Loans without permission from Charity Commission no reason to deny registration u/s 12A

Objection of CIT(E) for loans taken without prior permission from Charity Commission was no reason for denial of registration u/s 12A – ITAT

In a recent judgment, ITAT Nagpur has held that objection of CIT(E) with regard to loans taken without prior permission from Charity Commission was no reason for denial of registration u/s 12A of the Act being not in the nature of material non-compliance for achieving object of trust.

ABCAUS Case Law Citation:
5115 (2026) (04) abacus.in ITAT

The assessee was a charitable institution and operating three educational institutions. The assessee aggrieved by the order of Commissioner of Income Tax (Exemptions) passed under section 12AB of the Income Tax Act, 1961 (the Act) rejecting application filed for regular registration u/s. 12AB r.w.s. 12A(1)(ac)(vi).   

In this case, assessee had filed an application in Form No. 10AB u/s 12A(1)(ac)(ii) of the Act seeking registration u/s 12AB.  The CIT(E) called for various details to verify genuineness of activities, compliance with other applicable laws and donation-related details.

The CIT(E) observed some deficiencies about non-submission of authenticated trust deed and permission for loans u/s 36A of the Maharashtra Public Trusts Act (MPT).  The assessee contended that loans were temporary and did not require prior permission and the donations were small contributions from students.  

The CIT(E) did not find favour with the submissions made by the assessee and rejected the application and cancelled the provisional registration.

The Tribunal observed that the objections of the CIT(E) for non-grant of registration were on twofold. One that donation amount cannot be considered as voluntary contribution and second loan & advances obtained were without prior sanction from Charity Commissioner which was noncompliance being material for the purpose of achieving its object. 

The Tribunal observed that considering the gross receipts of more than three crores, nominal amounts of donation received cannot be said to be not voluntary contribution as held by CIT(E).  The observation of CIT(E) was based on no adverse evidence brought on record.  Therefore, it was no reason for denial of grant of registration u/s 12A of the Act.

With respect to loans and advances, the Tribunal noted that details of the same were available in audited financial statements.  It was explained that the aforesaid amount was receipt from the employees and associates for meeting contingencies and were not loans and advances taken on interest as envisaged in terms of provisions of section 36A of Maharashtra Public Trust Act. The Tribunal opined that In any case, prior sanction of Charity Commissioner is not in the nature of material non-compliance for achieving object of trust.

The Tribunal further noted that the issue of loans accepted without compliance of section 36A of Maharashtra Public Trust Act had been considered by the Bench. Following it the Tribunal held that the objection of the CIT(E) with regard to loans taken without prior permission from Charity Commission was no reason for denial of registration u/s 12A of the Act. 

Accordingly, the Tribunal set aside the order of the CIT(E) and directed to grant registration u/s 12A of the Act to the assessee.

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