The Income Tax Appellate Tribunal, Delhi, has reaffirmed that once a trust or society is registered under Section 12A of the Income Tax Act, the Commissioner of Income Tax (Exemption) cannot revisit the charitable nature of its activities merely because it charges fees for educational services. This ruling reinforces the finality of registration and protects longstanding charitable entities from arbitrary rejections during renewal.
Background & Facts
The Dispute
The appellant, Diya Foundation, a society registered under the Societies Registration Act, 1860 on 02.04.2003, operates two educational institutions: Chetan Vidya Mandir School and Diya Playway School in Nihal Vihar, Nangloi, New Delhi. The appellant sought renewal of its registration under Section 12A(1)(ac)(ii) of the Income Tax Act, 1961, by filing Form 10AB on 10.02.2025. The Commissioner of Income Tax (Exemption) rejected the application on 29.09.2025, alleging that the appellant’s activities were commercial due to fee collection and lack of government affiliation.
Key Facts
- The appellant was originally registered under Section 12A read with Section 12AA(1)(b) on 09.09.2003, with a valid certificate of registration
- The appellant received provisional registration under Section 12AB(1)(b) on 20.11.2023
- The appellant runs two schools: one play school and one primary school
- For FY 2022-23, 2023-24, and 2024-25, 24%, 38%, and 33% of total receipts respectively came from student fees
- The appellant was issued a questionnaire on 22.03.2025, responded on 15.07.2025, and was issued a second notice on 04.08.2025
- The appellant submitted partial compliance but did not provide affiliation documents from any educational board or government authority
- The CIT(E) concluded that fee-charging rendered the activity commercial and not charitable under Section 2(15)
- The CIT(E) also noted absence of donor details
Procedural History
- 02.04.2003: Diya Foundation registered under Societies Registration Act, 1860
- 09.09.2003: Registration granted under Section 12A read with Section 12AA(1)(b)
- 20.11.2023: Provisional registration granted under Section 12AB(1)(b)
- 10.02.2025: Application filed in Form 10AB for renewal of registration under Section 12A(1)(ac)(ii)
- 22.03.2025: Notice issued by CIT(E) seeking documents and clarifications
- 15.07.2025: First response submitted by appellant
- 04.08.2025: Second notice issued seeking additional documents
- 29.09.2025: CIT(E) order rejecting application under Section 12AB(1)(b)(ii)(B)
- 09.02.2026: Hearing before ITAT Delhi
- 28.04.2026: Judgment pronounced by ITAT Delhi
Relief Sought
The appellant sought: (1) setting aside of the CIT(E)’s order dated 29.09.2025; (2) restoration of the matter to the CIT(E) for fresh adjudication with opportunity of hearing; (3) grant of registration under Section 12A(1)(ac)(ii); and (4) direction to decide the claim for exemption under Section 80G.
The Legal Issue
The central question was whether the Commissioner of Income Tax (Exemption) has the authority to reject an application for renewal of registration under Section 12A(1)(ac)(ii) on the ground that the applicant charges fees for educational services, after having previously granted registration under Section 12A and 12AB.
Arguments Presented
For the Appellant
The appellant argued that its registration under Section 12A since 2003 was a fait accompli, and the CIT(E) had no jurisdiction to re-examine the charitable nature of its activities. It relied on the coordinate bench decision in ITO v. Chadha Education Society and the Supreme Court’s ruling in ACIT v. Surat City, which held that once registration is granted, the AO or CIT(E) cannot reopen the question of charitable purpose. It further contended that charging fees does not automatically render an activity commercial, as per judicial precedents recognizing fee-based educational institutions as charitable. The appellant emphasized that it was denied effective opportunity of hearing, as the CIT(E) did not allow submission of all required documents.
For the Respondent
The Revenue relied on the CIT(E)’s order, which held that the appellant failed to provide affiliation documents from any educational board or government authority, and that fee receipts exceeding 20% of total income indicated commercial activity. It argued that the absence of donor details and lack of formal recognition rendered the charitable claim unverified. No specific precedent was cited to support the rejection.
The Court's Analysis
The Tribunal observed that the appellant was not a new applicant but a registered entity since 2003, with prior approvals under Section 12A and Section 12AB. The CIT(E)’s order, which rejected the application on the basis of fee-charging and lack of affiliation, directly contradicted established jurisprudence.
"The registration of trust once done under Section 12A is a fait accompli and the AO cannot thereafter make further probe into the object of the trust."
The Tribunal cited its own coordinate bench decision in ITA No. 5273 and 5276/Del/2024, which held that the CIT(E) has no jurisdiction to reject registration under Section 12A merely because the institution charges fees or lacks government affiliation. The Tribunal emphasized that the statutory framework under Section 12A(1)(ac)(ii) contemplates renewal of existing registration, not a fresh inquiry into the charitable object.
The Tribunal further noted that the CIT(E) failed to afford the appellant a meaningful opportunity of hearing, as the order was passed without allowing full compliance with the notices. The rejection based on surmises and conjectures, without considering the appellant’s prior compliance history, violated principles of natural justice.
The Tribunal held that while the CIT(E) may require documentation to verify compliance with conditions of registration, it cannot use such requirements to re-litigate the charitable nature of an activity already recognized for over two decades.
The Verdict
The appeal was allowed. The ITAT Delhi set aside the CIT(E)’s order dated 29.09.2025 and restored the matter to the file of the Commissioner of Income Tax (Exemption) for fresh adjudication. The CIT(E) was directed to consider the appellant’s submissions and documents, afford a full opportunity of hearing, and pass a reasoned order on the application for registration under Section 12A(1)(ac)(ii). The CIT(E) was also directed to decide the claim for exemption under Section 80G in accordance with law.
What This Means For Similar Cases
Prior Registration Is Conclusive for Charitable Status
- Practitioners representing long-standing charitable institutions can now confidently argue that prior registration under Section 12A cannot be undermined by CIT(E) during renewal under Section 12A(1)(ac)(ii)
- Fee-charging for educational services, even if substantial, does not automatically disqualify an entity from charitable status under Section 2(15)
- The burden shifts to the Revenue to prove fraud or material change in objects, not merely to question fee structures
Procedural Compliance Is Non-Negotiable
- CIT(E) must provide clear, specific notices and allow reasonable time for compliance before rejection
- Rejection orders based on incomplete submissions without granting opportunity to cure deficiencies are legally unsustainable
- Failure to consider prior registration history renders the order arbitrary and violative of natural justice
Affiliation Is Not a Statutory Requirement
- No provision under the Income Tax Act mandates affiliation with CBSE, ICSE, or state education boards for charitable registration
- The absence of such affiliation cannot be used as a ground to deny registration or exemption
- Institutions must focus on maintaining proper records of donations, utilization of funds, and educational objectives, not bureaucratic affiliations
