M. Foundations is a charitable trust registered under Section 12AB of IT Act 1961. During the FY 25-26, it derived an income of 60 lakhs from…
CA Final · Direct Tax Laws and International Taxation · PYQS · May 2026
M. Foundations is a charitable trust registered under Section 12AB of IT Act 1961. During the FY 25-26, it derived an income of 60 lakhs from property held under trust. It applied a sum of 40 lakhs towards charitable purposes which includes repayment of loan taken for the construction of an orphanage amounting to 6 lakhs. It applied 5 lakhs at a private Ganpati Mahotsava organized by a housing society. Assuming that the return filed for AY 26-27 is subsequently taken under scrutiny by issue of notice u/s 143(2) and during the assessment proceedings, the Assessing Officer consider that the amount of 5 lakhs paid for a private Ganpati Mahotsava organized by a housing society is a violation of term of the registration granted under Section 12AB and make a reference to CIT (Exemption) to withdraw the registration granted. Considering the above facts, explain whether the Assessing Officer is empowered to make such reference and what action the CIT (Exemption) may take on such reference.
Suggested Answer and Working Notes:
(i) As per second proviso to section 143 (3) , the Assessing Officer is empowered to make a reference to the Principal Commissioner or Commissioner to withdraw the registration granted to M. Foundations, a charitable trust registered u/s 12AB, since it has committed specified violation. M. Foundation has applied 5lakhs at a private Ganpati Mahotsava organised by a housing society which is a specified violation since the trust has applied its income for a private religious purpose, which does not ensure for the benefit of the public. On receiving such reference, the Principal Commissioner of Income-tax or Commissioner of Income-tax can call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence of the specified violation; pass an order in writing to cancel the registration granted u/s 12AB after affording a reasonable opportunity of being heard for such previous year and subsequent previous year, if he is satisfied that specified violation have taken place; forward a copy of the order cancelling the registration to the Assessing Officer and to the trust.
Topics: Assessment of Trusts and Institutions, Political Parties and Other Special Entities
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