Assessment of Trusts – Meaning and Tax Exemptions

The assessment of trusts refers to the process by which the Income Tax Department evaluates the income, application of funds, and compliance of a charitable or religious trust under the Income-tax Act, 1961. Such assessment ensures that the trust operates within the framework prescribed by sections 11, 12, and 13 of the Act. Only trusts registered under section 12AB (or earlier under section 12A/12AA) are eligible to claim exemption on their income, provided the income is applied towards charitable or religious purposes in India and investments are made in the modes specified under section 11(5).

Table of Contents

1. Meaning of Trust
2. Tax Exemption
3. Charitable Purpose [Sec. 2(15)]
4. Essential Conditions for Exemption [Sec. 11]

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1. Meaning of Trust

A “trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.

• Author of Trust – The person who reposes or declares the confidence is called the “author of the trust”.
• Trustee – The person who accepts the confidence is called the “trustee”.
• Beneficiaries – The person for whose benefits the confidence is accepted is called the “beneficiary”.
• Trust Property – The subject matter of the trust is called “trust property” or “trust money”.
• Instrument of Trust – The instrument, if any, by which the trust is declared is called the “instrument of trust”.

2. Tax Exemption

Income of a charitable trust is exempt according to the provisions of sections 11, 12 and 13. The trust should be one established in accordance with law and its objects should fall within the definition of the term “charitable purposes”.

3. Charitable Purpose [Sec. 2(15)]

“Charitable purpose” is defined in section 2(15). By virtue of this section, “charitable purpose” includes:

i. relief of the poor;

ii. education;

iii. (with effect from the assessment year 2016-17) yoga¹,

iv. medical relief;

v. preservation of the environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and

vi. the advancement of any other object of general public utility.

Advancement of any object or benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose—CIT v. Gujarat Maritime Board [2008] 166 Taxman 58 (SC).

3.1 Promotion of Sports and Games

Promotion of sports and games is considered to be a charitable purpose within the meaning of section 2(15). Therefore, an association or institution engaged in the promotion of sports and games can claim exemption under section 11, even if it is not approved under section 10(23)—Circular No. 395, dated September 24, 1984. Providing sports facilities to general public without restriction to any caste, creed, religion or profession is eligible for exemption under section 11—DIT (Exemption) v. Goregaon Sports Club [2012] 21 taxmann.com 479 (Bom.).

3.2 Business Activities of a Trust/Institution – Can It be Taken as “Charitable Purpose” [Sec. 11(4A)]

There trust property comprises a business undertaking, the income shown in the books of account should not be less than the income determined by the Assessing Officer according to the provisions of the Act. Moreover, the trust or institution can carry out business activities if the following conditions given by section 11(4A) are satisfied:

a. the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution; and

b. separate books of account are maintained by such trust or institution in respect of such business. In order to ensure that the business income of a trust or institution is exempt, the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purpose of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assesse—CIT v. Thanthi Trust [2001] 115 Taxman 126 (SC). Irrespective of whether any business is carried on by such a trust or institution or the business undertaking itself is held in trust, in either case, the trust or institution is charged to tax on such profits and gains at the rates of tax applicable in the case of individuals, association of persons, body of individuals, etc., if the above conditions are not satisfied.

3.2.1 Commercial Activities vis-à-vis Advancement of an Object of General Public Utility

“Charitable purpose” is defined to include relief of the poor, education, yoga, medical relief, preservation of environment and advancement of any other object of general public utility. In a number of judicial pronouncements, the words “any other object of general public utility” have been interpreted—CIT v. Gujarat Maritime Board [2003] 295 ITR 561 (SC), Director of Income Tax v. Bharat Diamond Bourse [2003] 259 ITR 280 (SC), CIT v. Agricultural Produce and Market Committee [2007] 291 ITR 419 (Bom.), CIT v. Federation of Indian Chambers of Commerce & Industry [1981] 130 ITR 186 (SC). So long as the dominant object is of general public utility and there is no profit motive, it cannot be said that the trust/institution is not established for charitable purposes, even if there is some profit in the activity carried on by the trust/institution.

From these decisions it emerge that the expression “any other object of general public utility” is of the widest connotation. Consequently, a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 on the ground that they are charitable institutions. This is based on the argument that they are engaged in the “advancement of an object of general public utility” as is included in the sixth limb of the definition of “charitable purpose”.

