Provisional registration converted where non compliance was venial and not material, cancellation lacked finality and hearing.

Provisional registration under section 12A(1)(ac)(vi) was converted to final registration because the Tribunal found the alleged non compliance with the Maharashtra Public Trusts Act was venial and not material to the trust's objects; cancellation under section 12AB(4) requires specified violations that have attained finality and the registering authority must provide a hearing before cancellation, and neither condition was met. The temporary loan was repaid and the irregularity was curable; hence the cancellation and rejection of final registration were set aside and the appeal allowed by the ITAT.

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Issues: Whether the Commissioner (Exemption) was justified in cancelling the assessee's provisional registration granted under section 12A(1)(ac)(vi) and in rejecting final registration under section 12AB of the Income-tax Act, 1961, and whether the provisional registration should be converted to final registration.

Analysis: The Tribunal examined the statutory requirement that a trust must comply with "such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects." The Tribunal considered the nature and materiality of the alleged non-compliance under the Maharashtra Public Trusts Act, 1950 (section 36A(3)), the fact that the loan in question was temporary and subsequently repaid, and the distinction between venial or curable procedural breaches and violations that affect genuineness of activities. The Tribunal noted that cancellation under section 12AB(4) is permissible only upon specified violations that have attained finality (including orders, directions or decrees) as contemplated by the Explanation (clause (f)). The Tribunal further observed that the registering authority must afford a reasonable opportunity of being heard before cancelling registration and that the procedural irregularity in this case was not material to achievement of the trust's objects. The Tribunal also took into account the Trust's subsequent application to the Charity Commissioner and relevant administrative directions regarding divisional level registration under section 36A(3A) of the Maharashtra Public Trusts Act, 1950.

Conclusion: The Tribunal concluded that the procedural irregularity was venial and not material to the achievement of the trust's objects, that there was no specified violation with required finality to justify cancellation under section 12AB(4), and that the provisional registration should be converted to final registration; accordingly the impugned order cancelling provisional registration and rejecting final registration is set aside and the assessee's appeal is allowed.

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