Refusal of Registration under Section 12AA – Whether Educational Activities Constitute Charitable Purpose?

 

CIT, Patiala v. Yadvindra Public School Association, Patiala, ITA-253-2011 (O&M), decided on 09 September 2024 (P&H HC)

SLP (C) No. 34221/2025, dismissed on 24 November 2025 (SC)

 

1. Introduction:-The question whether an educational institution—already enjoying approval under Section 10(23C)(vi)—can be denied registration under Section 12AA continues to surface in assessments. The issue becomes particularly delicate where the Commissioner questions the genuineness of “charitable activities” despite the institution being an established school.

 

In CIT Patiala v. Yadvindra Public School Association, the Punjab and Haryana High Court revisited the limited scope of enquiry prescribed under Section 12AA and the interplay between Sections 10(23C)(vi) and 12AA. The Court affirmed the ITAT’s conclusion that the Commissioner’s refusal was misplaced. The matter reached finality when the Supreme Court dismissed the Revenue’s SLP on 24 November 2025.

 

2. Core Issue:/Whether the Commissioner was justified in refusing registration under Section 12AA to an educational society which:

                1.            already held approval under Section 10(23C)(vi), and

                2.            was alleged by the Commissioner to have not demonstrated charitable educational activity in terms of Section 2(15).

 

3. Background Facts:-

Yadvindra Public School Association is a long-standing educational society managing schools in Patiala. It held approval under Section 10(23C)(vi) for several years. When it sought registration under Section 12AA, the Commissioner declined the request, alleging that the institution had not proved engagement in charitable activities and that imparting education was not satisfactorily established.

 

The ITAT reversed the Commissioner’s order, noting that the society’s educational character was undisputed and its accounts reflected application of income solely towards educational objectives. The Revenue carried the matter to the High Court.

 

4. Statutory Scheme Considered

Section 2(15):-Defines “charitable purpose”, with “education” forming an independent category that requires no further qualification.

 

Section 12AA:At the stage of registration, the Commissioner is confined to examining:

whether the objects are charitable, and

whether the activities/proposed activities are genuine.

 

Section 10(23C)(vi):-A separate route for exemption for institutions existing solely for educational purposes and not for profit.

 

Section 12AA(3):-Cancellation powers inserted by the Finance Act, 2010; judicially recognised as prospective in nature.

 

5. Precedents Relied Upon:-The Court referred to a line of decisions clarifying the nature of scrutiny under Section 12AA:

(a) Ananda Social and Educational Trust v. CIT (2020) 17 SCC 254 (SC)

Registration requires only examination of objects and proposed activities; actual conduct becomes relevant later under Section 12AA(3).

 

(b) New Noble Educational Society v. CIT (2022) 448 ITR 594 (SC)

Educational institutions pursuing their objects cannot be denied registration; cancellation powers are prospective.

 

(c) Pinegrove International Charitable Trust v. UOI (2010) 327 ITR (P&H)

Generation of surplus does not dilute the educational character where the income is fully applied for educational purposes.

 

(d) Industrial Infrastructure Development Corp. (Gwalior) Ltd. (SC)

Reaffirmed that the 2010 amendment granting cancellation powers does not operate retrospectively.

 

6. Reasoning of Authorities

Commissioner (CIT):The Commissioner held that the assessee had not demonstrated charitable activity, and approval under Section 10(23C)(vi) could not automatically translate into eligibility under Section 12AA. The order did not point to any diversion of funds or non-educational activity.

 

ITAT:-The Tribunal found no basis for the refusal. The institution’s long history in the education sector, utilisation of funds for educational purposes, and existing 10(23C)(vi) approval collectively demonstrated genuineness of activities. It directed the Commissioner to grant registration.

 

7. Findings of the High Court:-The High Court agreed with the ITAT and made the following key observations:

 

(i) Limited Scope of Section 12AA Enquiry

The Commissioner is not expected to conduct a detailed assessment-like investigation. The enquiry is restricted to charitable objects and genuineness of activities. The Court noted that the Commissioner’s order travelled beyond this boundary.

 

(ii) Weight of 10(23C)(vi) Approval

While the two provisions operate independently, approval under Section 10(23C)(vi) constitutes significant prima facie evidence that the institution exists solely for educational purposes. This reduces the scope for questioning genuineness at the threshold stage.

 

(iii) No Material Showing Non-Genuine Activity

The Commissioner did not bring any adverse fact to show misuse of funds or departure from the educational mandate.

 

(iv) Prospective Nature of Cancellation Powers

Relying on New Noble and Industrial Infrastructure Development Corp., the Court reaffirmed that the post-2010 cancellation powers cannot form a basis for refusing initial registration.

 

8. Decision of the High Court

The Revenue’s appeal was dismissed. The ITAT’s direction to grant Section 12AA registration was upheld, and the Department was instructed to implement the order without delay.

 

9. Supreme Court Proceedings

The Revenue preferred SLP (C) No. 34221/2025. The Supreme Court, after briefly considering the matter, found no reason to interfere and dismissed the SLP on 24 November 2025, thereby affirming the High Court’s judgment in its entirety.