3.2.2 Amendments Made by Finance Acts, 2008, 2010, 2017 and 2015 – Modified Version of Charitable Purpose Under Section 2(15)

The Finance Act, 2008 inserted a proviso in the definition of “charitable purpose” under section 2(15). Subsequently, it was amended by the Finance Acts, 2010, 2011 and 2015. After these amendments, “advancement of any other object of general public utility” shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration. This restriction is, however, not applicable if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business does not exceed the limits given below:

For the assessment years 2009-10 to 2011-12	Rs. 10 lakh during the relevant previous year
For the assessment years 2012-13 to 2015-16	Rs. 25 lakh during the relevant previous year
From the assessment year 2016-17 onwards	20 per cent of total receipts of the relevant previous year of the trust undertaking such activities2

3.2.3 Board’s Circular No. 77/2008 Dated December 19, 2008

The above restriction does not apply in respect of the first five limbs of section 2(15), i.e., relief of the poor, education, yoga, medical relief, preservation of environment, etc.

Commercial Activities vis-à-vis First Five Limbs of Section 2(15) – Where the purpose of a trust or institution is relief of the poor, education, yoga, medical relief or preservation of environment, etc., it constitutes “charitable purpose” even if it incidentally involves the carrying on of commercial activities and receipts from such activities exceed the limit given in the table above.

“Relief of the poor” encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. Therefore, it includes within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects are eligible for exemption even if they incidentally carry on a commercial activity and even if receipt from such activities exceed the limits given in the table above. However, the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) should be satisfied. These conditions are:

i. the business should be incidental to the attainment of the objectives of the entity, and

ii. separate books of account should be maintained in respect of such business.

Similarly, entities whose object is “education” or “yoga” or “medical relief” or “preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest”, will continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity and even if receipts from commercial activities exceed the limits given in the table above. However, conditions (i) and (ii) given above should be satisfied.

Advancement of Any Other Object of General Public Utility – Cannot Be Carried On Commercial Basis – The proviso to section 2(15) inserted by the Finance Act, 2008 (and later on modified by subsequent Finance Acts) applies only to entities whose purpose is “advancement of any other object of general public utility”, i.e., the sixth limb of the definition of ‘charitable purpose’ contained in section 2(15). Hence, such entities are not eligible for exemption under section 11 if they carry on commercial activities and if total receipts from such activities exceed the limit given in the table above. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.

Status of Industry and Trade Associations – There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under “any other object of general public utility”. Under the principle of mutuality, if trading takes place between persons who are associated together, contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organisations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organisations have dealings with non-members, their claim to be charitable organisations are governed by the additional conditions stipulated in the proviso to section 2(15) and given in the table above.

Conclusion – In the final analysis, however, whether the assessee has for its object ‘the advancement of any other object of general public utility’ is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business (total receipts being more than the limits given above), it is not entitled to claim that its object is charitable purpose. In such a case, the object of ‘general public utility’ will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalisation is possible. The Board has advised assessees [who claim that their object is ‘charitable purpose’ within the meaning of section 2(15)] to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.

3.2.4 Supreme Court’s Ruling in the Case of Ahmedabad Urban Development Authority

The Supreme Court in the case of CIT v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 has given the following ruling pertaining to commercial activities of charitable trusts:

General Test Under Section 2(15) – An assessee, advancing general public utility, cannot engage itself in any trade, commerce or business, or provide service in relation thereto, for any consideration (i.e., cess or fee, or any other consideration). However, while achieving the object of general public utility, the concerned trust, society or other such organisation, can carry on trade, commerce or business (or provide services in relation thereto) for consideration, provided that:

a. the activity of trade, commerce or business is undertaken in the course of carrying out the advancement of any object of general public utility; and

b. the receipt from such business or commercial activity (or service in relation thereto) does not exceed the quantified limit (i.e., 20 per cent of total receipts of the previous year).

What is Trade, Commerce, or Business – Generally, the charging of any amount towards consideration for advancing general public utility, which is on a cost-basis (or nominally above cost), cannot be considered to be “trade, commerce, or business” or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the concerned assessee, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”.

To put it differently, if a charitable entity (statutory or otherwise), in the course of its functioning, collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision), such amount is not consideration towards trade, commerce or business, or service in relation thereto. In such a case, the mischief of proviso (ii) to section 2(15) [i.e., 20 per cent of total receipt] and the requirement of separate books of account under section 11(4A) are not applicable.

Conversely, if amount collected is significantly higher than recovery of cost, it will be treated as receipts from trade, commerce or business. Consequently, it will be subject to the quantitative limit in proviso (ii) to section 2(15) [i.e., 20 per cent of total receipt] and to record activities of such entity, separate books of account will have to be maintained under section 11(4A). Similarly, regulatory bodies/professional bodies have statutory mandate to collect membership fees from members and examination fees from students. If the level of such fees or collection towards forms, brochures, or exams are significantly higher than the cost, such entity would attract the mischief of proviso (ii) to section 2(15) [i.e., 20 per cent of total receipt] and maintenance of separate books of account.

