ITAT directed CIT (E) for giving Permanent Registration as procedural non-compliance with state law doesn’t automatically imply non-genuineness of charitable activity.

There are various cases in the recent years where the permanent registration application of the charitable trust is rejected for the reason that the trust has accepted the loans without permission from charity commissioner as mandated in the relevant state laws.

Here is one such case before Nagpur ITAT of Shri Vyankanath Maharaj Shikshan Sanstha Murtizapur vs. ITO Ward-2 (Exemption), Nagpur,
[ITA No. 398/Nag/2024 | Order Date: 21 March 2025 | ITAT Nagpur Bench], Bench: Shri V. Durga Rao (JM), Shri K.M. Roy (AM) wherein the Hon’ble  Nagpur Bench has held that procedural non-compliance with state law doesn’t automatically imply non-genuineness of charitable activity. The concept of materiality need to be considered even in such a scenario.

Let us have a Short Overview of the case:

1.  Facts of the Case:
The assessee, a charitable trust engaged in educational activities, had provisional registration under Section 12A(1)(ac)(vi) and sought final registration under Section 12AB. The Commissioner of Income Tax (Exemptions), Pune rejected the application and also cancelled the provisional registration citing violation of Section 36A(3) of the Maharashtra Public Trusts Act, 1950 due to unsecured loans from trustees without prior approval from the Charity Commissioner.

2. Grounds of Appeal:
Improper rejection of final registration under Section 12AB.

Unjustified cancellation of provisional registration.

Ignoring subsequent compliance (ex-post facto approval sought).

Denial of opportunity and violation of natural justice.

Request for condonation of delay due to the CA’s office renovation.

3. Condonation of Delay:
Delay of 45 days in filing the appeal was condoned by the Tribunal, considering it genuine and relying on precedents where significantly longer delays were condoned.

4. Tribunal’s Observations and Ruling:
Procedural Lapse Not Material: The Tribunal held that minor non-compliance under state law (Maharashtra Public Trusts Act) cannot be the basis for denying registration, especially if the trust’s charitable activities are otherwise genuine.

Material Law Compliance: Section 12AB requires compliance only with laws that are “material” for achieving charitable objectives.

Defect Rectified: The Tribunal noted the trust had already applied for ex-post facto approval, and curable defects should not result in denial.

Conversion Mandated: CIT(E) failed to prove any “specified violation” under Section 12AB(4), hence provisional registration must be converted into final registration.

5. Final Decision:
Appeal allowed. CIT(E)’s rejection order set aside. Directed that the trust’s provisional registration be converted to final registration under Section 12AB.

6. Legal Principles Affirmed:
Procedural non-compliance with state law doesn’t automatically imply non-genuineness of charitable activity.

Registration cannot be denied for curable defects.

Authorities must afford adequate opportunity before cancellation.

Section 12AB’s requirement of “compliance with any other law” is limited to materially relevant laws.

7. Key Citations Relied Upon:
CIT(E) vs. Kids-R-Kids International Education & Social Welfare Trust (P&H HC)

Shri Krishna Education & Welfare Trust vs. CIT (Delhi ITAT)

Hardayal Charitable & Educational Trust vs. CIT (Allahabad HC)

The Copy Of the order is as under:

1742813825-ZzuJCC-1-TO