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Facts
The assessee, a charitable trust running a school, applied for registration under Section 12AB of the Income Tax Act, 1961. The initial application was rejected by the Ld. CIT(E) on grounds of incomplete documentation and alleged violation of Section 13(1)(c) due to payments to trustees. A subsequent application was also rejected.
Held
The Tribunal condoned the delay in filing the appeal, holding that there was a 'sufficient cause' for the delay. It held that the rejection order did not afford the assessee an adequate opportunity of being heard and that issues of fund application are better examined during assessment proceedings, not at the registration stage.
Key Issues
Whether the rejection of registration under Section 12AB was proper without affording natural justice, and if payments to trustees are a valid ground for rejection at the registration stage.
Sections Cited
12AB, 13(1)(c), 13
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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI ANIKESH BANERJEE
The facts, briefly stated, are that the assessee is a charitable The facts, briefly stated, are that the assessee is a charitable The facts, briefly stated, are that the assessee is a charitable trust engaged in the field of education through the operation of a trust engaged in the field of education through the operation of a trust engaged in the field of education through the operation of a school situated in Santacruz, Mumbai. The assessee was granted school situated in Santacruz, Mumbai. The assessee was granted school situated in Santacruz, Mumbai. The assessee was granted provisional registration under Section 12AB of the Income-tax Act, provisional registration under Section 12AB of the Income provisional registration under Section 12AB of the Income 1961 (hereinafter referred to as “the Act”) vide order dated 1961 (hereinafter referred to as “the Act”) vide order dated 1961 (hereinafter referred to as “the Act”) vide order dated 11.02.2022, which was valid up to Assessment Year 2024–25. 11.02.2022, which was valid up to Assessment Year 2024 11.02.2022, which was valid up to Assessment Year 2024 Subsequently, on 29.09.2022, the assessee filed an application in Subsequently, on 29.09.2022, the assessee filed an application in Subsequently, on 29.09.2022, the assessee filed an application in Form No. 10AB seeking regular registration under Section 12AB of Form No. 10AB seeking regular registration under Section 12AB of Form No. 10AB seeking regular registration under Section 12AB of the Act. However, the application was rejected by the ld CIT(E) vide the Act. However, the application was rejected by the the Act. However, the application was rejected by the order dated 21.03.2023, on the following grounds: order dated 21.03.2023, on the following grounds::
“3. On verification of the application in Form 10AB filed by the assessee, it “3. On verification of the application in Form 10AB filed by the assessee, it “3. On verification of the application in Form 10AB filed by the assessee, it was found that the application was not complete, and all was found that the application was not complete, and all the documents the documents required to be accompanying the application were not furnished. Hence, a required to be accompanying the application were not furnished. Hence, a required to be accompanying the application were not furnished. Hence, a notice notice notice was was was issued issued issued to to to the the the applicant applicant applicant vide vide vide DIN DIN DIN & & & Notice Notice Notice No. No. No. ITBA/EXM/F/EXM43/2022 ITBA/EXM/F/EXM43/2022-23/1048940116(1) dated 19.01.2023 requesting 23/1048940116(1) dated 19.01.2023 requesting the assessee to furnish the complete set of d the assessee to furnish the complete set of documents mentioned in Rule ocuments mentioned in Rule 17A(2). The assessee filed its submission on 01.02.2023.On perusal of the 17A(2). The assessee filed its submission on 01.02.2023.On perusal of the 17A(2). The assessee filed its submission on 01.02.2023.On perusal of the material on record, a showcause notice was also issued vide DIN & Notice No. material on record, a showcause notice was also issued vide DIN & Notice No. material on record, a showcause notice was also issued vide DIN & Notice No. ITBA/EXM/F/EXM43/2022 ITBA/EXM/F/EXM43/2022-23/1050524718(1) dated 08.03.2023 requesting 23/1050524718(1) dated 08.03.2023 requesting the assessee to furnish further requirements to ascertain the genuineness of e to furnish further requirements to ascertain the genuineness of e to furnish further requirements to ascertain the genuineness of the activities carried out by the trust. the activities carried out by the trust.