The assessing authorities must on a yearly basis, scrutinise the record to discern whether the nature of the assessee’s activities amount to “trade, commerce or business” based on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher).

3.3 Judicial Rulings

A few judicial rulings on interpretation of “charitable purpose” are given below:

1. Object to establish schools for Muslim boys and girls to teach urdu, arabic, etc., is charitable in nature—Malik Hasmullah Islamic Educational and Welfare Society v. CIT [2012] 138 ITD 519 (Luck.).
2. There dominant objects of trust are charitable in nature, mere fact that some relatives of settlor can also participate and has preference over general public in such charitable objects, will not make trust as non-charitable—Manockjee Cowasjee Petit Charities v. DIT [2012] 136 ITD 355 (Mum.).
3. There assessee-society charges huge fees from public in addition to prescribed fee of the Government, such society cannot be held as charitable in nature—Sukhmani Society For Citizen Services v. CIT [2012] 139 ITD 307 (Asr.). If an educational institution collects capitation fees from students for purpose of giving admission, it would not be entitled for deduction under section 11—CIT (Exemption) v. Chaitanya Memorial Education Society [2014] 30 ITR (Trib.) 120 (Hyd.).
4. Mere conducting of coaching classes for preparing students to attend examination conducted by Open University or by other university or distance education cannot be treated as charitable activity—DIT v. Kuttukaran Foundation [2012] 51 SOT 175 (Cochin), M Star Charitable Society v. CIT [2013] 142 ITD 153 (Cochin). However, activities such as continuing education diploma and certificate programme; management development programme; public talks and seminars and workshops and conferences etc., are educational activities and/or in the field of education—DIT v. Ahmedabad Management Association [2014] 225 Taxman 223 (Guj.).
5. There assessee-trust is formed with object of taking care of sick animals, it is charitable activity—Snekalaya for Animals v. ITO [2012] 52 SOT 352 (Chennai). Trust engaged in maintaining gaushalas and tending services to other animals and birds, is to be considered as charitable trust—Director of Income Tax (Exemption) v. Bombay Panjrapole Trust [2015] 232 Taxman 821 (Bom.).
6. Activity of maintenance and development of park, would certainly fall within words ‘preservation of environment’ under section 2(15)—New Saibaba Nagar Welfare Association v. DIT [2012] 53 SOT 495 (Mum.).
7. If a trust conducts marathon in a commercial manner, it cannot be said to be existing only for charitable purposes—Hyderabad Runners Society v. DIT [2012] 139 ITD 464 (Hyd.).
8. Objects of setting up memorials to perpetuate memory of national war heroes are charitable in nature—Yodha Samarak Samiti v. CIT [2012] 138 ITD 512 (Chd.).
9. There assessee is formed for production of television and radio programmes for purpose of telecasting and broadcasting, such activities cannot be held as charitable purpose—CIT v. A.Y. Broadcast Foundation [2012] 21 taxmann.com 533 (Ker.).
10. Providing education, literacy programs, training programs for villagers and downtrodden people are charitable in nature—Social Pedia Knowledge Foundation v. DIT (Exemptions) [2013] 141 ITD 398 (Chennai).
11. Imparting of yoga training through well structured yoga camps falls under category of imparting education which is one of charitable objects defined under section 2(15) and, such an activity is not hit by the ceiling of Rs. 25 lakh—Divya Yog Mandir Trust v. CIT [2013] 60 SOT 154 (Delhi).
12. Scholarships is “education” and not “any other object of general public utility”—Hamdard Laboratories India v. DIT [2015] 61 taxmann.com 262 (Delhi).
13. If the object of a trust is to protect, preserve, maintain and develop Indian breed of cows and its progeny, it is regarded as charitable purpose – Bharatiya Govansh Rakshan Samvardhan Parishad v. CIT [2015] 153 ITD 636 (Gau.).
14. Object of teachings in Vedas and Upanishads, Quran and Bible and other scriptures for spreading message of truth, non-violence, austerity, universal brotherhood or friendship, would fall within definition of ‘charitable purpose’ – Shiva Shakthi Shiridi Sai Anugraha Mahapeetam v. DIT(E) [2015] 58 taxmann.com 209 (Hyd.).
15. No denial of exemption under section 11 to an educational trust if it let out its auditorium for educational activities—DIT v. Lala Lajpatrai Memorial Trust [2016] 69 taxmann.com 158 (Bom.).
