The Income Tax Appellate Tribunal, Jodhpur Bench, affirmed that a charitable trust’s application for registration under section 12AB cannot be dismissed merely because its constitutional document lacks a dissolution clause or its objects appear to benefit a particular religious community. The Tribunal also clarified that section 13(1)(b) of the Act is applicable only at the assessment stage, not at the grant of registration.
Background & Facts
The Dispute
The assessee, Shree Digamber Jain Udasin CIT(Exemption), Jaipur, applied for regular registration under section 12AB of the Income Tax Act, 1961. The application was filed online in Form No. 10AB on 29 September 2023. The learned Commissioner of Income Tax (Exemptions) [CIT(E)], Jaipur, rejected the application and cancelled the provisional registration granted on 03 August 2022.
Key Facts
- 29-09-2023: Application filed in Form No. 10AB seeking registration under section 12AB.
- 09-12-2023: CIT(E) issued notice requiring documents and explanations by 20-12-2023.
- Assessee sought adjournment; a further notice dated 02-01-2024 fixed compliance for 17-01-2024.
- 20-12-2023: Part reply filed.
- 29-01-2024: Notice fixing compliance by 09-02-2024.
- No further compliance was made; the application was decided on the material available.
- CIT(E) observed (i) incomplete Form No. 10AB, (ii) absence of a dissolution clause, (iii) objects appearing to benefit the Jain community, and (iv) failure to establish genuineness of activities.
- CIT(E) cancelled the provisional registration dated 03-08-2022 and rejected the regular registration application on 29 February 2024.
Procedural History
- 29-02-2024: CIT(E) order rejecting the application and cancelling provisional registration.
- 03-08-2026: Appeal heard before ITAT Jodhpur (Vice President Shri Saktijit Dey and Accountant Member Shri Makarand Vasant Mahadeokar).
- 06-08-2026: Judgment pronounced.
The Parties' Positions
- Assessee (Appellant): Contended that the absence of a dissolution clause is an uncertain future event and cannot be a ground for rejection; argued that section 13(1)(b) applies only at assessment, not at registration; relied on Rajasthan High Court, Ahmedabad Tribunal, and Supreme Court precedents.
- Revenue (Respondent): Maintained that the application was incomplete, lacked a dissolution clause, and its objects were confined to the Jain community, invoking section 13(1)(b) as a ground for denial.
Relief Sought
The appellant sought: (i) setting aside the CIT(E) order dated 29-02-2024, (ii) restoration of the provisional registration dated 03-08-2022, and (iii) fresh adjudication of the regular registration application under section 12AB.
The Legal Issue
What is the correct legal position on (a) whether the absence of a dissolution clause in a charitable trust’s constitutional document can justify rejection of an application for registration under section 12AB, and (b) whether section 13(1)(b) of the Income Tax Act can be invoked at the stage of granting registration?
Arguments Presented
For the Appellant
- Relied on Shri Narsinghji Ka Mandir v. CIT(E) (Rajasthan HC) that the absence of a dissolution clause is an uncertain future event and does not, by itself, preclude registration.
- Cited Shree Naminath Shwetamber Murtipujak Tapagachh Jain Religious Trust v. CIT(E) (Ahmedabad Bench) stating that section 13(1)(b) can be invoked only at the assessment stage, not at the grant of registration.
- Emphasised that the Finance Act, 2022 amendment inserting section 12AB(4) does not alter the principle that section 13(1)(b) is inapplicable at registration.
For the Respondent
- Asserted that the application was incomplete and the trust failed to furnish required documents, including the registration order under section 12A, final accounts for FY 2020-21 and 2021-22, and a note on activities.
- Argued that the lack of a dissolution clause created a risk that assets might not remain devoted to charitable purposes.
- Maintained that the trust’s objects, being limited to the Jain community, attracted section 13(1)(b) and therefore justified denial.
The Court's Analysis
The Tribunal began by examining the statutory framework of section 12AB and the explanatory clause section 12AB(4) introduced by the Finance Act, 2022. It noted that the purpose of section 12AB is to grant registration to trusts whose activities are wholly charitable, subject to verification of genuineness of activities and compliance with procedural requirements.
"The absence of dissolution clause or condition - as rightly contended by the assessee, is an uncertain future event. Further-more, given that the property is vested in a public charitable trust, it is always open to the concerned party - including the Revenue, to approach the Civil Court for a remedy under Section 91-92 of the Code of Civil Procedure."
The Tribunal accepted the Rajasthan High Court’s observation that the absence of a dissolution clause cannot, by itself, be a valid ground for rejection. It further held that the High Court correctly pointed out that the eventuality of asset transfer on dissolution is dealt with by section 115TD(1)(c) of the Act, rendering the dissolution-clause objection legally untenable.
Turning to the objection based on the trust’s objects, the Tribunal relied on the Ahmedabad Bench decision that section 13(1)(b) may be invoked only at the assessment stage, when material is brought on record, and not at the stage of granting registration under section 12A/12AB. The Tribunal quoted the Gujarat High Court’s affirmation that “the provisions of Section 13(1)(b) cannot be referred to for the purpose of granting registration under Section 12A of the Act.”
Having dismissed the two substantive objections, the Tribunal examined the remaining claim of non-compliance. It observed that the assessee had placed the requisite documents (pages 9-16 of the paper book) with the record and that the CIT(E) must now examine these materials before forming a satisfaction on the genuineness of activities. Consequently, the Tribunal restored the application to the CIT(E) for a fresh factual examination, directing that the application not be rejected solely on the basis of the dissolution-clause or the objects of the trust.
The Verdict
The appeal is allowed. The order dated 29 February 2024 passed by the learned CIT(E) is set aside in its entirety. The assessee’s application for regular registration under section 12AB is restored to the file of the CIT(E) for fresh adjudication, and the cancellation of the provisional registration dated 03 August 2022 is also set aside. The CIT(E) shall consider the documents placed at pages 9-16 and may not reject the application on the ground of absence of a dissolution clause or the trust’s objects.
What This Means For Similar Cases
Absence of Dissolution Clause Not Fatal
- Practitioners should advise charitable trusts that the lack of a dissolution clause does not, per se, invalidate a registration application.
- Courts will look to section 115TD(1)(c) for safeguards on asset disposition, not to the clause’s absence.
Section 13(1)(b) Cannot Pre-empt Registration
- The provision is confined to the assessment stage; it cannot be used to deny registration under section 12AB.
- Counsel must reserve any section 13(1)(b) argument for the assessment proceedings, not the registration petition.
Ensure Complete Documentary Compliance
- While the dissolution-clause objection is untenable, the application must still be complete and supported by required documents (final accounts, activity notes, beneficiary details).
- Submit all material before the CIT(E) and keep a record of the pages filed, as the Tribunal may direct a fresh factual examination.