The Applicant has submitted its reply on 09.03.2023. On perusal of 4. The Applicant has submitted its reply on 09.03.2023. On perusal of 4. The Applicant has submitted its reply on 09.03.2023. On perusal of submission filed by the assessee it is observed that the trust is running school submission filed by the assessee it is observed that the trust is running submission filed by the assessee it is observed that the trust is running named ‘New Model English High School’. One trustee Mr. Rajesh Khairajani is named ‘New Model English High School’. One trustee Mr. Rajesh Khairajani is named ‘New Model English High School’. One trustee Mr. Rajesh Khairajani is paid rent of Rs. 16,80,000/ paid rent of Rs. 16,80,000/- for the premises out of the trust fund. Similarly for the premises out of the trust fund. Similarly other trustees are paid from the trust fund in the form of salary and other trustees are paid from the trust fund in the form of salary and other trustees are paid from the trust fund in the form of salary and professional fees. As th professional fees. As the income of the trust is applied for the benefit of the e income of the trust is applied for the benefit of the trustees it is in violation of Section 13(1 )(c)(ii). trustees it is in violation of Section 13(1 )(c)(ii).
5. In conclusion, this application for grant of registration stands rejected.”
5. In conclusion, this application for grant of registration stands rejected.”
5. In conclusion, this application for grant of registration stands rejected.”
Aggrieved by the aforesaid order, the assessee has preferred Aggrieved by the aforesaid order, the assessee has preferred Aggrieved by the aforesaid order, the assessee has preferred the present appeal. At the outset, the learned counsel for the e present appeal. At the outset, the learned counsel for the e present appeal. At the outset, the learned counsel for the assessee submitted that the appeal has been filed belatedly with a assessee submitted that the appeal has been filed belatedly with a assessee submitted that the appeal has been filed belatedly with a delay of 761 days. In support of the application for condonation of delay of 761 days. In support of the application for condonation of delay of 761 days. In support of the application for condonation of Tejibai Educational Society Tej 3 & 4147/MUM/2025 & 4147/MUM/2025 delay, reliance has been placed on a detailed petition wherein the delay, reliance has been placed on a detailed petition where delay, reliance has been placed on a detailed petition where assessee has explained the sequence of events which occasioned assessee has explained the sequence of events which occasioned assessee has explained the sequence of events which occasioned the delay. The crux of the explanation is that following the rejection the delay. The crux of the explanation is that following the rejection the delay. The crux of the explanation is that following the rejection of the initial application, the assessee was advised to file a fresh of the initial application, the assessee was advised to file a fresh of the initial application, the assessee was advised to file a fresh application, which was also rejected on 04.06. application, which was also rejected on 04.06.2024. Thereafter, 2024. Thereafter, upon professional advice, it was realized that the appeal against the upon professional advice, it was realized that the appeal against the upon professional advice, it was realized that the appeal against the original rejection order dated 21.03.2023 had not been filed, original rejection order dated 21.03.2023 had not been filed, original rejection order dated 21.03.2023 had not been filed, prompting the present appeal. The petitioner contends that the prompting the present appeal. The petitioner contends that the prompting the present appeal. The petitioner contends that the delay was neither deliberate nor actuated b delay was neither deliberate nor actuated by mala fides but arose y mala fides but arose due to an inadvertent omission in good faith, supported by legal due to an inadvertent omission in good faith, supported by legal due to an inadvertent omission in good faith, supported by legal advice. In support of the prayer for condonation, reliance is placed advice. In support of the prayer for condonation, reliance is placed advice. In support of the prayer for condonation, reliance is placed on the judgment of this Court in on the judgment of this Court in Collector, Land Acquisition v. Mst. Collector, Land Acquisition v. Mst. Katiji [(1987) 167 ITR 471 (SC [(1987) 167 ITR 471 (SC)], wherein it was held that technical )], wherein it was held that technical considerations must yield to the cause of substantial justice and considerations must yield to the cause of substantial justice and considerations must yield to the cause of substantial justice and that ordinarily, a litigant does not benefit by delaying legal that ordinarily, a litigant does not benefit by delaying legal that ordinarily, a litigant does not benefit by delaying legal remedies. The relevant part of the petition is reproduced as under: The relevant part of the petition is reproduced as under: The relevant part of the petition is reproduced as under:
“5. Thereafter, the Thereafter, the Applicant filed an application in Form 10AB on Applicant filed an application in Form 10AB on 29.09.2022 seeking final registration under section 12AB of the 29.09.2022 seeking final registration under section 12AB of the 29.09.2022 seeking final registration under section 12AB of the Act. The said application was rejected by the Ld.CIT(E) vide order Act. The said application was rejected by the Ld.CIT(E) vide order Act. The said application was rejected by the Ld.CIT(E) vide order dated 21.03.2023 without appreciating the facts of the case and dated 21.03.2023 without appreciating the facts of the case and dated 21.03.2023 without appreciating the facts of the case and the submission the submissions made by the Applicant.