16. Upliftment of farmers by way of providing them various facilities and protecting their interests at national level, will fall within the purview of “general public utility” being a charitable purpose under section 2(15)—Bhartiya Kisan Sangh Sewa Niketan v. CIT [2017] 85 taxmann.com 179 (Delhi).
17. A surplus is generated by an educational institution which is ploughed back for educational purposes. Such an institution is held to be existed solely for educational purpose and not for purpose of profit—CIT v. St. Peter’s Educational Society [2016] 240 Taxman 392 (SC). Similarly, the benefit of exemption under section 11 cannot be denied to an assessee who has applied more than 85 per cent of its income for charitable purpose, merely because in rendering services to patients (who can afford to pay) some income is generated—CIT v. Saifee Hospital Trust [2017] 395 ITR 225 (Bom.).
18. There an assessee is engaged in micro financing especially for poor women and collects interest at rate much higher than interest charged by banks/NBFCs and levies penal interest even on poor, it is not entitled for the benefit of section 11—Shalom Charitable Ministries of India v. CIT [2018] 94 taxmann.com 266 (Cochin).
19. Promotion of activities connected with development of cattle and buffaloes is covered by section 2(15) and eligible for exemption—CIT v. Animal Breeding Research Organisation (India) [2018] 95 taxmann.com 226 (Guj.).
20. Authority to promote and secure development of local areas is eligible for exemption—Firozabad Shikohabad Development Authority v. CIT [2018] 90 taxmann.com 379 (Agra).
21. There an association is primarily engaged in promotion of sports in the country, it would not lose its character of charitable purpose merely because some sponsorship is accepted from a private company in respect of Asian games and Youth Olympic games—CIT v. India Olympic Association [2018] 96 taxmann.com 184 (Delhi).
22. Execution of a contract by the assessee awarded by the Indian Railways for purpose of cleaning train coaches and railway stations is a purely commercial and business activity and not a charitable activity—Mahatma Gandhi Charitable Society v. CIT [2019] 107 taxmann.com 309 (Ker.).
23. Corporate Social Responsibility (CSR) activities under section 8 of the Companies Act, 2013, are public charitable activities. If a company is formed with object of complying with requirement of corporate social responsibility of its parent company, it is eligible for the benefit of section 11— Escorts Skill Development v. CIT [2019] 178 ITD 32 (Delhi).
24. There income from letting out community hall, Kalyana Mandapam and Gnanavapi, is utilised for objects of the assessee-trust (i.e., running educational institutions and providing medical relief to poor), exemption under section 11 cannot be denied—Sri Ram Samaj v. Jt. DIT (Exemptions) [2020] 119 taxmann.com 334 (Mad.).
25. There the assessee-trust is engaged in activity of management of liquid and solid wastes in industrial area and earns profit, exemption under section 11 is available, since dominant object is not only preservation of environment but one of general public utility—CIT (Exemptions) v. Naroda Enviro Projects Ltd. [2020] 120 taxmann.com 126 (Guj.).
26. Mere charging of fee from members or non-members for rendering services (like training, conducting seminars) would not ipso facto lead to denial of exemption under section 11 when dominant object of assessee remains charitable and aforesaid activities are only incidental to main activity of the assessee—CIT (Exemptions) v. Fertilizers Association of India [2018] 99 taxmann.com 387 (Delhi).
27. The treasurer and secretary of the educational trust has admitted in their statement that trust is collecting capitation fee for admission of students, trust is not entitled for registration under section 12AA—Karnataka Chamber of Commerce and Industry v. CIT [2021] 278 Taxman 363 (SC).
28. There main object of assessee-association, an apex body of all State Transport Corporation, is to improve public transport system in country, merely because it gets revenue from testing automobile parts and consultancy services, it cannot be said that activities of assessee-association are not charitable in nature—CIT v. Association of State Road Transport Undertakings [2021] 283 Taxman 555 (Delhi).

