Mumbai tribunal demands precise legal grounds before trust registration cancellations

The Mumbai bench of the Income Tax Appellate Tribunal rules that the tax authorities must specify the exact statutory violation before cancelling a charitable trust’s registration, reinforcing the need for clarity and fairness in tax proceedings amid ongoing disputes over charity versus commerce.

The Mumbai bench of the Income Tax Appellate Tribunal has said the tax department must spell out the exact statutory breach before moving to cancel a charitable trust’s registration, reinforcing that a vague accusation is not enough to meet the requirements of natural justice. The ruling arose in a case involving National Payments Corporation of India, where the tribunal found that the Commissioner of Income Tax (Exemptions) had not clearly identified which “specified violation” under the law was being alleged.

According to the report by Thetaxtalk, the dispute centred on cancellation proceedings linked to payment gateway and banking network services provided by the trust. The department argued that the activities benefited member banks and that this brought section 13(1)(c) and section 13(3) into play. But the tribunal said the trust was not given a sufficiently precise case to answer, particularly because neither the show-cause notice nor the final order clearly set out the exact sub-clause said to have been breached.

The decision adds to a growing body of tribunal rulings that have drawn limits around the tax department’s use of section 12AB powers. A separate ITAT Delhi ruling, reported by 24law.in, held that registration under section 12AB(4) cannot be cancelled simply because there is an allegation under section 13(1)(c), noting that such issues are dealt with through taxation of the relevant income rather than automatic cancellation of registration. That reading strengthens the Mumbai bench’s insistence that the precise legal basis for any proposed action must be identified at the outset.

The tribunal also stressed that the assessee must be shown the material relied upon, including any assessment officer’s reference that triggered the cancellation proceedings. Without that disclosure, it said, the trust is forced to defend itself against an unseen case. In practical terms, the judgment means authorities cannot begin with a broad accusation and then sharpen it later during the hearing; the allegation, evidence and response must remain aligned throughout the process.

The ruling lands at a time when several charitable and hospital trusts have been challenging tax department moves to cancel or refuse renewal of registration on the ground that they are carrying on commercial activity. Reports from easevalue.com and TaxGuru say the Mumbai bench has recently restored registration and charitable approval for Mandke Foundation, rejecting retrospective cancellation even where premium healthcare services and surplus generation were involved. Separately, Jurishour has reported that institutions including Reliance Trust, ISKCON, Hinduja Hospital and Breach Candy Hospital are also contesting similar action, underscoring how contested the line between charity and commerce has become.