After considering the above order, the Applicant was advised to After considering the above order, the Applicant was advised to After considering the above order, the Applicant was advised to file a fresh application in Form 10AB seeking registration under file a fresh application in Form 10AB seeking registration under file a fresh application in Form 10AB seeking registration under section 12AB of the Act. While filing the said form, the Applicant, section 12AB of the Act. While filing the said form, the Applicant, section 12AB of the Act. While filing the said form, the Applicant, inadvertently inadvertently mentioned mentioned a a wrong wrong section. section. Therefore, Therefore, the the application was rejected by the Ld.CIT(E) vide order dated application was rejected by the Ld.CIT(E) vide order dated application was rejected by the Ld.CIT(E) vide order dated 04.06.2024 wherein a liberty was granted to the Applicant to file a 04.06.2024 wherein a liberty was granted to the Applicant to file a 04.06.2024 wherein a liberty was granted to the Applicant to file a fresh application before 30.06.2025 in view of CBDT Circular No. 7 fresh application before 30.06.2025 in view of CBDT Circular No. 7 fresh application before 30.06.2025 in view of CBDT Circular No. 7 of 2024, dated 25.04.2024. of 2024, dated 25.04.2024.
Tejibai Educational Society Tej 4 & 4147/MUM/2025 & 4147/MUM/2025
7. The App 7. The Applicant therefore, filed the fresh application on licant therefore, filed the fresh application on 11.06.2024 in form 11.06.2024 in form 10AB which was rejected by the Ld. CIT(E) 10AB which was rejected by the Ld. CIT(E) vide order dated 17.12.2024. vide order dated 17.12.2024. The said rejection order has been The said rejection order has been challenged by the Applicant before the Hon'ble ITAT in ITA challenged by the Applicant before the Hon'ble ITAT in ITA challenged by the Applicant before the Hon'ble ITAT in ITA 1044/Mum/2025 1044/Mum/2025 on on 17.02.2025 17.02.2 025 which which is is pending pending for for adjudication.
In the course of preparation for the appeal before the Hon'ble 8. In the course of preparation for the appeal before the Hon'ble 8. In the course of preparation for the appeal before the Hon'ble ITAT in ITA 1044/Mum/2025, the tax professional realized that ITA 1044/Mum/2025, the tax professional realized that ITA 1044/Mum/2025, the tax professional realized that the Applicant has not filed the appeal against the rejection order the Applicant has not filed the appeal against the rejection order the Applicant has not filed the appeal against the rejection order dated 21.03.2023 befor dated 21.03.2023 before the Hon'ble ITAT. The tax professional e the Hon'ble ITAT. The tax professional was of the view that unless the order dated 21.03.2023 is set was of the view that unless the order dated 21.03.2023 is set was of the view that unless the order dated 21.03.2023 is set aside, the Applicant cannot get relief as it sought before the aside, the Applicant cannot get relief as it sought before the aside, the Applicant cannot get relief as it sought before the Hon'ble ITAT in ITA 1044/Mum/2025. Hon'ble ITAT in ITA 1044/Mum/2025.
