ITAT Bangalore Remands Shiksha Trust 12AB Registration Case Over ₹67.40 Crore Preschool Receipts

Background and Context

The dispute in Shiksha Trust Vs CIT (ITAT Bangalore) concerns refusal of charitable registration to an educational trust in light of unusually high preschool fee collections of ₹67,40,21,417. The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) was called upon to decide whether such receipts alone could justify rejecting the application for registration, especially when the assessee was given only four days to respond to a detailed notice.

Shiksha Trust is a public charitable trust constituted with the stated objective of promoting education and operating schools. It sought registration so that its income could be considered for exemption under the scheme of Section 12AB of the Income Tax Act 1961.

The case illustrates two central themes:

  • How revenue authorities should evaluate large educational fee collections when considering charitable registration; and
  • The minimum standards of fair hearing and adequate opportunity that must be afforded before rejecting a Section 12AB application.

Factual Matrix

Application for Registration

  • The assessee filed Form No. 10AB on 19 August 2025 seeking registration as a charitable institution.
  • The order of the Commissioner of Income Tax (Exemption) [CIT(E)] describes the application as one under Section 12AA, but the Tribunal’s operative direction is in the context of Section 12AB.
  • Basic financial particulars submitted included:
    • Corpus fund: ₹1,00,000
    • Other liabilities: ₹86,69,749
    • Other assets: ₹87,69,749
  • For the financial years ending in 2022 and 2023, the assessee reported nil receipts.

Discovery of Preschool Operations and Receipts

Subsequent material before the CIT(E) indicated that the trust had, in the financial year 2024–25, commenced preschool activities at:

  • Bangalore, and
  • Ranga Reddy District, Telangana.

From these operations, the trust reportedly collected preschool fees aggregating to ₹67,40,21,417.

The CIT(E) viewed this figure as extremely high in the context of preschool activities and considered that:

  • The magnitude of the fees needed to be reconciled with:
    • Bank account statements
    • Number of enrolled students
    • Fees charged per student
    • Other supporting financial and operational records

In the absence of full documentation at the stage of examination, the CIT(E) formed a prima facie opinion that such receipts suggested commercial operations being conducted in the name of education.

Notice and Rejection Order

  • On 5 March 2026, the CIT(E) issued a notice calling for extensive information and documentation from the assessee, noting that there had been a change in the incumbent officer.
  • The notice allowed only four days for compliance.
  • The requisitioned details included:
    • Complete bank statements
    • Student strength and enrolment data
    • Fee structure per child
    • Nature of activities
    • Reconciliation of fee collections with accounts and records

Given the limited response time and the absence of complete supporting material on record, the CIT(E) proceeded to:

  • Characterise the activities as commercial in nature on a prima facie basis; and
  • Reject the registration application by order dated 23 March 2026.

This rejection led the assessee to approach the ITAT Bangalore in appeal.

Issues Before the Tribunal

The Tribunal was required to consider two interlinked questions:

  1. Substantive issue:
    Whether the CIT(E) could, at the stage of considering a registration application, reject it solely on the prima facie ground that fee collections of about ₹67.40 crore for preschool activities indicated commercial operations rather than charitable educational activities.

  2. Procedural / natural justice issue:
    Whether granting the assessee only four days (from 5 March 2026 to 9 March 2026) to furnish extensive documentary evidence was sufficient and compliant with the principles of natural justice, particularly when the order was passed on 23 March 2026 and the statutory time limit was to expire on 31 March 2026.

The Tribunal had to harmonise: