The Income Tax Appellate Tribunal, Delhi, has clarified that an entity engaged in both religious propagation and substantial charitable activities such as education and medical relief cannot be restricted to registration as a 'religious entity' under Section 12AB of the Income Tax Act, 1961. The ruling reinforces that the nature of actual activities, not merely stated objects, determines eligibility for broader charitable registration.
Background & Facts
The Dispute
The appellant, Shri Ram Sharnam Sabha (Regd.), a society registered under the Societies Registration Act, 1860, applied for registration under Section 12AB(1)(b) of the Income Tax Act, 1961, seeking recognition as a charitable institution eligible for income tax exemptions. The Learned Commissioner of Income Tax (Exemptions) - Chandigarh granted registration but restricted it to "Religious Entity" only, excluding recognition for its charitable activities in education and medical relief.
Key Facts
- The society’s objects, as per its memorandum, include both religious propagation and wide-ranging charitable activities:
- Propagation of religious teachings of Shri Swami Satyanandji Maharaj
- Organization of Satsangs and religious lectures
- Establishment and support of educational institutions, schools, colleges, and universities
- Operation of clinics, hospitals, dispensaries, crèches, and asylums
- Provision of scholarships, fellowships, and financial aid for education
- Medical assistance to the poor and needy without discrimination
- Publication of religious and social literature
- Management of old age homes and public welfare projects
- The society’s constitution mandates that all surplus income must be applied exclusively for charitable purposes
- The society is prohibited from engaging in political or anti-national activities
- Financial outlays for charitable activities:
- Rs. 9,64,185/- in Financial Year 2021-22
- Rs. 1,27,22,994/- in Financial Year 2022-23
- Rs. 1,26,99,744/- in Financial Year 2023-24
- Rs. 10,64,209/- in Financial Year 2024-25
- These expenditures were documented in audited financial statements submitted to the tax authorities
- The Ld. CIT(E) did not examine these financial records before restricting registration to "Religious Entity"
- No opportunity was granted to the assessee to explain the nature and extent of its charitable activities prior to the order
Procedural History
- 02.02.2026: Order passed by Ld. CIT(E) granting registration under Section 12AB(1)(b) but restricting it to "Religious Entity"
- 07.07.2026: Hearing held before ITAT Delhi
- 15.07.2026: Judgment pronounced by ITAT Delhi
Relief Sought
The appellant sought:
- Quashing of the order dated 02.02.2026 restricting registration to "Religious Entity"
- Grant of registration as a "Charitable Institution" under Section 12AB(1)(b) covering all objects including education and medical relief
- Direction to the Ld. CIT(E) to reconsider the application in light of actual activities and financial outlays
The Legal Issue
The central question was whether an entity whose objects and demonstrable activities include substantial charitable purposes such as education and medical relief, alongside religious propagation, can be lawfully registered under Section 12AB(1)(b) solely as a "Religious Entity", thereby excluding it from benefits available to general charitable institutions.
Arguments Presented
For the Appellant
The appellant contended that while its first object pertains to religious propagation, the remaining objects explicitly cover education, healthcare, welfare, and public service without discrimination. It relied on the financial records showing over Rs. 2.5 crore spent on medical and educational relief across three financial years, demonstrating that its primary operational focus is charitable. It argued that Section 12AB does not mandate exclusive religious activity for registration and that the Ld. CIT(E) failed to apply the principle of substance over form. The appellant cited CIT v. Sri Ramakrishna Math to support the proposition that an entity with mixed objects may qualify for charitable status if charitable activities predominate.
For the Respondent
The Revenue argued that since the first object of the society explicitly relates to religious preaching and the society was founded to propagate the teachings of a specific spiritual leader, the registration as a "Religious Entity" was appropriate. It contended that the term "religious entity" under Section 12AB(1)(b) encompasses entities whose primary purpose is religious, even if incidental charitable work is carried out. It further argued that the assessee had not provided sufficient evidence to prove that charitable activities were the dominant purpose.
The Court's Analysis
The Tribunal examined the objects clause of the society and cross-referenced it with the audited financial statements submitted for FY 2021-22 to 2024-25. It noted that the expenditure on medical and educational relief constituted a significant portion of the society’s outgoings, far exceeding any expenditure on purely religious activities. The Tribunal emphasized that the statutory scheme under Section 12AB requires an assessment of actual functioning, not merely the wording of objects.
"The registration under Section 12AB(1)(b) must reflect the reality of the activities undertaken by the entity, and not be confined to the first object listed in the memorandum."
The Tribunal held that the Ld. CIT(E) had acted mechanically by accepting the first object as determinative, without evaluating the quantitative and qualitative nature of the society’s charitable work. It further observed that the assessee was denied a fair opportunity to present evidence on its actual activities prior to the order, violating principles of natural justice.
The Tribunal distinguished CIT v. Sri Ramakrishna Math on the ground that in that case, the charitable activities were ancillary to religious functions. Here, the charitable activities were not ancillary but were independently structured, funded, and executed. The Tribunal concluded that the society met the criteria for registration as a charitable institution under Section 12AB(1)(b), irrespective of its religious component.
The Verdict
The appeal was allowed for statistical purposes. The Tribunal set aside the order dated 02.02.2026 and remanded the matter to the Ld. CIT(E) with directions to reconsider the registration application in light of the society’s actual charitable activities as evidenced by its financial statements for FY 2021-22 to 2024-25. The Ld. CIT(E) was directed to grant registration as a "Charitable Institution" under Section 12AB(1)(b) if the activities substantiate the objects, and not restrict it to "Religious Entity".
What This Means For Similar Cases
Charitable Activities Must Be Evaluated on Substance, Not Just Objects
- Practitioners must now ensure that applications under Section 12AB include detailed financial records demonstrating actual charitable expenditure
- Merely listing charitable objects is insufficient; the tax authority must examine the proportion and nature of spending
- Entities with mixed religious-charitable objects should proactively submit audited statements showing allocation of funds to non-religious activities
Natural Justice Requires Opportunity to Present Evidence
- Tax authorities cannot pass restrictive orders without giving the assessee a fair chance to explain the scope of its activities
- Denial of opportunity to submit financial data or rebut presumptions renders the order legally vulnerable
- Any order restricting registration must be preceded by a reasoned opportunity to be heard
Registration Classification Must Reflect Operational Reality
- The term "Religious Entity" under Section 12AB is not a default classification for any entity with religious objects
- If an entity spends more than 50% of its resources on education, healthcare, or welfare, it is prima facie eligible for charitable registration
- Tax officers must apply the test of "dominant purpose" and not rely on the order of objects listed in the memorandum
