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Facts
The assessee's application for registration under Section 12A was rejected by the CIT(Exemptions) primarily because the majority of its expenses were incurred on event management rather than its stated charitable objectives, leading to less than 20% of receipts being applied for charitable purposes. The CIT(E) also questioned the nature of the trust's activities, considering them not to be of general public utility.
Held
The Tribunal held that the CIT(E)'s rejection was based on an examination of expenditure patterns, which is a matter for assessment, not registration. Crucially, the Tribunal found a violation of the principles of natural justice as the assessee was not afforded a reasonable opportunity of being heard regarding the specific grounds for rejection. The matter was remanded for fresh consideration.
Key Issues
Whether the rejection of Section 12A registration was justified based on expenditure patterns and without affording natural justice to the assessee, and if the CIT(E) correctly categorized the trust's objects.
Sections Cited
12A, 12AB, 2(15), 11
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
PER VIJAY PAL RAO, VICE PRESIDENT :
This appeal by the Assessee is directed against the Order dated 27.06.2025 of the learned Commissioner of Income Tax-(Exemptions), Hyderabad, whereby the 2 ITA.No.1173/Hyd./2025 application of the assessee for registration u/sec.12A was rejected.
The assessee has raised the following grounds of appeal:
1. “The order of Ld. CIT(E) rejecting the application for registration of appellant trust filed u/s. 12A(1)(ac)(iii) on the sole irrelevant ground that only 20% of it's receipts were spent towards its objectives is against the facts and provisions of law.
The CIT(E) erroneously concluded that 20% of total receipts were spent for its object of relief of poor and medical without including donations raising charity program expenses.
The CIT(E) ought to have seen that the appellant organized a fundraising program and incurred a sum of Rs.18,72,067 against the total fund raised by way of donations of Rs.28,46,580. The CIT(E) ought to have appreciated that the trust has spent purely 76.98% of the net voluntary receipt of donations.
The CIT(E) ought to have appreciated the fact that due to heavy rains during the program the expected donations could not be raised.
In the facts and circumstances of the case the CIT(E) erroneously held that the activities of the trust are not objects of general public utility based on percentage basis which is unauthorized in law and ignoring significant amount applied for charitable activities.
The order passed by Ld. CIT(E) rejecting application is invalid without affording a reasonable opportunity of being heard though
3 ITA.No.1173/Hyd./2025 it is mandatorily required as envisaged in the section 12AB(b)(ii) (item B).
The Ld. CIT(E) ought to have granted the registration when satisfied with its objects and genuineness of activities of charity else it would cause severe hardship.
The CIT(E) have ought to have appreciated that criteria of percentage of spending can be verified as per section 11 during assessment and is not a ground for registration.
In view of above grounds and other grounds to be submitted at the time of hearing, appellant prays for direction for granting Registration u/s. 12AB or pass any other order as the Hon'ble ITAT deems fit.”
The learned Authorised Representative of the Assessee has submitted that the learned CIT(E) has rejected the application of the assessee by giving the reasons that on examination of the financials of the assessee, majority of the expenses were incurred towards event expenses and very meagre amount was spent towards its objectives like relief of poor and medical relief. Further, the learned CIT(E) has erred in assuming the objects of the assessee trust as General Public Utility [in short “GPU”] whereas as per the objects of the trust it falls in the main category of relief of poor and not under the category of GPU as per sec.2(15) of the Act. Thus,
4 ITA.No.1173/Hyd./2025 the learned CIT(E) has rejected the application on assumption of wrong facts. He has further contended that at the time of grant of registration u/sec.12A the expenditure incurred by the assessee cannot be a ground for rejection as the same is a subject matter of assessment. In support of his contention, he has relied upon the following Judgments:
Sewa Simran Trust vs. CIT [2022] 185 TR (A) 502 (Amr-Trib).
Adarsha Vidyanidhi Trust vs. CIT [2007] 292 ITR 465 (Ker.)
On the other hand, the learned DR has submitted that the assessee has incurred the expenditure towards sponsoring the TV programme/event expenses, which is not an act of charitable. The learned CIT(E) has specifically pointed out that the majority of the expenditure was incurred towards the said event and only less than 20% of the receipts were applied for objects of the assessee like it was of relief of poor and medical relief etc. The learned CIT(E) has also referred the financials of the assessee including income and 5 ITA.No.1173/Hyd./2025 expenditure account wherein the assessee has booked the expenditure, and major expenditure is incurred towards the event on the SONY TV Entertainment Channel. The learned DR has relied upon the impugned Order of the learned CIT(E).
We have considered the rival submissions as well as the relevant material on record. The learned CIT(E) while passing the impugned order has considered the income and expenditure account of the assessee and noted that the major expenditure has been incurred by the assessee towards sponsoring the event on the SONY Entertainment TV which is not in charitable in nature. The relevant findings of the learned CIT(E) in Para no.4.3 is as under :
“4.3. Activities as per financials:
The applicant trust was requested to provide certified copies of financials for the last three years. In response, the trust had submitted financials and the same are verified.
The extract of the relevant financial statements is as under:
6 ITA.No.1173/Hyd./2025
On examination of the above financials, it is seen that majority of the expenses of the trust are event expenses only. The said trust/foundation has spent very meager amount constituting less than 20% of its receipts towards its objectives like relief of poor and medical relief etc. Hence, it cannot be said that they are into charitable.
Hence, from the above discussion, it is seen that the activities of the trust cannot be held as advancement of any other object of general public utility and ultimately not a charitable one as defined in Section 2(15) of the Income Tax Act.