Hence, as per the advice sought from the tax profess 9. Hence, as per the advice sought from the tax profess 9. Hence, as per the advice sought from the tax professional, the Applicant is filing the appeal against the order dated 21.03.2023 Applicant is filing the appeal against the order dated 21.03.2023 Applicant is filing the appeal against the order dated 21.03.2023 passed by the Ld.CIT(E) on 18.06.2025. The appeal filed before passed by the Ld.CIT(E) on 18.06.2025. The appeal filed before passed by the Ld.CIT(E) on 18.06.2025. The appeal filed before the Hon'ble ITAT is barred by limitation by 761 days. the Hon'ble ITAT is barred by limitation by 761 days. 10. The Applicant submits that the delay in filing appeal was 10. The Applicant submits that the delay in filing appeal was 10. The Applicant submits that the delay in filing appeal was caused due to circumstances beyond my control and the same is caused due to circumstances beyond my control and the same is caused due to circumstances beyond my control and the same is not deliberate. There was a reasonable cause due to which the not deliberate. There was a reasonable cause due to which the not deliberate. There was a reasonable cause due to which the present appeal got delayed. The Applicant submits that he has present appeal got delayed. The Applicant submits that he has present appeal got delayed. The Applicant submits that he has always acted with due diligence to discharge its statutory duties. always acted with due diligence to discharge its statutory duties. always acted with due diligence to discharge its statutory duties. Thus, the Hon'ble Tribunal may be pleased to condone the delay of s, the Hon'ble Tribunal may be pleased to condone the delay of s, the Hon'ble Tribunal may be pleased to condone the delay of 761 days in filing the present appeal in view of the above 761 days in filing the present appeal in view of the above 761 days in filing the present appeal in view of the above reasonable cause. reasonable cause. 11. The Applicant relies on the observation of the Apex Court in the 11. The Applicant relies on the observation of the Apex Court in the 11. The Applicant relies on the observation of the Apex Court in the case 167 ITR 471 (SC) Collector, Land Acquisiti ITR 471 (SC) Collector, Land Acquisition Vs. Katiji. on Vs. Katiji. "When substantial justice and technical considerations are "When substantial justice and technical considerations are "When substantial justice and technical considerations are pitted against each other, the cause of substantial justice pitted against each other, the cause of substantial justice pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to deserves to be preferred, for the other side cannot claim to deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a have a vested right in injustice being done because of a have a vested right in injustice being done because of a non-deliberate delay." deliberate delay." 12. In view of the above submissions, the Applicant prays that 12. In view of the above submissions, the Applicant prays that 12. In view of the above submissions, the Applicant prays that your honor may to be pleased to consider the facts of the case and your honor may to be pleased to consider the facts of the case and your honor may to be pleased to consider the facts of the case and condone the delay of 761 days condone the delay of 761 days and oblige.” 4. We have considered the rival submissions and the explanation We have considered the rival submissions and the explanation We have considered the rival submissions and the explanation furnished by the assessee. nished by the assessee. As enunciated in a catena of decisions s enunciated in a catena of decisions including Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi
Tejibai Educational Society Tej 5 & 4147/MUM/2025 & 4147/MUM/2025 [(1979) 118 ITR 507 (SC)] and [(1979) 118 ITR 507 (SC)] and Ram Nath Sao v. Gobardhan Sao Ram Nath Sao v. Gobardhan Sao [AIR 2002 SC 1201], makes it abundantly clear that “sufficient cause” 2002 SC 1201], makes it abundantly clear that “sufficient cau 2002 SC 1201], makes it abundantly clear that “sufficient cau must receive a liberal and purposive interpretation in order to must receive a liberal and purposive interpretation in order to must receive a liberal and purposive interpretation in order to advance the cause of justice, particularly where no element of wilful advance the cause of justice, particularly where no element of wilful advance the cause of justice, particularly where no element of wilful default, negligence, or mala fides is discernible. default, negligence, or mala fides is discernible.
