Operation of fuel stations by a trust challenged as non-charitable activity; tribunal treats them as ancillary and restores registration.

Denial of exemption and cancellation of registration arose from operation of fuel stations generating substantial receipts. The tribunal accepted that the petrol pumps were transferred by government constraints and operated without profit motive, applying the ancillary or incidental activity doctrine and concluding surplus was applied to charitable objects, with cancellation on that ground unsustainable. Allegations of diversion of income and lack of separate books were unsupported by evidence and rejected, with genuineness of activities affirmed. The tribunal further applied the principle that cancellation cannot be made retrospectively beyond the year of violation and subsequent years, rendering earlier retrospective cancellation impermissible; appeal allowed.

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Issues: (i) Whether operation of fuel stations by the trust amounted to a "specified violation" under Section 12AB(4) warranting cancellation of registration; (ii) Whether registration could be cancelled with retrospective effect from AY 2010-11 under Section 12AB.

Issue (i): Whether operation of fuel stations constituted a specified violation under Section 12AB(4) of the Income-tax Act, 1961.

Analysis: The factual matrix shows the petrol pumps were originally set up by the State for public service and later transferred to the trust under constrained circumstances; surplus was applied for charitable objects; assessments for earlier years accepted charitable status despite operation of fuel stations; no evidence supported failure to maintain separate accounts; the activity arose from compulsions and served public interest and therefore is to be examined as incidental or ancillary to the trust's objects rather than a standalone commercial enterprise.

Conclusion: Operation of the fuel stations did not constitute a specified violation under Section 12AB(4) and cancellation on that ground is not justified.

Issue (ii): Whether cancellation of registration could be made retrospectively from AY 2010-11 under Section 12AB.

Analysis: Section 12AB(4)(c)(ii) permits cancellation only for the previous year in which the violation occurred and subsequent years; the amended provisions under Section 12AB came into force with effect from 01-04-2021; there is no statutory basis to apply these provisions retrospectively to years prior to their operation.

Conclusion: Registration could not be cancelled retrospectively from AY 2010-11 under Section 12AB; retrospective cancellation is unsustainable.

Final Conclusion: The cancellations of registration were set aside and both registrations were restored; the statutory scheme and facts do not support specified violations or retrospective cancellation.

Ratio Decidendi: Where an activity is shown to be ancillary or incidental to the trust's stated charitable objects and surpluses are applied for charitable purposes, it does not constitute a "specified violation" under Section 12AB(4); further, the cancellation power in Section 12AB, as amended with effect from 01-04-2021, cannot be applied retrospectively to prior assessment years.

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