7 ITA.No.1173/Hyd./2025 5.1. It is pertinent to note that the learned CIT(E) has not questioned the charitable nature of the objects of the assessee trust but has formed its opinion only on the basis of expenditure incurred by the assessee during the year under consideration. The assessee has submitted that sponsoring of the programme is part of its campaign which in turn has resulted the donation received by the assessee. It is pertinent to note that the learned CIT(E) has also considered the objects of the assessee as GPU whereas as per the objects of the trust the primary objects are relief to poor by way of education and medical relief as well as advancement of any other object of GPU. For ready reference Clause-6 of the Trust Deed containing the objects of the trust is reproduced as under:
OBJECTS OF THE TRUST: “6.
The Trustees shall hold and stand possessed of the above said trust fund upon Trust to receive the interest, dividends, rents, profits and other receipts like gifts, donations, contributions, ese. to the corpus of the trust whether in cash or kind, thereof and thereon and subject to the Trust of these presents and to apply the said interest, dividend rents, profits and other income,
8 ITA.No.1173/Hyd./2025 hereinafter called the "said income" at their discretion to apply the whole or any part thereof for such public charitable purposes including the relief of the poor, education medical relief and advancement of any other object of general public utility not involving carrying on of any activity for profit and as defined under the Income- tax Act, 1961 and as amended from time to time, at such time or times and in such manner and in such proportions as the Trustees may in their absolute discretion think it
Subject to and without prejudice to the generality of the foregoing objects or purposes, the Trustees may apply the income of the Trust Fund as well as any part or parts of the Trust Fund in or towards anyone or more of following objects to the exclusion of other's of them in such proportion and manner in all respects the Trustees may in their absolute discretion think proper: a. The spread and promotion of education or leaming in all its branches including:
(i) Establishment and/or acquisition and maintenance or support of schools, colleges, vidyapiths study centres, research institutions or educational institutes. (ii) Establishment and/or support of professorships. fellowships, Lecturer-ships, Scholarships and 9 ITA.No.1173/Hyd./2025 prizes at any Schools, Colleges or other educational Institutions: (iii) Establishment and/or maintenance of Hotels and for boarding houses and grants of free boarding and lodging to poor deserving students. (iv) Payment of fees, scholarships, cost of books and stationery and boarding charges to deserving students. b. Affording of medical relief including:- (i) (i) Grant of subscription and donations to Hospitals, Dispensaries, Convalescent Homes, Asylums, Nursing Homes, Orphanages. Sanatoriums and other public institutions for administering relief to the needy persons. (ii) Grant of medical help to the poor and grant of medical help to deserving persons of any community during epidemic, famine, flood or any unforeseen calamity or war or warlike operations. (iii) Establishment and maintenance of Hospitals Dispensaries etc. for medical relief. c. Distribution of food and clothing to the poor and the needy: d. To help needy by way of financial assistance, by imparting training, providing necessary guidance and assistance in any activity or vocation which 10 ITA.No.1173/Hyd./2025 may help a person to be self-employed or self- supporting. e. To spread and promote moral and spiritual philosophies by arranging talks, lecturers, meetings, by printing and publishing books and other literatures and by carrying out other activities in connection therewith. f. To help and provide clothing, medicine, food etc. in times of famine, floods, drought, epidemics or any other natural calamity, as also to protect and preserve livestock during such natural calamities. g. Subscription, contributions and/or donations to any public fund or institutions established for the promotion of public charitable objections.”
5.2. Therefore, ignoring the specific objects being relief to poor, education and medical relief to the poor and picking- up the residual part of the objects being advancement of any other objects of GPU is arbitrary on the part of the learned CIT(E) without giving a show cause notice and opportunity of hearing to the assessee before rejecting the application on these grounds. The Hon’ble Kerala High Court in the case of Adarsha Vidyanidhi Trust vs. CIT (supra) while considering
11 ITA.No.1173/Hyd./2025 the rejection of the application of the assessee for registration u/sec.12A has observed in Para no.4 as under:
“4. Heard the learned Counsel on both sides. While judicially reviewing Ext.P6, this Court is not concerned with the decision, but the decision-making process. Going by that principle, I feel that the impugned decision is vitiated. The ground which has not been put to the petitioner, and which does not find a place in the impugned order has been relied on, as evident from the counter-affidavit, to reject the petitioner's application. The counter-affidavit would show that some enquiry was held behind the back of the petitioner and reliance was made on it to reject its application. So, the order has been passed in violation of the principles of natural justice. Accordingly, Ext.P6 is quashed. The respondent is directed to reconsider Ext.P2 application. The statement contained in the counter-affidavit shall be treated as the objection of the respondent to grant registration. The petitioner may file its response to that objection within one month from today. The respondent shall thereafter afford an opportunity of being heard to the petitioner and pass fresh orders taking into account the contentions of the petitioner. Since the matter is remitted, I am not expressing any opinion regarding the contentions raised by both sides relying on the decisions of Allahabad and 12 ITA.No.1173/Hyd./2025 Madras High Courts and also the decision of the apex Court.”
Therefore, the basis for rejection of registration was an enquiry conducted behind the back of the assessee was held by the Hon’ble Kerala High Court as violation of the principles of natural justice. In the case in hand, the learned CIT(E) has raised various questions about the charitable nature of the objects as well as the activity of the assessee, without confronting the assessee and, therefore, there is a violation of principles of natural justice. Accordingly, in the facts and circumstances of the case, the impugned order of the learned CIT(E) is set-aside and the matter is remanded to the record of the learned CIT(E) for reconsideration of the application of the assessee for registration u/sec.12A of the Income Tax Act, 1961, after giving an appropriate opportunity of being heard to the assessee.
In the result, appeal of the Assessee is allowed for statistical purposes.
13 ITA.No.1173/Hyd./2025 Order pronounced in the open Court on 09.01.2026.