2026 (3) TMI 67 - HC - Income Tax

Mandatory inquiry into genuineness and legal compliance required before granting tax-exempt registration; summary grant set aside and remitted.

Applications falling under the sub-clause requiring scrutiny must be subject to a Commissioner-led inquiry calling for documents and recording findings on ... Registration u/s 12AB and Section 80G - Eligibility criteria - genuineness of the trust's activities and compliance with other laws - Whether in the facts of the present case, the tribunal was justified in directing the CIT Exemption to grant registration u/s 12AB and Section 80G or it should have remanded the matter back to the CIT Exemption? - HELD THAT:- In the case in hands, the application was filed by the Respondent u/s 12A(1)(ac)(iii) which is covered under Section 12AB(1)(b) of the Act of 1961. Hence, the Tribunal was required to undertake the requisite inquiry and then record a finding about genuineness of activities of the respondent/Trust so also regarding the compliance under other laws to be made by the respondent/Trust in order to achieve its objects. And since such finding has not been recorded by the Tribunal and a sweeping direction granting registration under Section 12AB and 80G of the Act of 1961 has been given, the order impugned cannot be sustained. When it comes to registration under Section 80G of the Act of 1961, the situation is starkly different. Because, it entails a benefit of deduction to the extent of 50% of the donation to the payer and for such purpose, the genuineness of the trust’s activities is certainly a mandatory requirement and not simply a relevant consideration. In absence of an inquiry and finding as to whether the activities being carried out by the Trust are bona fidely charitable, the registration under Section 80G of the Act of 1961 cannot be granted. Tribunal was not justified in issuing directions to grant registration under Section 12AB and Section 80G the impugned order [2025 (2) TMI 1583 - ITAT DELHI] of the Tribunal is, therefore, set aside. The matter is remanded to the Commissioner to decide the respondent’s application for registration under Sections 12AB and 80G of the Act of 1961 in accordance with law and to inquire into the activities of the Trust within the parameters of relevant provisions of the Act of 1961. Issues: Whether the Income Tax Appellate Tribunal was justified in directing the Commissioner of Income Tax (Exemption) to grant registration under Section 12AB and Section 80G of the Income-tax Act, 1961, instead of remanding the matter to the Commissioner for inquiry into the genuineness of activities and compliance with other laws.Analysis: The Court examined the statutory scheme distinguishing fresh registration and provisional registration, and the procedure under Section 12AB(1) which, where an application falls under sub-clause (iii) of Section 12A(1)(ac), mandates that the Commissioner call for documents and make such inquiries as necessary to satisfy himself about (A) the genuineness of the trust's activities and (B) compliance with other laws material to achieving its objects. The Commissioner had recorded that the trust had failed to supply documents despite multiple opportunities, and therefore rejected the application after inquiry. The Tribunal, however, recorded that documents had been produced and directed grant of registration without making the requisite findings on genuineness or legal compliance. Given that the respondent's application was filed under Section 12A(1)(ac)(iii) (covered by Section 12AB(1)(b)), the statutory text requires an inquiry and recorded findings before registration can be granted; this requirement is especially stringent where registration under Section 80G is involved because it confers donor tax benefits. The Tribunal's summary direction to grant registration thus bypassed the mandatory inquiry and findings the Commissioner was required to undertake.Conclusion: The Tribunal was not justified in directing grant of registration under Section 12AB and Section 80G without the Commissioner first conducting the inquiries and recording findings as required by law; the impugned order is set aside and the matter is remanded to the Commissioner to decide the application in accordance with law.