2025 (10) TMI 701 - AT - Income Tax

Registration under section 12A(1)(ac)(iii) and 80G(5) denied for commercial nexus, promotional funding, limited charitable activity

ITAT dismissed the appeals and upheld denial of registration under section 12A(1)(ac)(iii) and approval under section 80G(5). The tribunal found major ... Denial of registration u/s 12A(1)(ac)(iii) as well as 80G(5) - assessee has received donations and registration fees and other receipts - AR argued that the assessee has been engaged in carrying out genuine charitable activities in the field of medical relief, which fall squarely within the definition of ‘charitable purpose’ under section 2(15) - as submitted that the activities undertaken by the assessee are directed towards providing medical assistance to the needy and underprivileged, thereby advancing an object of general public utility - HELD THAT:- Major expenditure is on account of professional expenses. The other major expenses are in the nature of conference expenses, medicine expenses, advertisement and donations to other funds. No major expenditure is shown to have been incurred towards charitable activities. The perusal of donors would show that the major donors are medical centers, healthcare centers, pharma companies and labs etc. These donations have been used to conduct meetings / conferences. The perusal of photographs would show that the assessee is carrying out its activities under the banner of Trinity Hospital which, apparently, run as a commercial enterprises. It could very well be concluded that there was direct nexus between the subscription as received by the assessee and meetings / seminars conducted by the assessee. Therefore, the possibility of assessee-entity being used as a medium to promote the products of pharma companies as well as Trinity Hospital could not altogether be ruled out. The assessee is not shown to have carried out any substantial charitable activity. Medical Council (Professional conduct, Etiquette and Ethics) Regulations, 2002, as referred to by Ld. CIT(E), prohibits such a nexus. We concur with the observation of CIT(E) that the assessee work solely for the purpose of networking between the doctors and the pharma companies, labs and medical instrument companies which is unethical and contrary to public policy. In no way the activities of the assessee could be termed as for ‘Charitable purposes’ as defined u/s 2(15). Approval u/s 80G(5) - It is a mandatory requirement under the law that, for obtaining approval under section 80G(5) of the Act, the assessee must first secure registration under section 12AB of the Act. Since this primary condition was not fulfilled, the Ld. CIT(E) was justified in rejecting the assessee’s application. Appeals of the Assessee are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether rejection of the application for registration under section 12AB (formerly cited as section 12A(1)(ac)(iii) in the record) without issuance of a show-cause notice or an opportunity of hearing contravened principles of natural justice. 2. Whether the assessee's activities, as evidenced by financial statements, donors, expenditures and photographs, qualify as 'charitable purpose' within the meaning of section 2(15) (education, medical relief and advancement of general public utility) or are non-charitable/private in character. 3. Whether approval under section 80G(5) can be granted in the absence of prior registration under section 12AB, i.e., whether registration under section 12AB is a mandatory pre-condition to section 80G(5) approval. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Natural justice: rejection of 12AB application without show-cause/ hearing Legal framework: Administrative action rejecting registration must comply with principles of natural justice where the statute or rules require consideration of representations; applicants are entitled to reasonable opportunity to explain material facts before adverse orders affecting statutory benefits are passed. Precedent treatment: No specific judicial precedents were invoked or relied upon in the judgment; the Tribunal examined the record and parties' submissions on the point. Interpretation and reasoning: The assessee contended that the CIT(E) rejected registration without issuing a show-cause notice or affording reasonable opportunity. The Tribunal examined the file, the application, submissions, and financial statements and proceeded to adjudicate on the merits of the registration application. The Tribunal did not record a specific finding that the absence of a show-cause notice amounted to a fatal breach; rather it accepted the substantive material relied upon by the CIT(E) and found no material to rebut the adverse factual findings. Ratio vs. Obiter: Obiter on procedural nuance to the extent no explicit finding of procedural unfairness was held; the Tribunal's dismissal rested on substantive sufficiency of evidentiary material and therefore the procedural challenge did not succeed in altering the outcome. Conclusion: The Tribunal did not set aside the rejection on procedural grounds and