Can registration under Section 12A(1)(ac)(iii) be denied solely because the MOA lacks a dissolution clause?

No. As held by the ITAT, denial cannot be based solely on the absence of a dissolution clause if the society’s activities are genuine, it is registered under the Societies Registration Act, 1860, and it undertakes to incorporate the clause. The possibility of future benefit to members is speculative and insufficient to deny exemption.

Is the presence of a dissolution clause mandatory under Section 12A(1)(ac)(iii)?

While the Income Tax Rules recommend inclusion of specific clauses, including dissolution, the ITAT has held that their absence does not automatically invalidate registration if the society’s conduct demonstrates exclusive application of funds for religious purposes and it offers to rectify the deficiency.

Can a religious society be denied registration for not having an investment clause?

Yes, if the absence indicates misuse of funds. However, if the society is actively using donations for construction of a place of worship and has no other income or investment activity, the absence of an investment clause is not a ground for denial, especially when the society is willing to amend its MOA.

Section 12A registration denied for missing MOA clauses

The Income Tax Appellate Tribunal, Amritsar, has clarified that the rejection of an application for registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961, solely on account of omissions in the memorandum of association - such as the absence of dissolution, irrevocability, or utilization clauses - cannot stand if the society’s activities are demonstrably genuine and it has offered to rectify the deficiencies. This ruling reinforces the principle that procedural imperfections must not override substantive compliance with charitable and religious objectives.

Background & Facts

The Dispute

The appellant, S.S. Jain Sabha Golf Link, Ludhiana, applied for regular registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961, on 28.12.2023. The application was rejected by the Commissioner of Income Tax (Exemptions), Chandigarh, on 11.06.2024, on the ground that the society’s memorandum of association (MOA) lacked critical clauses: dissolution, investment, irrevocability, utilization, and beneficiary clauses. The CIT(E) opined that without these clauses, the law presumes that upon dissolution, assets may be distributed among members, thereby violating the requirement that trust assets be used exclusively for charitable or religious purposes.

Key Facts

The society was registered under the Societies Registration Act, 1860, on 12.05.2021, by the Additional Registrar of Societies, Ludhiana.
It was granted provisional registration under Section 12A(1)(ac)(vi) for A.Y. 2022-23 to 2024-25 via order dated 08.02.2022.
The society’s MOA outlines objectives including promotion of Jain religion, construction and maintenance of Jain Sthanaks (places of worship), dissemination of Jain philosophy, and charitable activities for the needy irrespective of religion.
The society received a 200 sq. yard land donation from a member in 2021, sold it, and purchased a larger 322 sq. yard plot for constructing a Jain worship place.
Financial statements show donations received and expenditures directed toward land acquisition and construction - no evidence of private benefit or commercial activity.
The society conducted religious activities during A.Y. 2022-23, including daily Namokar Mantra Path, pravachans, and Vihar of Jain saints.
The CIT(E) did not dispute the genuineness of the society’s activities but denied registration based on perceived deficiencies in the MOA.
The appellant submitted, during proceedings before the CIT(E), that it intended to incorporate the missing clauses in the MOA at the next Annual General Meeting.

Procedural History

12.05.2021: Society registered under Societies Registration Act, 1860.
08.02.2022: Provisional registration granted under Section 12A(1)(ac)(vi).
28.12.2023: Application for regular registration under Section 12A(1)(ac)(iii) filed.
11.06.2024: CIT(E) rejected application for absence of dissolution, investment, irrevocability, utilization, and beneficiary clauses.
09.08.2024: Appeal initially filed before ITAT Chandigarh Bench by mistake.
13.08.2024: Appeal re-filed at ITAT Amritsar Bench after jurisdictional correction.
23.08.2024: Corrected appeal memorandum filed with proper signature.
16.03.2026: Hearing held before ITAT Amritsar Bench.
20.03.2026: Judgment pronounced.

The Parties' Positions

For the Appellant

The society is a duly registered religious body under the Societies Registration Act, 1860, which inherently ensures non-commercial, non-private benefit objectives.
Clause 19 and 20 of the MOA explicitly state that the society is perpetual and shall not distribute any benefit to members.
The society has not engaged in any trade, commerce, or profit-making activity.
The absence of specific clauses in the MOA does not negate the genuineness of its religious activities.
Relied on Ajit Education & Public Welfare Society v. CIT (2019), CIT v. Tapagacha Sangh Mota (2015), and CIT Central Circle v. A.S. Kapparaju Brothers’ Charitable Foundation Trust (2012), where ITAT held that hypothetical future events cannot justify denial of registration.
Offered to amend the MOA to include the required clauses.

For the Respondent

The MOA lacks mandatory clauses required under Section 12A(1)(ac)(iii) and Rule 17A of the Income Tax Rules.
Without a dissolution clause, assets may devolve to members upon winding up, violating the condition of exclusive application for charitable purposes.
No evidence of actual religious activity beyond land acquisition.
The rejection was based on statutory compliance, not subjective assessment.

