ITAT Delhi Directs Re-adjudication of Section 12AA Registration Denial Linked to Object-Activity Mismatch

In the realm of charitable taxation, the alignment between a trust's written constitution (Memorandum of Association or Trust Deed) and its actual activities is paramount. A recent ruling by the Income Tax Appellate Tribunal (ITAT), Delhi Bench, in the case of Arya Smaj Vs CIT (Exemption), has shed light on how tax authorities should approach cases where an assessee's activities—such as running educational institutions—do not explicitly appear in their objects clause at the time of application.

The Tribunal's decision emphasizes the principles of natural justice, specifically when an assessee has already initiated steps to amend their governing documents to rectify such anomalies.

The central issue in this appeal was the rejection of an application for registration under Section 12AA (read with Section 12A) of the Income Tax Act 1961. The Commissioner of Income Tax (Exemption) [CIT(E)] had denied the registration primarily because the assessee was engaged in running schools, yet the "running of schools" was not expressly listed as an objective in the society's Memorandum of Association.

This created a technical discrepancy: the activities (education) were charitable in nature, but they were arguably ultra vires the society's stated objectives at that specific moment.

Factual Matrix of the Case

The assessee, Arya Smaj, filed an application in Form 10AB on 26.09.2023. This application sought registration under Section 12A(1)(ac)(iii) of the Income Tax Act 1961.