial Member चेन्नई/Chennai, ददनांक/Dated, the 27th October, 2026 Devadas

:-9-: ITA. No.1114/Chny/2026 आदेश की प्रतिलिपि अग्रेपिि/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. ववभागीय प्रनतननधि/DR 5. गार्ा फाईल/GF DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.10.28 17:52:19 +05'30'