Relief Sought

The appellant sought setting aside of the CIT(E)’s order dated 11.06.2024, grant of regular registration under Section 12A(1)(ac)(iii), and direction to reconsider the application in light of the undertaking to amend the MOA.

The Legal Issue

Can registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961, be denied solely on the ground that the memorandum of association lacks specific clauses such as dissolution, irrevocability, or utilization, when the society’s activities are demonstrably genuine and it has offered to rectify the deficiencies?

Arguments Presented

For the Appellant

The appellant relied on multiple precedents to argue that the denial of registration based on speculative future contingencies is legally unsustainable. In Ajit Education & Public Welfare Society v. CIT, the ITAT held that the possibility of future benefit to members under Section 13(3) does not invalidate the present genuineness of the trust’s activities. Similarly, in CIT v. Tapagacha Sangh Mota, the Gujarat High Court emphasized that registration cannot be denied merely because the MOA does not contain a dissolution clause if the society’s conduct and purpose are clearly charitable. The appellant further cited CIT Central Circle v. A.S. Kapparaju Brothers’ Charitable Foundation Trust, where the Chennai Tribunal held that presumptions based on statutory interpretation cannot override actual conduct. The appellant reiterated its willingness to amend the MOA to comply with statutory requirements, demonstrating good faith and procedural cooperation.

For the Respondent

The Revenue contended that the statutory framework under Section 12A(1)(ac)(iii) and Rule 17A mandates inclusion of specific clauses in the MOA to ensure that the trust’s assets are irrevocably dedicated to charitable purposes. The absence of these clauses, according to the Revenue, creates a legal risk that assets may revert to members upon dissolution, thereby violating the condition of exclusive application for religious purposes. The Revenue argued that the absence of any expenditure on religious activities beyond land purchase indicated non-compliance with the spirit of the provision.

The Court's Analysis

The Tribunal examined the statutory scheme under Section 12A(1)(ac)(iii) and noted that the primary objective is to ensure that entities claiming exemption are genuinely engaged in charitable or religious activities without private inurement. The Tribunal observed that the CIT(E) did not find any evidence of in-genuineness of activities, nor did it allege misuse of funds or diversion for private benefit. The rejection was based entirely on the absence of clauses in the MOA.

"The reason for denying registration is far-fetched and against the grain and spirit of this section which extends the benefit of exemption from tax to genuine societies."

The Tribunal emphasized that the Societies Registration Act, 1860, already imposes a legal framework ensuring that societies operate for public benefit and not for private gain. The fact that the society had obtained registration under this Act was a strong indicium of its non-commercial character. The Tribunal further noted that the appellant had not only acknowledged the deficiency but had unequivocally undertaken to incorporate the missing clauses in the MOA at the next AGM.

The Tribunal distinguished the present case from those where societies were found to be sham entities or where there was actual diversion of funds. Here, the conduct of the society - acquiring land for a place of worship, conducting religious events, and channeling all donations toward religious objectives - demonstrated genuine intent. The Tribunal held that denying registration on the basis of hypothetical future events, without any evidence of actual non-compliance, would be contrary to the legislative intent of encouraging religious and charitable institutions.

The Tribunal also noted that the requirement of specific clauses in the MOA is procedural and remediable. Where the assessee is willing to comply, the appropriate course is to permit rectification rather than outright rejection.

The Verdict

The appeal was allowed for statistical purposes. The Tribunal set aside the order of the CIT(E) dated 11.06.2024 and remanded the matter to the CIT(E) for fresh consideration. The appellant was directed to submit a revised memorandum of association incorporating the dissolution clause and other required provisions within 60 days. The CIT(E) was directed to decide the application on merits, taking into account the undertaking to amend the MOA and the genuineness of the society’s activities, within 90 days of receipt of the revised documents.

What This Means For Similar Cases

Registration Cannot Be Denied on Speculative Grounds

Practitioners must argue that denial of registration under Section 12A(1)(ac)(iii) based on hypothetical future risks (e.g., asset distribution upon dissolution) is legally unsustainable without evidence of actual misuse.
The burden lies on the Revenue to prove in-genuineness or diversion of funds - not to presume it from absence of clauses.
Courts and tribunals must distinguish between procedural lapses and substantive non-compliance.

Willingness to Amend MOA Is a Material Factor

If an assessee undertakes to rectify deficiencies in the MOA (e.g., adding dissolution, utilization, or beneficiary clauses), the authority must afford a reasonable opportunity to comply.
Such undertakings should be documented and treated as binding commitments.
Rejection solely on technical grounds, without giving a chance to cure, violates principles of natural justice and proportionality.

Religious Societies Are Entitled to Presumption of Legitimacy

Societies registered under the Societies Registration Act, 1860, enjoy a presumption of non-commercial purpose.
The absence of a dissolution clause in a religious society’s MOA does not automatically imply risk of private benefit, especially where the MOA explicitly prohibits distribution to members.
Tax authorities must respect the autonomy of religious institutions to structure their governing documents within the bounds of their own laws and customs.

Section 12A(1)(ac)(iii) IT Act | Registration Cannot Be Denied for Missing MOA Clauses If Society Is Genuine and Willing to Amend: ITAT Amritsar