Under the Income Tax Act, 1961, the Commissioner of Income Tax (Exemption) [CIT(E)] has the authority to cancel or withdraw the registration granted to charitable/religious trusts under Sections 12A, 12AA, or 12AB. Here are the key provisions:
1. Legal Basis for Cancellation
- Section 12AA(3): Empowers CIT to cancel registration if:
- The trust’s activities are not genuine, or
- It is not complyingwith the conditions for registration.
- Section 12AA(4): Allows cancellation if the trust violates Section 13(private benefits, improper investments, etc.).
2. Grounds for Cancellation
The CIT can cancel registration if:
(A) Non-Genuine Activities
- The trust is not actually carrying outcharitable/religious activities.
- Funds are diverted for non-charitable purposes(e.g., personal use).
(B) Violation of Section 13
- Private benefitto trustees, founders, or relatives.
- Investments not as per Section 11(5)(e.g., in speculative assets).
- Political or commercial activitiesnot incidental to charity.
(C) Non-Compliance with IT Act
- Failure to file ITR-7 or Form 10B(audit report).
- Misrepresentation or fraudin obtaining registration.
3. Procedure for Cancellation
- Show Cause Notice (SCN)
- CIT issues a notice, giving the trust 30 daysto respond.
- Hearing Opportunity
- The trust can submit documents, audit reports, and explanations.
- Final Order
- CIT passes a written cancellation order(must state reasons).
- Effective from the date of violation, not retrospectively.
4. Consequences of Cancellation
- Loss of tax exemption(income becomes taxable at 30% under Section 115BBI).
- Donors lose 80G benefitsfor subsequent donations.
- Penaltiesmay apply for past violations.
5. Judicial Safeguards
- No appeal to ITAT: Trust must file a writ petition in High Court.
- Natural justice principles: CIT must give a fair hearing.
6. Recent Amendments (Budget 2025)
- Provisional registrations (12AB)can be cancelled if conditions are not met within 3 years.
- Incomplete applicationsno longer treated as violations.
