ITAT Delhi: Retrospective Cancellation of Trust Registration under Section 12AB Held Invalid

In the recent case involving a Charitable Trust established in 1967 and registered under Section 12A since 1975,  operated a charitable hospital in Punjab. The trust’s registration was cancelled in 2008 by the CIT, Amritsar, due to alleged involvement in an illegal kidney transplant racket. The said order was finally quashed by the Punjab & Haryana High Court in 2023 due to lack of jurisdiction, and thereafter the trust’s registration was restored. However, in 2024, the CIT (Exemption), New Delhi, acting under Section 12AA(3)/12AB(4), again cancelled the trust’s registration with retrospective effect from April 1, 2002, alleging profit-oriented activities, fraudulent registration, and “specified violations.”

The trust challenged the cancellation before the ITAT, saying that all allegations were regarding events before April 1, 2022, when the concept of “specified violations” under Section 12AB was first introduced, and that no violation had occurred after the fresh registration granted in 2022. It also submitted that no misuse of funds had been established.

Main Issue: Whether the CIT (Exemption) could retrospectively cancel a trust’s registration under Section 12AB(4) for alleged violations that occurred before April 1, 2022, and prior to the regime of “specified violations.”

Tribunal’s Decision: The ITAT Delhi held that the cancellation was invalid, as Section 12AB(4) applies only to violations occurring after registration under the new regime introduced from April 1, 2022. The Tribunal emphasised that the law mandates “specified violations” to be established based on events occurring after registration, and that retrospective application would cause severe civil consequences. The show cause notice issued by the CIT(E) was also found defective since it did not specify which clause of the Explanation to Section 12AB(4) was invoked nor indicated intent for retrospective cancellation.

The Tribunal also noted that leasing out hospital premises to doctors did not amount to a profit-making activity when the rental income was applied toward charitable purposes. Relying upon DIT(E) v. Abul Kalam Azad Islamic Awakening, it held that income from trust property does not vitiate charitable character if used for charitable objects. As the alleged violations and criminal allegations related to events long before 2022 and had not been proved against the trust or its trustees, the ITAT quashed the order of cancellation and allowed the appeal.

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