Section 12AA

Section 12AA — the law in short

What the courts have decided on section 12AA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• ACIT v Ahmedabad Urban Development Authority Supreme CourtCuts both ways
  We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
  Only if the fees are pitched above cost. Charging on a cost or nominal mark-up basis is not trade, commerce or business; charges noticeably higher than cost are. Even permissible commercial activity must be carried on in the actual course of achieving the general public utility object, and receipts from it must stay within 20 per cent of total receipts.
• CIT (Exemption) v Batanagar Education and Research Trust Supreme CourtHelps department
  The Commissioner has cancelled my trust's registration because some corpus donations are said to be bogus — can he do that when the money was actually spent on the trust's objects?
  Yes. The Supreme Court held on 2 August 2021 that a trust which takes donations by cheque and returns the money in cash is misusing its section 12AA status and cannot keep it. The Managing Trustee had admitted in a survey that a major part of the corpus donations were accommodation entries, that part of each donation went back to the donors through named intermediaries by RTGS, and that those payments were booked as building capital expenditure. On that material the Commissioner and the Tribunal were right to cancel registration under section 12AA(3) and the consequent 80G approval, and the Calcutta High Court should not have interfered under section 260A.
• Ananda Social and Educational Trust v CIT Supreme CourtHelps taxpayerNo later treatment found
  Our trust was formed weeks ago and has done nothing yet. Can registration be refused for that?
  No. Registration cannot be refused merely because a newly formed trust has not started activities. 'Activities' includes proposed activities, so at the registration stage the Commissioner looks at whether the objects are genuinely charitable and whether the proposed activities are genuine.
• CIT v Dawoodi Bohara Jamat Supreme CourtCuts both ways
  The Commissioner has refused my trust registration under section 12AA because our objects are tied to one religious community — can he refuse registration on that ground?
  No, not at the registration stage on this reasoning. The Supreme Court held on 20 February 2014 that section 13 is an exception to sections 11 and 12, so whether it bites is examined when exemption is claimed, not when registration is decided. On the merits the Court corrected both sides. Section 13(1)(b) is not confined to trusts that are purely charitable; a composite religious and charitable trust is not outside it merely because it is composite. But on these objects — food served on community occasions, a madarsa, help to the needy — the benefit was not channelled to the Dawoodi Bohra community alone, so section 13(1)(b) was not attracted and the appeals were dismissed.
• Manas Sewa Samiti v Addl. CIT High CourtHelps taxpayer
  The Assessing Officer has added our society's donations to our college's fee receipts to push us over the s.10(23C)(iiiad) limit. Can he club them?
  No, and that is still so after the 2021 amendment. The Allahabad High Court held the benefit of s.10(23C)(iiiad) is activity-centric: the prescribed limit is tested against the receipts of the eligible institution alone, and the other income of the society running it — donations, subscriptions and the like — is not to be clubbed. The sub-clause was substituted by the Finance Act 2021 with effect from AY 2022-23, so the limit is now five crore rupees and the receipts of all the person's institutions are aggregated; but the aggregation is of receipts 'from such university or universities or educational institution or educational institutions', so income the society receives in its own right still does not enter the computation.
• CIT (Exemptions) v Audyogik Shikshan Mandal High CourtHelps taxpayer
  Trust funds went to a trustee. Does the trust lose exemption on all its income or only that amount?
  Only that amount. Denial of exemption under s.11 is confined to the sum actually diverted in breach of s.13; s.13 withdraws the benefit in respect of the offending income or property, not for the trust as a whole.
• Delhi Development Authority v Union of India High CourtHelps taxpayerSuperseded by amendment
  The Assessing Officer has directed a special audit under s.142(2A) reciting that my accounts are voluminous and need detailed verification. Is that enough?
  No — not on that reasoning. Section 142(2A) is not a provision by which the Assessing Officer delegates to a chartered accountant the scrutiny and verification he is himself required to do. The reasons recorded must be genuine and must have a nexus with the statutory requirements, and where the officer lifted the assessee's own notes of accounts verbatim as his reasons, that disclosed non-application of mind and the directions were quashed for every year. Note the amendment: for the years before this Court (AY 2003-04 to 2009-10) the section spoke only of the nature and complexity of the accounts and the interests of the revenue, and the holding that a large number of entries is not by itself complexity is a construction of that text. The section as it now stands, substituted by the Finance Act 2023 with effect from 1 April 2023, lists volume of the accounts as an independent trigger.
• Pavai Varam Educational Trust v PCIT (Central), Chennai ITATHelps taxpayerNo later treatment found
  The PCIT cancelled my registration under s.12AB(4) for a specified violation resting entirely on an addition made in assessment. The Tribunal has since deleted that addition. Does the cancellation survive?
  No. Where the order under s.12AB(4) is founded entirely on the outcome of another proceeding, its fate depends on the sustainability of that foundational finding; once the Tribunal reversed the quantum findings on which the alleged specified violation rested, the cancellation could not survive independently. The Tribunal set aside the cancellation and directed restoration of the registration.
• School Managing Society Capt. Gurcharan Singh v DCIT/ITO (Exemptions) ITATHelps taxpayerNo later treatment found
  We missed the s.12AB re-registration, CPC has taxed our entire gross receipts, and we never claimed s.10(23C)(iiiad) in the return. Can we claim it now, in appeal?