declined to interfere, effectively treating the absence of a separate show-cause notice as not determinative given the substantive assessment of facts. The procedural complaint was therefore overruled in result, but without broad pronouncement that a show-cause notice is never required. Issue 2 - Characterisation of activities as 'charitable purpose' under section 2(15) Legal framework: Section 2(15) defines 'charitable purpose' (including medical relief and education); a purpose is charitable only if of public character and directed to benefit the community rather than private individuals. Registration under section 12AB requires demonstration of genuine charitable activity and public utility. Precedent treatment: The judgment did not cite decided cases; it relied on statutory definitions and regulatory norms (Medical Council regulations) to assess public policy and ethical constraints. Interpretation and reasoning: The Tribunal undertook a factual analysis: major receipts comprised donations from pharmaceutical companies, laboratories and medical instrument companies and registration fees; major outlays were professional fees, conference expenses, travel and sponsorship for members; photographic evidence showed activities conducted under the banner/address shared with a hospital operated as a commercial enterprise. The Tribunal found a direct nexus between receipts and meetings/seminars benefiting members and commercial entities rather than the public at large. The Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, prohibiting monetary benefits from pharma companies to practitioners, was invoked as indicating public policy and ethical prohibition against such nexus. The Tribunal concluded that the assessee's activities operated as networking and promotion between doctors and industry, potentially promoting commercial products or the hospital, rather than delivering substantial charitable medical relief or formal education to the public. Ratio vs. Obiter: Ratio - the Tribunal's core legal holding is that where the material shows (a) predominant funding from industry aimed at conferences and networking, (b) predominance of expenses on events/benefits to members, and (c) close operational nexus with a commercial hospital, such activities do not qualify as 'charitable purpose' under section 2(15) and registration under section 12AB can be refused. Obiter - comments on narrow interpretation of 'education' as formal schooling were applied contextually to the facts but not treated as an exhaustive legal rule. Conclusion: On the facts, the assessee failed to establish that activities were of public charitable character; the Tribunal upheld the CIT(E)'s rejection of registration under section 12AB, finding insufficient evidence of substantial charitable activity and an impermissible nexus with commercial/pharmaceutical interests contrary to public policy. Issue 3 - Requirement of 12AB registration as pre-condition to 80G(5) approval Legal framework: Section 80G(5) provides tax benefits to donors for qualifying donations to approved entities; statutory scheme contemplates that an entity must satisfy conditions for charitable status and registration under section 12AB before relief under section 80G(5) is granted. Precedent treatment: The Tribunal treated the statutory requirement as mandatory and did not rely on contrary precedent. Interpretation and reasoning: The CIT(E) declined the 80G(5) application on the ground that section 12AB registration had been refused; the Tribunal agreed, holding that securing registration under section 12AB is a mandatory antecedent for approval under section 80G(5). Because the primary condition (12AB registration) was not fulfilled, the 80G(5) application could be rejected without further merit adjudication. Ratio vs. Obiter: Ratio - registration under section 12AB is a mandatory precondition to grant of approval under section 80G(5); absence of 12AB registration justifies denial of 80G(5) without separate merits determination. Conclusion: The Tribunal upheld refusal of 80G(5) approval on the ground that the statutory prerequisite-registration under section 12AB-was absent; the appeal against that refusal was dismissed. Overall Disposition and Legal Conclusions The Tribunal dismissed the appeals: it affirmed the refusal of registration under section 12AB because the evidentiary material indicated predominately member-oriented, industry-funded conferences and an operational nexus with a commercial hospital, failing the public-character test of section 2(15); it also affirmed refusal of section 80G(5) approval as section 12AB registration is a mandatory precondition. Observations regarding Medical Council regulations and public policy formed part of the reasoning supporting the conclusion that the activities were unethical/contrary to public policy and not charitable. No precedent was overruled or followed; the decision rests on statutory interpretation applied to the factual matrix and documentary evidence, and the Tribunal treated its findings as dispositive (ratio) rather than procedural infirmity-based relief.