4.1 Having regard to the totality of the facts and circumstances of Having regard to the totality of the facts and circumstances of Having regard to the totality of the facts and circumstances of the case, we are satisfied that the delay in filing the present appeal the case, we are satisfied that the delay in filing the present appeal the case, we are satisfied that the delay in filing the present appeal was occasioned by bona fide reasons and constitutes “sufficient was occasioned by bona fide reasons and constitutes “sufficient was occasioned by bona fide reasons and constitutes “sufficient cause” within the meaning of law. Accordingly, the delay in filing cause” within the meaning of law. Accordingly, the delay in filing cause” within the meaning of law. Accordingly, the delay in filing the appeal is hereby condoned and the appeal is admitted for the appeal is hereby condoned and the appeal is admit the appeal is hereby condoned and the appeal is admit adjudication.
Turning to the merits of the matter, the principal grievance of Turning to the merits of the matter, the principal grievance of Turning to the merits of the matter, the principal grievance of the assessee pertains to the rejection of registration on the ground the assessee pertains to the rejection of registration on the ground the assessee pertains to the rejection of registration on the ground that payments were made to trustees, allegedly in violation of that payments were made to trustees, allegedly in violation of that payments were made to trustees, allegedly in violation of Section 13(1)(c) of the Act. The learn Section 13(1)(c) of the Act. The learned counsel for the assessee ed counsel for the assessee submits that such payments, including rent and remuneration, submits that such payments, including rent and remuneration, submits that such payments, including rent and remuneration, were made in furtherance of the trust’s educational objects and were made in furtherance of the trust’s educational objects and were made in furtherance of the trust’s educational objects and were below fair market value. It is further submitted that the Ld. were below fair market value. It is further submitted that the Ld. were below fair market value. It is further submitted that the Ld. CIT(E) neither examined the matter o CIT(E) neither examined the matter objectively nor granted an bjectively nor granted an opportunity of being heard before arriving at the adverse finding. opportunity of being heard before arriving at the adverse finding. opportunity of being heard before arriving at the adverse finding. Additionally, it is argued that the question of violation of Section 13 Additionally, it is argued that the question of violation of Section 13 Additionally, it is argued that the question of violation of Section 13 pertains to the domain of assessment proceedings and not the stage pertains to the domain of assessment proceedings and not the stage pertains to the domain of assessment proceedings and not the stage of registration under Se of registration under Section 12AB.
Tejibai Educational Society Tej 6 & 4147/MUM/2025 & 4147/MUM/2025 5.1 We find merit in the submission that before invoking the We find merit in the submission that before invoking the We find merit in the submission that before invoking the alleged violation of Section 13(1)(c) of the Act as a ground for alleged violation of Section 13(1)(c) of the Act as a ground for alleged violation of Section 13(1)(c) of the Act as a ground for rejection of registration, the principles of natural justice required rejection of registration, the principles of natural justice required rejection of registration, the principles of natural justice required that the assessee be granted a fair and adequate opportunity of that the assessee be granted a fair and adequate that the assessee be granted a fair and adequate being heard. Admittedly, the order passed by the Ld. CIT(E) does being heard. Admittedly, the order passed by the Ld. CIT(E) does being heard. Admittedly, the order passed by the Ld. CIT(E) does not reflect any such opportunity having been granted. Further, the not reflect any such opportunity having been granted. Further, the not reflect any such opportunity having been granted. Further, the issue of actual application of funds for the benefit of specified issue of actual application of funds for the benefit of specified issue of actual application of funds for the benefit of specified persons may, in appropriate cases, be more persons may, in appropriate cases, be more appropriately examined appropriately examined during assessment proceedings rather than at the threshold stage during assessment proceedings rather than at the threshold stage during assessment proceedings rather than at the threshold stage of registration under Section 12AB, unless such violation is glaring of registration under Section 12AB, unless such violation is glaring of registration under Section 12AB, unless such violation is glaring and irrefutable on record. and irrefutable on record.
