March 11, 2026 : In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has held that alleged diversion of income for the benefit of specified persons under Section 13(1)(c) of the Income Tax Act cannot, by itself, justify cancellation of a charitable trust’s registration under Section 12AB(4).
The decision came in the case of Richmond Educational Society vs DCIT (ITA No. 4779/Del/2025), where the Tribunal set aside the order of the Principal Commissioner of Income Tax (Central), Kanpur, who had cancelled the society’s registration retrospectively.
The Tribunal clarified that post the amendments introduced by the Finance Act, 2022, such violations no longer fall within the scope of “specified violations” for cancellation of registration. Instead, the law now provides a distinct consequence—taxation of such income at a special rate of 30% under Section 115BBI.
The Bench comprising Judicial Member Challa Nagendra Prasad and Accountant Member M. Balaganesh emphasized that the statutory framework has been consciously redesigned. While earlier such violations could impact registration, the amended scheme separates registration from taxability consequences. Accordingly, any benefit extended to related parties may lead to denial of exemption only to that extent, but not cancellation of registration.
On jurisdiction, the Tribunal held that only the Commissioner of Income Tax (Exemptions) is empowered to grant or cancel registration. A mere transfer of jurisdiction under Section 127 does not authorize a Principal Commissioner (Central) to exercise such powers, rendering the impugned action without jurisdiction.
The Tribunal also ruled against retrospective application of Section 12AB(4). It noted that the concept of “specified violation” was introduced with effect from April 1, 2022, and cannot be applied to earlier assessment years in the absence of express legislative intent.
Further, the Bench found serious procedural lapses. The show cause notices issued to the assessee were vague and failed to specify the exact clause allegedly violated under Section 12AB(4). This, the Tribunal held, violated principles of natural justice and vitiated the entire proceedings.
On merits, the Tribunal drew a clear distinction between “activities” and “transactions.” It observed that registration can only be cancelled if the core activities of the trust are non-genuine or not aligned with its objects. Isolated financial irregularities or disputed transactions cannot lead to such a conclusion.
In the present case, the society was engaged in running educational institutions—an undisputed charitable activity. The allegations by the tax department pertained to specific transactions such as salary payments, alleged cash dealings, and advances. However, there was no evidence to suggest that the society had deviated from its primary object of imparting education.
The Tribunal held that such issues may be examined during assessment proceedings under Sections 11, 13, or 115BBI, but do not justify cancellation of registration. It reiterated that registration is merely an enabling provision, and exemption eligibility must be assessed year-wise.
Accordingly, the ITAT allowed the appeal and set aside the cancellation order, holding that the alleged violations did not constitute “specified violations” under Section 12AB(4).
