For registration u/s 12AB, applicability of proviso to section 2(15) can’t be adjudicated

At the stage of registration u/s 12AB, the CIT(E) not empowered to adjudicate applicability of provisio to section 2(15) of the Act – ITAT

In a recent judgment, ITAT has held at the stage of registration u/s 12AB, the CIT(E) not empowered to adjudicate applicability of provisio to section 2(15) of the Act. Even where the proviso to section 2(15) is attracted the statutory consequence is limited to denial of exemption under sections 11 and 12 for that year alone, and not rejection or cancellation of registration u/s 12A.

ABCAUS Case Law Citation:
5229 (2026) (09) abacus.in ITAT

The appellant assessee filed an application in Form 10AB for registration u/s 12A of the Income Tax Act, 1961 (the Act) and claimed that it was not existing for profit but was a professional body engaged in public auditing, accounting, governance and capacity building activities, and that all its activities were charitable in nature.

The CIT(E) after examining all the documents, clarifications in support of assessee’s application for registration including the submissions, audited accounts, activities undertaken, MOU with Govt. Agency noted that the objects of the assessee were of General Purpose Utility (GPU) and it was engaged in commercial activities and hence, proviso to section 2(15) applied.

The CIT(E) relied on the decision of the Hon’ble Supreme Court and also noted that assessee was engaged in activities of payment made to its members for professional services and therefore, hit by firstly to proviso to Section 2(15) of the Act as well as violation of provisions of section 13(1)(c), 13(2) and 13(3) of the Act. Therefore, the CIT(E) rejected the registration of application. The CIT(E) also cancelled the registration granted by the CPC u/s. 12A of the Act.

The Tribunal noted that the CIT(E) in rejecting application for registration in Form 10A was mainly of the view that the assessee was engaged in the business activities and therefore, hit by the proviso to Section 2(15) of the Act.

The Tribunal observed that the assessee was a professional paid, engaged in public auditing accounting, governance, capacity building activities and all its activities are charitable in nature. This fact has been admitted by the Department while framing assessment for preceding years wherein, the assessee’s income was assessed as a registered trust u/s. 12A of the Act after allowing exemption u/s. 11 of the Act.

The Tribunal opined that the CIT(E)’s reliance on proviso to section 2(15) of the Act was misplaced because the 20% threshold gross receipts for rejecting registration and ignoring the applicability of proviso to section 2(15) is a matter of to be examined by the AO during assessment proceedings and it cannot take as a ground for denial of registration u/s. 12AB of the Act.

The Tribunal observed that at the stage of registration u/s 12AB, the statute does not empower the CIT(E) to adjudicate upon the taxability, commerciality or the year wise applicability of the provision to section 2(15) of the Act.

The Tribunal further observed that even assuming, the proviso to section 2(15) is attracted in a particular year, the statutory consequence is limited to denial of exemption under sections 11 and 12 of the Act for that year alone, and does not warrant rejection or cancellation of registration. 

Accordingly, the Tribunal quashed the impugned order passed by the CIT(E) and granted the registration. 

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