4. Essential Conditions for Exemption [Sec. 11]

The compliance of the following main conditions is essential for claiming exemption under section 11:

• The property from which income is derived should be held under a trust or other legal obligation.
• The property should be held for charitable or religious purposes. In the case of a charitable trust created on or after April 1, 1962, the further conditions are:

(a) the trust should not be created for the benefit of any particular religious community or caste.

(b) no part of the income should enure, directly or indirectly, for the benefit of the settlor or other specified persons; and

(c) the property should be held wholly for charitable purposes.

The conditions mentioned at (b) and (c) also apply to religious trusts created on or after April 1, 1962.

• The exemption is confined to only such portion of the trust’s income which is applied to charitable or religious purposes or is accumulated for applying to such purposes within the limits of accumulation permitted under section 11(1) and (2) [see paras 2 and 3].
• The exemption is restricted to such portion of the income as is applied to charitable or religious purposes in India except in the cases covered by section 11(1)(c).
• The trust shall apply for registration with the Commissioner [see para 3.1].
• The accounts of the trust should be audited for such accounting year in which its income (without giving effect to the provisions of sections 11 and 12) exceeds the exemption limit [Form No. 10B/10BB]^2a. Audit report in Form No. 10B/10BB should be uploaded within the time-limit given below³ [for delay in submission of audit report, see Circular No. 2/2020, dated January 3, 2020 and Circular No. 16/2022, dated July 19, 2022]:

1. 1. Up to the Assessment Year 2019-20 – On or before the due date of submission of return of income.
   2. From the Assessment Year 2020-21 – One month prior to the due date of submission of return of income (if the due date of submission of return of income is October 31 of the assessment year, audit report should be furnished on or before September 30 of the assessment year)⁴.

• In addition to the condition requiring the trust or institutions (having income exceeding the maximum amount not chargeable to tax) to get their accounts audited, such trusts shall also be required to keep and maintain books of account and other documents as specified by rule 17AA.
• Return of income of the trust/institution should be submitted within the time allowed under section 139(1)/(4), if the total income of the trust/institution (before giving exemption under sections 11 and 12) exceeds the maximum amount which is not chargeable to tax (applicable from the assessment year 2018-19).
• The funds of the trust should be invested or deposited in any one or more of modes or forms mentioned in section 11(5).
• There a trust or an institution has been granted registration for purposes of availing of exemption under section 11 and the registration is in force for a previous year, then such trust or institution cannot claim any exemption under any provision of section 10 [other than clause (1)/(23C)/(23EA)/(23EC)/(23ED)/(46)/(46A)] for that previous year.

Moreover, such registration for the purpose of section 11 shall become inoperative from the date on which the trust or institution is approved under section 10(23C) or is notified under section 10(23EA)/(23EC)/(23ED)/(46)/(46A) or June 1, 2020, whichever is later or first day of the previous year relevant to the assessment year for which the exemption is claimed under section 10(46B).

But in such a case, the trust/institution may apply to get its registration operative under section 12AB. On doing so, the approval under section 10(23EA)/(23EC)/(23ED)/(46)/(46A) to such trust or institution shall cease to have any effect from the date on which the said registration becomes operative and thereafter, it shall not be entitled to exemption under these clauses of section 10(23C)/(23EC)/(46)/(46A)].

4.1 Registration Under Section 12AB

Section 12AB has been inserted by the Finance Act, 2020 with effect from October 1, 2020. All charitable institutions which are currently registered under section 12A/12AA are required to apply for a fresh registration under section 12AB. Likewise, all new entities which want exemption under sections 11 and 12, are required to apply for registration under section 12AB. The process of registration for the new and existing charitable institutions will be completely electronic under which a unique registration number (URN) shall be issued to all new and existing charitable institutions. Moreover, new institutions (which are yet to start their charitable activities) will get provisional registration for 3 years. The table given below summarises other provisions of section 12AB:

Different Entities	Time Limit for Uploading Registration Application [Sec. 12A(1)(ac)]	Time Limit for Grant of  Registration [Sec. 12AB(3)]	For Which Date/Year Exemption will be Available Under Sections 11 and 12 [Second Proviso to Sec. 12A(2)]	Validity of Registration [Sec. 12AB(1)]
Existing trusts (which are registered under section 12A/12AA on or before March 31, 2021) [Form No. 10A]	On or before March 31, 2022	Within 3 months from the end of the month in which registration application is uploaded	From the assessment year from which such trust or institution was earlier granted registration	5 years
Trust which is provisionally registered under section 12AB or 10(23C)(iv)/(v)/(vi)/(via) [Form No. 10AB]	At least 6 months prior to expiry of provisional registration or approval or within 6 months of commencement of its activities, whichever is earlier	Within 6 months from the end of the quarter in which registration application is uploaded	From the first of the assessment years for which it was provisionally registered	5 years (to be granted after satisfying about the object of the trust and genuineness of its activities) (5 year time limit to be counted from the first year of provisional registration)
Trust which is registered under section 12AB or 10(23C)(iv)/(v)/(vi)/(via) [Form No. 10AB]	At least 6 months prior to expiry of registration or approval	Within 6 months from the end of the quarter in which registration application is received	From the assessment year immediately following the financial year in which registration application is received	5 years (to be granted after satisfying about the object of the trust and genuineness of its activities)
Trust registration of which has become inoperative due to section 11(7) [Form No. 10AB]	At least 6 months prior to the commencement of the assessment year from which the said registration is sought to be made operative	Within 6 months from the end of the quarter in which registration application is received	From the assessment year immediately following the financial year in which registration application is received	5 years (to be granted after satisfying about the object of the trust and genuineness of its activities)
A trust which has adopted modification of objects which do not confirm to conditions of registration [Form No. 10AB]	Within 30 days from the date of the said adoption or modification	Within 6 months from the end of the quarter in which registration application is received	From the assessment year immediately following the financial year in which registration application is received	5 years (to be granted after satisfying about the object of the trust and genuineness of its activities)
Any other case (applicable up to September 30, 2023) [Form No. 10A] Any other case (applicable from October 1, 2023) where activities of the trust/institution have not commenced	At least 1 month prior to the commencement of the previous year relevant to the assessment year from which registration is sought	Within 1 month from the end of the month in which registration application is uploaded	From the assessment year immediately following the financial year in which registration application is uploaded	Provisional registration for a period of 3 years from the assessment year from which registration is sought
Any other case (applicable from October 1, 2023) where activities of the trust/institution have commenced and no income (or part) has been excluded on account of applicability of section 10(23C)(iv)/(v)/(vi)/(via) or section 11/12 for any previous year ending on or before the date of such application	At any time after the commencement of its activities	Within 6 months from the end of the quarter in which registration application is uploaded	From the assessment year immediately following the financial year in which registration application is uploaded	5 years (to be granted after satisfying about the object of the trust and genuineness of its activities)

