Charitable registration under section 12AB cannot be denied where accounting objections do not show diversion of funds or non-genuine activity.

Objections to final registration under section 12AB were examined issue-wise and were found insufficient to defeat charitable status. Advances shown in the accounts were treated as land acquisition for a proposed hospital, not diversion of funds; disputes over professional fees and incentive payments were regarded as matters for assessment, especially where records and TDS supported the expenditure. Higher receipts were explained by the cash system of accounting, and cancellation of nursing college affiliation was held irrelevant because the hospital activity continued. Salary particulars were furnished, surplus did not bar registration where applied for charitable purposes, and rent paid to a related HUF was not shown to be excessive. Rejection of registration was therefore not justified.

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Issues: Whether rejection of the application for permanent registration under section 12AB of the Income-tax Act, 1961 was justified on the grounds relating to alleged diversion of funds, professional payments, accounting of receipts, incentive payments, college fee receipts, employee salary details, hospital approvals, and rent paid to a related HUF.

Analysis: The assessee was already provisionally registered and sought final registration for its charitable hospital activity. The objections raised by the revenue authority were examined issue-wise. The advances reflected in the accounts were found to have been made in connection with acquisition of land for a new hospital and not as diversion of charitable funds. The professional fees and incentive payments were supported by records and tax deduction at source, and any dispute regarding their evidentiary support was held to be a matter for assessment and not a ground to deny registration. The increase in receipts in one year was explained by the cash system of accounting, under which income is recognised on actual receipt. The cancellation of affiliation of the nursing college was held to be irrelevant to the genuineness of the hospital activity, since the hospital continued to function as a charitable institution. The salary and employee details had been furnished, and the existence of surplus was held not to disqualify an from registration where the surplus is ploughed back for charitable purposes. The rent paid to a related HUF was also not found to establish any diversion of funds or excessive benefit, particularly in the absence of any comparable material showing unreasonableness.

Conclusion: Rejection of registration under section 12AB was not justified, and the assessee was entitled to grant of registration.

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