2026 (3) TMI 1490 - AT - Income Tax

Charitable registration cannot be cancelled merely because activities are funded through inter-entity contracts when beneficiaries receive services free.

Contractual receipts between two charitable entities do not by themselves negate charitable character where the trust's objects, beneficiary details and ... Cancellation of approval/Registration u/s 80G(5)(iv) & 12A(1)(ac)(iii) - Charitable purpose or commercial activities - CIT(E) has dismissed the applications primarily on the conclusion that assessee is providing services only to B-ABLE Foundation as per their requirement and terms and conditions laid down in the agreement signed between the parties and therefore, is getting paid for services. HELD THAT: - The Tribunal held that the mere existence of an agreement between two entities engaged in similar charitable activities, and transfer of funds pursuant to such contractual arrangement, would not by itself render the trust's objects non-charitable. The determinative test was whether the activities were actually undertaken for the intended beneficiaries without any payment from them. Since the competent authority had not examined the trust's activities in the context of its objects and the benefit extended to students or candidates from Government schools for skill development without monetary consideration, the matter required fresh examination on merits. [Paras 4, 5] The impugned cancellation and denial were set aside for fresh examination by the competent authority on the charitable character of the activities actually carried out by the trust. Final Conclusion: The Tribunal held that contractual implementation of activities for another non-profit entity, coupled with receipt of funds, did not by itself negate the charitable character of the trust. As the competent authority had failed to examine the actual nature of the activities and whether the beneficiaries received them without monetary consideration, the matter was restored for fresh decision. Issues: Whether cancellation of approval/registration under the charitable provisions was justified on the ground that the assessee's activities were rendered under an agreement with another foundation and constituted paid services rather than charitable activity.Analysis: The assessee placed the trust deed, memorandum of understanding, invoices raised on an activity basis, beneficiary details, and confirmation from the other foundation indicating that the programme was being run for social impact and knowledge transfer to support youth from underprivileged communities. The decisive question was whether the activities, viewed in the light of the objects of the trust and the actual benefit extended to students and candidates from government schools without monetary consideration, could be treated as non-charitable merely because funds moved under contractual arrangements between two entities engaged in similar work. The issue had not been examined by the first authority on the correct factual and legal footing.Conclusion: The matter required fresh examination by the Commissioner of Income-tax (Exemption) on merits, and the cancellation could not be sustained without such inquiry.Final Conclusion: The appeals succeeded to the extent that the impugned issue was restored for reconsideration, leaving the substantive question open for a fresh decision.Ratio Decidendi: Contractual receipts or inter-entity funding do not by themselves negate charitable character where the beneficiaries are shown to have received the services without payment and the activities are aligned with the trust's objects.