4.1.1 Judicial Rulings

The following propositions have been taken from judicial rulings:

• If an assessee is an institution whose object is charitable as defined under section 2(15), it would be entitled to registration under section 12A, even though, as per definition of ‘person’ under section 2(31), it is falling in other category like company or AOP or local authority—Gujarat Maritime Board v. CIT [2005] 147 Taxman 31 (Ahd.) (Mag.), Sri Venkateswara Bhakti Channel v. CIT [2011] 10 taxmann.com 153 (Hyd. – ITAT).
• Registration under section 12A is a condition precedent for availing benefit under sections 11 and Unless and until an institution is registered under section 12A, it cannot claim the benefit of section 11(1)(a)—U.P. Forest Corporation v. CIT [2007] 165 Taxman 533 (SC). If the due date falls on or before June 29, 2024, one can upload Form No. 10AB on or before June 30, 2024 – Circular No. 7/2024, dated April 25, 2024.
• While considering an application for registration under section 12AA sufficiency or otherwise of initial contribution made by founder of trust and dedicated to objects of trust, is not a relevant factor—Acharya Sewa Niyas Uttaranchal v. CIT [2007] 13 SOT 54 (Delhi) (URO).
• Registration cannot be refused on the ground that trust is running a school in a village without seeking necessary prior permission from the appropriate authority to run the school. Even if school for some of classes is run without requisite permission, it is not fatal for grant of registration under section 12AA—Sri Elumalayan Educational Trust v. CIT [2010] 5 ITR (Trib.) 127 (Chennai).
• Likewise, registration cannot be denied on the ground that the assessee-trust has not submitted its return of income for last several years—CIT v. Shri Advait Ashram Society [2012] 211 Taxman 311 (All.).
• Merely because an assessee-trust is formed by a company for complying corporate social responsibility (CSR) requirement, it cannot be denied registration, unless genuineness of activities is doubted—Nanak Chand Jain Charitable Trust v. CIT [2018] 91 taxmann.com 197 (Delhi).
• A trust, which is in process of establishing educational institution, cannot be refused registration under section 12AA on the ground that it has not yet commenced charitable or religious activity – Hardayal Charitable & Educational Trust v. CIT [2013] 214 Taxman 655 (All.). Moreover, in such a case, application cannot be rejected by the Commissioner on the ground that the trust failed to convince him about genuineness of activities—CIT v. Kutchi Dasa Oswal Moto Pariwar Ambama Trust [2013] 212 Taxman 435 (Guj.).
• Moreover, while granting registration the Commissioner cannot impose condition that the trust should not charge any fee/amount from the beneficiaries—DIT v. Commerce Teachers Association [2011] 203 Taxman 171 (Delhi), Shri Gian Ganga Vocational & Educational Society v. CIT [2013] 143
  ITD 297 (Delhi).
• Authority to promote and secure development of local areas is eligible for registration – Firozabad Shikohabad Development Authority v. CIT [2018] 90 taxmann.com 379 (Agra).
• A private university, engaged in imparting education, is eligible for registration – Indus University v. CIT [2018] 91 taxmann.com 41 (Ahd.).
• Registration application cannot be rejected merely on the ground that no activity has been carried out by the trust subsequent to its creation and even up to the time of disposal of its registration application—Matru Vandana Trust v. DIT [2015] 68 SOT 275 (Mum.).
• Where genuineness or bona fide of the assessee-trust was never doubted in earlier years, registration of the same cannot be refused on the mere ground that trust deed did not consist of “dissolution clause”—CIT v. Tapagachha Sangh Mota [2015] 59 taxmann.com 204 (Guj.).
• Where the assessee-trust runs a posh school for children of non-resident Indians on commercial lines under guise of charitable purpose, registration cannot be granted—Dawn Educational Charitable Trust v. CIT [2015] 370 ITR 724 (Ker.). SLP against the High Court’s judgment rejected by Supreme Court—Dawn Educational Charitable Trust v. CIT [2016] 242 Taxman 1 (SC). where, however, hefty fee is charged by the assessee-society and at the same time, it provides free education to needy students and free medical aid to needy patients, registration cannot be denied – B.B. Educational Society v. CIT [2018] 92 taxmann.com 300 (Delhi).
• Mere charging of fee from the members or non-members for rendering services, like training, conducting seminars, does not ipso facto lead to denial of exemption when dominant object of the assessee remains charitable and aforesaid activities are only incidental to main activity of the assessee – CIT v. Fertilizers Association of India [2018] 99 taxmann.com 387 (Delhi)
• .Merely because a trustee is a lifelong member of a trust, the same cannot in itself raise an inference that trust is not charitable—CIT v. Baba Kartar Singh Dukki Educational Trust [2014] 221 Taxman 493 (Punj. & Har.).
• The provisions of section 13(1)(b), 13(1)(c) and 13(3) are not relevant at the stage of registration under section 12AB but rather comes into play at the time of assessment when determining exemption under section 11 – CIT v. Jamiatul Banaat Tankaria [2024] 168 taxmann.com 35 (Guj.), Jito Bhavnagar Chapter Foundation v. CIT [2024] 167 taxmann.com 646 (Ahd.), Shri Sachay Mataji Mandir Vikas Trust v. CIT [2024] 165 taxmann.com 306 (Rajkot), Sony Nyat Samast Vadi Dawaka v. CIT [2024] 165 taxmann.com 83 (Rajkot).
• Powers of Tribunal are co-extensive to that of Commissioner under section 12AA. The Tribunal can direct for registration of a trust/institution without remanding matter to the Commissioner—CIT v. Reham Foundation Kandhari Lane Lal Bagh [2019] 111 taxmann.com 379 (All.).
• Application for registration cannot be rejected on grounds that the assessee has not deducted tax at source from salary or it has paid salary to staff partly in cash and partly by cheque—Nav Bharat Shiksha Samiti v. CIT [2020] 120 taxmann.com 286 (Delhi).

