Charitable trust registration cannot be cancelled for alleged fund irregularities absent proof of non-genuine activities.

Cancellation of a charitable trust's registration under section 12AA(3) is confined to examining whether its activities are genuine and carried out in accordance with its objects. The assessee-trust was found to be running educational institutions and its educational objects were not doubted. Alleged collection of admission-linked donations and possible violations of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act could not, by themselves, justify cancellation at the registration stage; such matters were for assessment or action under the relevant special law. The material relied on was insufficient to show that the trust's activities were sham or non-genuine, so the cancellation was set aside.

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Issues: Whether the Commissioner was justified in cancelling the assessee-trust's registration under section 12AA(3) of the Income-tax Act, 1961 on the ground that its activities were not genuine or were not being carried out in accordance with its objects, principally because of alleged collection of donations linked to admissions and alleged violation of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987.

Analysis: The appellate authority held that the scope of section 12AA is confined to examining the genuineness of the trust's activities and whether those activities are in accordance with its objects. It was found that the assessee was engaged in imparting education through established educational institutions and that its educational objects were not doubted. The order further held that questions relating to the source of receipts, the manner of application of income, and alleged violations of other enactments were not at the registration stage and were matters for assessment or for action under the relevant special law, not grounds by themselves for cancelling registration under section 12AA(3). The material relied on by the Commissioner was held insufficient to establish that the trust's activities were sham, non-genuine, or contrary to its objects.

Conclusion: The cancellation of registration under section 12AA(3) was not sustainable and was set aside. The issue was decided in favour of the assessee.

Ratio Decidendi: Registration under section 12AA(3) can be cancelled only if the trust's activities are shown to be non-genuine or not carried out in accordance with its objects; alleged illegality in receipt of funds or perceived violations of another statute do not, by themselves, justify cancellation at the registration stage.

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