5.2 In view of the above, we consider it just and proper to set aside In view of the above, we consider it just and proper to set aside In view of the above, we consider it just and proper to set aside the impugned order dated 21.03.2023 and remand the matter to he impugned order dated 21.03.2023 and remand the matter to he impugned order dated 21.03.2023 and remand the matter to the file of the Ld. CIT(E) for fresh adjudication. The Ld. CIT(E) shall the file of the Ld. CIT(E) for fresh adjudication. The Ld. CIT(E) shall the file of the Ld. CIT(E) for fresh adjudication. The Ld. CIT(E) shall consider the submissions of the assessee afresh and decide the consider the submissions of the assessee afresh and decide the consider the submissions of the assessee afresh and decide the application in accordance with law, after affording an effective application in accordance with law, after affording an effect application in accordance with law, after affording an effect opportunity of being heard. The Ld. CIT(E) shall also consider opportunity of being heard. The Ld. CIT(E) shall also consider opportunity of being heard. The Ld. CIT(E) shall also consider whether, at the stage of registration, the inquiry should be confined whether, at the stage of registration, the inquiry should be confined whether, at the stage of registration, the inquiry should be confined to the genuineness of the objects and activities of the trust as to the genuineness of the objects and activities of the trust as to the genuineness of the objects and activities of the trust as mandated under Section 12AB, and whether issues relating to mandated under Section 12AB, and whether issues relati mandated under Section 12AB, and whether issues relati application of income fall outside the scope of registration. application of income fall outside the scope of registration. application of income fall outside the scope of registration.
5.3 Accordingly, the grounds raised by the assessee in the grounds raised by the assessee in the grounds raised by the assessee in ITA No. 4147/Mum/2025 are allowed for statistical purposes. 4147/Mum/2025 are allowed for statistical purposes. 4147/Mum/2025 are allowed for statistical purposes.
Tejibai Educational Society Tej 7 & 4147/MUM/2025 & 4147/MUM/2025 has been filed against The appeal in ITA No. 1044/Mum/2025 has been filed against The appeal in ITA No. 1044/Mum/2025 has been filed against rejection order dated 17/12/2024 rder dated 17/12/2024, wherein the another application in the another application of the assessee seeking registration under section 12AB of the Act, of the assessee seeking registration under section 12AB of the of the assessee seeking registration under section 12AB of the filed as revised application under the extended window of the time filed as revised application under the extended window of the time filed as revised application under the extended window of the time period allowed by the Central Board of Direct Taxes (CBDT), was period allowed by the Central Board of Direct Taxes period allowed by the Central Board of Direct Taxes rejected as not maintainable. rejected as not maintainable. Since we have already restored the Since we have already restored the appeal of the assessee against rejection of the original application appeal of the assessee against rejection of the original application appeal of the assessee against rejection of the original application for seeking regular registration while adjudicating the appeal in IT for seeking regular registration while adjudicating the appeal in IT for seeking regular registration while adjudicating the appeal in IT No. 4147/Mum/2025, thus the present appe No. 4147/Mum/2025, thus the present appeal is not required to be al is not required to be adjudicated and rendered infructuous. Accordingly, this appeal of adjudicated and rendered infructuous. Accordingly, this appeal of adjudicated and rendered infructuous. Accordingly, this appeal of the assessee is dismissed as infructuous. the assessee is dismissed as infructuous.
In In In the the the result, result, result, the the the appeal appeal appeal of of of the the the assessee assessee assessee in in in IT IT is allowed for statistical purposes, whereas No.4147/Mum/2025 is allowed for statistical purposes, whereas No.4147/Mum/2025 is allowed for statistical purposes, whereas the appeal in is dismissed. l in ITA No. 1044/Mum/2025 is dismissed. l in ITA No. 1044/Mum/2025 is dismissed.