4.2 Cancellation of Registration Granted Under Section 12AB (Applicable from April 1, 2022)

Where registration (or provisional registration) of a trust/institution has been granted and subsequently,

a. the PCIT/CIT has noticed occurrence of one or more specified violations during any previous year; or

b. the PCIT/CIT has received a reference from the Assessing Officer under second proviso to section 143(3) for any previous year; or

c. such case has been selected in accordance with the risk management strategy formulated by the Board from time to time for any previous year,

The PCIT/CIT can take following actions:

i. call for such documents/information from the trust/institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation;

ii. pass an order in writing, cancelling the registration of such trust/institution (after affording a reasonable opportunity of being heard) for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place;

iii. pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations;

iv. forward a copy of the aforesaid order to the Assessing Officer and such trust/institution.

The aforesaid order shall be passed before the expiry of 6 months [calculated from the end of the quarter in which the first notice is issued by the PCIT/CIT (on or after April 1, 2022) calling for the aforesaid document/information, or for making any inquiry].

The following shall mean “specified violation”:

a. where any income of the trust/institution has been applied, other than for the objects of the trust or institution; or

b. the trust/institution has business income which is not incidental to the attainment of its objectives or separate books of account are not maintained; or

c. the trust/institution has applied any part of its income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; or

d. the trust/institution established for charitable purpose has applied any part of its income for the benefit of any particular religious community or caste; or

e. any activity being carried out by the trust/institution is not genuine or not being carried out in accordance with conditions subject to which it was registered, or the trust/institution has not complied with the requirement of any other law (for time being in force by the trust/institution as are material for the purpose of achieving its object) and the order/direction/decree holding that such non-compliance has occurred, has either not been disputed or has attained finality; or

f. (applicable during April 1, 2023 and March 31, 2025) the application for registration under section 12A(1)(ac) is not complete or it contains false or incorrect information; or

g. (applicable from April 1, 2025) the application for registration under section 12A(1)(ac) contains false or incorrect information.