  Yes, on these facts. The Amritsar Bench held that a school whose annual receipts are well below the prescribed limit is legally entitled to s.10(23C)(iiiad) even though the claim was made for the first time before the appellate authorities, because it is a question of law arising from material already on record. The sub-clause requires no registration and no approval, so the loss of s.11 for want of s.12AB registration does not touch it.
• CMR Engineering Educational Society v DCIT ITATHelps taxpayerNo later treatment found
  After a search the PCIT (Central) has cancelled my society's registration under s.12AB(4) for a 'specified violation', relying on loose sheets and statements. Does he have to prove one of the listed violations, or is a general finding of misuse enough?
  He has to prove one of the listed violations. Section 12AB(4) as amended by the Finance Act 2022 is not a general power to withdraw registration: cancellation can follow only on the occurrence of one or more of the 'specified violations' defined in the Explanation to that sub-section, and the onus of establishing that occurrence lies on the Department. Suspicion, however strong, will not do.
• Lala Sher Singh Memorial Jeevan Vigyan Trust Society v PCIT (Central) ITATHelps taxpayer
  The PCIT has cancelled our registration under s.12AB(4) for 'specified violations' said to have occurred in years going back to 2015-16. Can s.12AB(4) reach back that far?
  The Delhi Tribunal held it cannot. The concept of a 'specified violation' in the Explanation to s.12AB(4) was brought in with effect from 1 April 2022, so it cannot be applied to alleged violations of assessment years 2015-16 to 2021-22. The Tribunal also held that the cancellation was passed by the wrong officer: under the CBDT notifications constituting the Commissioner (Exemptions), it is that Commissioner and not the PCIT (Central) to whom the Assessing Officer is subordinate who deals with a trust's registration. The cancellation orders were quashed.
• Versova Kokni Sunni Jamat Trust v CPC ITATHelps taxpayerJudgment not reachable
  We have no 12A registration. Is a corpus donation given for buying property taxable in our hands?
  No. A voluntary contribution made with a specific direction that it form part of the corpus is a capital receipt, and that character does not depend on the trust holding registration under s.12A or s.12AA. The addition of Rs 8,99,811 was deleted.
• Statutory position — s.12AC: a registered trust may merge into another without Chapter XII-EB, but only on three conditions, one of which is still to be prescribed CBDT Circulars & InstructionsCuts both waysNo later treatment found
  Our society wants to merge into a larger trust that does the same work. Both are registered. Will the merger trigger the exit tax on accreted income, and what do we have to get right?
  Section 12AC, inserted after section 12AB by the Finance (No. 2) Act, 2024 with effect from 1 April 2025, says that where a trust or institution registered under section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10, merges with another trust or institution, the provisions of Chapter XII-EB shall not apply if three conditions are met: the other trust or institution has same or similar objects; the other trust or institution is registered under section 12AA or section 12AB or approved under those same sub-clauses of section 10(23C); and the merger fulfils such conditions as may be prescribed. Chapter XII-EB is the exit tax — the charge on accreted income under section 115TD, the interest under section 115TE and the personal liability under section 115TF. Where any of the three conditions fails, the section simply does not apply and the Chapter is left in place.
• Statutory position — section 115TD: the exit tax on accreted income, and the Finance Act 2022 extension to a mere failure to re-apply in time CBDT Circulars & InstructionsCuts both waysNo later treatment found
  We simply missed the deadline for the fresh application under s.12A(1)(ac). We have not been cancelled and nobody has rejected anything. Can the exit tax under s.115TD really apply to us?
  Yes. Since the Finance Act 2022, s.115TD(3)(iii) deems a specified person to have been converted into a form not eligible for registration where it simply fails to make the application required by s.12A(1)(ac)(i), (ii) or (iii), or by the corresponding clauses of the first proviso to s.10(23C), within the period specified, where that period expires in the previous year. The consequence is tax on accreted income at the maximum marginal rate, payable within fourteen days of the end of that previous year, in addition to any income tax otherwise chargeable, with no credit and no deduction against it.
• Statutory position — s.115BBDA: the ten per cent charge on a resident shareholder receiving dividend above ten lakh rupees, and why it sat on top of DDT rather than instead of it CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  My client got a notice charging ten per cent on his dividend income under s.115BBDA even though the companies had already paid DDT. Is that double taxation, and for which years does it apply?
  Section 115BBDA charges a specified assessee resident in India, whose total income includes dividend in aggregate exceeding ten lakh rupees declared, distributed or paid by a domestic company or companies on or before 31 March 2020, to income-tax at ten per cent on the amount of such dividend in aggregate exceeding ten lakh rupees, plus the tax on the rest of his income computed as if the dividend were excluded. Sub-section (2) bars any deduction for expenditure or allowance and any set off of loss in computing that dividend income, and the Explanation excludes a s.2(22)(e) deemed dividend and takes a domestic company, a s.10(23C)(iv)/(v)/(vi)/(via) fund, institution, trust, university or hospital, and a trust or institution registered under s.12A, s.12AA or s.12AB out of 'specified assessee'.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.