Section 12AB(4) of the Income Tax Act
Income-tax Act, 2025: ss.332–355
Section 12AB(4) falls under section 12AB of the Income-tax Act, 1961, which corresponds to sections 332 to 355 of the Income-tax Act, 2025, the provisions on registered non-profit organisations.
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 12AB(4) is Tamil Nadu Cricket Association v. Director of Income Tax (Exemptions) (360 ITR 633), cited in 40 of the 195 judgments on BharatTax that turn on this section.
Leading authorities on Section 12AB(4)
Violation of the conditions under Section 13 of the Income Tax Act does not automatically lead to the conclusion that the activities of a trust are not in accordance with its objects. The revenue must demonstrate that the dominant activities are in the nature of trade, commerce, or business, not merely based on the volume of receipts.
While the strict rule of res judicata does not apply to income tax proceedings, the revenue cannot adopt a contradictory stance in subsequent years if the facts and circumstances remain identical. Decisions made in earlier years should be respected, and the position of the tax authorities should not be arbitrarily changed.
Cancellation of registration granted under section 12A/12AA/12AB cannot operate retrospectively, as amendments to these sections are prospective unless explicitly stated otherwise by Parliament.
At the stage of registration under Section 12AA, the extent and nature of activities are not required to be examined; this is to be examined during assessment proceedings.
The tax law applicable is the law in force during the assessment year, unless expressly provided or implied otherwise. This principle dictates which version of the law governs tax matters for a particular assessment period.
Where only a part of a trust's income is diverted in contravention of Section 13(1)(c) or 13(1)(d), only that diverted portion of the income is taxable, not the entire income. This means tax should be levied on the relevant income or a part of it, potentially at the maximum marginal rate, rather than denying exemption under Section 11 for the entire income.
Income applied to purposes outside India can still qualify for exemption under Section 11(1) if permission is granted by the Board. The existence of objects for carrying out activities outside India does not, in itself, prevent a trust from obtaining registration under Section 12AB.
Registration granted to a trust cannot be cancelled retrospectively. The assessing officer must provide a specific opportunity to the assessee before cancelling registration.
Expenditure on salaries and miscellaneous expenses for carrying out the trust's objectives is considered an application of income for charitable purposes. Liabilities for employee benefits, such as gratuity and leave encashment, are accrued liabilities even if payable in the future.
Payment of taxes under the Voluntary Disclosure of Income Scheme (VDIS) is to be treated as an application of income for trust purposes. The Gujarat High Court in CIT v. Ganga Charity Trust Fund (1986) 162 ITR 612 (Guj) followed the Madras High Court in Commissioner of Income Tax v. Janaki Ammal Ayya Nadar Trust (1985) 153 ITR 159 and the Andhra Pradesh High Court in Munna Lal and Sons v. CIT (1991) 187 ITR 378.