4.2.1 Judicial Rulings

The following judicial rulings may be kept in view:

• The Commissioner cannot utilise its power to cancel registration on the basis of a search and seizure proceeding, prior to completion of the search and seizure assessment—Kalinga Institute of Industrial Technology v. CIT [2008] 23 SOT 74 (Cuttack).
• When certain amount is not spent for aims and objects of a charitable society, it cannot be a ground for cancellation of registration. In such a case, the benefit of exemption under section 11 may be denied to the extent income is not applied for the objects of society—Institute of Science & Management v. CIT [2012] 53 SOT 167 (Ranchi).

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1. It is well established fact that the practice of yoga gives positive relief in the cases of asthma, migraine, hyper tension, stress, etc. Thus, even for assessment years prior to assessment year 2016-17, yoga qualifies as “medical relief” – Patanjali Yogpeeth (Nyas) v. DIT [2017] 78 taxmann.com 128 (Delhi).
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2. The above benefit (from the assessment year 2016-17) is available only if such activity is undertaken in the course of actual carrying out of such advancement or any other object of general public utility, regardless of nature of use or application, or retention, of the income from such activity.

2a. Audit is required in Form No. 10B if the total income of trust, exceeds Rs. 5 crore during the previous year, or if the trust has received any foreign contribution during the previous year, or the trust has applied any part of its income outside India during the previous year. In other cases, an audit is required in Form No. 10BB.

3. Where an assessee-trust substantially satisfies all conditions for availing the benefit of exemption under section 11/ 12, exemption cannot be denied due to belated filing of audit report in Form No. 10B/10BB – Navbharat Charitable Trust v. ITO [2023] 150 taxmann.com 311 (Surat), Shree Bhairav Seva Samiti v. ITO [2023] 149 taxmann.com 478 (Mum.), Shri Rajkot Vishashrimali Jain Samaj v. ITO [2023] 150 taxmann.com 361 (Rajkot), CIT v. State Institute of Health & Family Welfare [2023] 153 taxmann.com 740 (Jp.), CIT v. Gujarat Energy Development Agency [2023] 154 taxmann.com 348 (Ahd.), Shri Namiyun Parswanath Jain Swetamber Manidhari Trust v. ITO [2023] 155 taxmann.com 407 (Jabalpur).

4. For the previous year 2022-23, Form No. 10B/10BB can be uploaded on or before October 31, 2023. If audit report is submitted on or before October 31, 2023 (for the previous year 2022-23) in Form No. 10B where Form No. 10BB was applicable and vice versa, the Board has extended the time-limit (vide Circular No. 2/2024, dated March 5, 2024), to furnish the audit report in the applicable Form No. 10B/10BB for the previous year 2022-23, on or before March 31, 2024 (by Order No. F. No. 173/118/2024-ITA-I, dated October 7, 2024, it has been further extended to November 10, 2024).

4a. PCIT/CIT may condone the delay in filing application and treat such application as filed within time. The delay may be condoned if he considers that there is a reasonable cause for the same.

5. Suppose a charitable trust (created on April 1, 2016) applies for registration on December 1, 2022. Registration is granted on December 10, 2022. Registration, in this case, will be applicable only from the previous year 2022-23. Exemption under section 11 will not be available for previous years 2016-17 and 2021-22. However, on this point law was amended by the Finance (No. 2) Act, 2014, with effect from October 1, 2015. Under the amended provisions:

1. The benefit of exemption shall be available in any assessment proceeding (for an earlier assessment year) which is pending before the Assessing Officer as on the date of registration (i.e., December 10, 2022 in this case), if there is no change in the objects and activities of trust.

2. No action for reopening of an assessment under section 147 shall be taken by the Assessing Officer for any earlier assessment year merely for the reason that such trust or institution has not obtained registration for the said assessment year.

3. The above benefits would not be available in case of any trust or institution which at any time had applied for registration and the same was refused or a registration once granted was cancelled.

However, the above relief [which was provided by the Finance (No. 2) Act, 2014] will not be available with effect from April 1, 2023.

6. The Board has decided to condone the delay up to June 30, 2024 in filing Form No. 10A (which was required to be made on electronically on or before June 29, 2024)—Circular No. 7/2024, dated April 25, 2024.

7. If the due date falls on or before June 29, 2024, one can upload Form No. 10AB on or before June 30, 2024 – Circular No. 7/2024, dated April 25, 2024.

8. If such proceeding is pending before any other authority, then the benefit of exemption is not available for preceding previous year(s)—Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan v. CIT [2022] 138 taxmann.com 197 (SC).