1. Overview
Section 293C of the Income Tax Act, 1961 empowers the Central Government to withdraw approvals granted to:
- Institutions
- Funds
- Trusts
- Any other entities
that were previously approved under various sections of the Act (e.g., Sections 10(23C), 12AA, 35, etc.).
2. Grounds for Withdrawal
Approval may be withdrawn if:
- The entity violates conditionsof approval
- Engages in activities contrary to its stated objectives
- Fails to maintain proper books of accounts
- Does not utilize funds for declared charitable/scientific purposes
3. Procedure for Withdrawal
- Show Cause Notice: Entity gets 30 days to respond
- Opportunity of Hearing: Personal hearing may be granted
- Final Order: Must state reasons for withdrawal
4. Effect of Withdrawal
- Tax exemptions cease from date of withdrawal
- May lead to reassessmentof past years
- Potential penaltiesfor non-compliance
5. Judicial Safeguards
- Withdrawal must follow principles of natural justice
- Can be challenged in High Courtvia writ petition
- Courts often insist on specific instances of violation
6. Practical Example
Scenario: A charitable trust approved under Section 12AA is found diverting 40% of donations to trustees’ personal accounts.
Action:
- CBDT issues show cause notice
- Trust fails to provide satisfactory explanation
- Approval withdrawn prospectively
Consequences:
- Loses tax exemption status
- Donations become taxable
- Trustees may face penalties
7. Key Differences from Cancellation
| ASPECT | WITHDRAWAL (293C) | CANCELLATION (12AA(4)) |
| Authority | Central Government | Commissioner |
| Effect | Prospective | Can be retrospective |
| Appeal | Direct to HC | First to ITAT |
8. Recent Trends
- Increased scrutiny of educational institutions
- Focus on foreign donationscompliance
- Stricter enforcement for hospital trusts
9. Compliance Tips
- Maintain proper utilization certificates
- File annual returnstimely
- Avoid substantial deviationsfrom stated objectives
- Conduct internal auditsregularly
