Delhi ITAT rules that registration cannot be denied solely over related-party loans in charitable societies

The Delhi Income Tax Appellate Tribunal has clarified that rejection of a charitable society’s registration under section 12AB cannot be based only on related-party loans, emphasising the importance of focussing on genuine charitable objectives and activities during registration.

The Delhi Income Tax Appellate Tribunal has said that a charitable society’s renewal of registration under section 12AB cannot be refused merely because the tax department has concerns about loans or advances made to related parties. In a ruling involving an educational society, the bench held that the key questions at the registration stage are whether the organisation’s objects are charitable and whether its activities are genuine, not whether every financial transaction has already been fully justified.

According to the ruling, the Commissioner of Income Tax (Exemptions) in Chandigarh had declined the society’s renewal application after reviewing its accounts and noting that significant sums had been advanced to various individuals and entities, including people connected with the society. The tribunal, comprising Judicial Member Satbeer Singh Godara and Accountant Member M. Balaganesh, said the revenue had not challenged the society’s educational work or the genuineness of its activities. It concluded that scrutiny of the loans and advances could be taken up later, during assessment proceedings, but could not be used as a basis to reject renewal of registration.

The decision fits a broader pattern in which Delhi benches have repeatedly said the enquiry at the section 12AB stage is limited. In other recent matters, the tribunal has restored registrations where the Commissioner went beyond the proper scope by examining expenditure patterns, financial prudence or alleged irregularities instead of focusing on the trust’s objects and real activities. It has also set aside ex parte refusals of 12AB and 80G applications where applicants were not given an effective hearing, including cases in which notices were sent to inactive email addresses.

For educational and charitable bodies, the ruling is a reminder that registration and assessment are separate stages under the Income Tax Act. The registration process is meant to test whether an organisation is genuinely charitable, while deeper questions about the use of funds, related-party transactions or compliance with exemption conditions are ordinarily addressed later. On that basis, the tribunal directed the exemption commissioner to grant renewal of the society’s 12AB registration.