Imagine being fined for jumping a red light – on a road where the traffic light was installed only after you drove past. That, in essence, is what India’s Income Tax Department has been doing to dozens of non-profit organisations across the country.
The department has been cancelling the tax-exempt registrations of charitable trusts, societies, and other non-profits by invoking a legal provision that simply did not exist for the years it is being applied to. Many such decisions have been repeatedly struck down.
In at least 20 cases over the last three years, different benches of the Income Tax Appellate Tribunal (ITAT) – the quasi-judicial body that hears tax disputes – have used words like “whimsical”, “arbitrary”, “invalid”, “wholly fallacious” and “flawed” to describe this practice, according to tribunal orders analysed by Newslaundry. In one ruling, the Delhi ITAT accused a “biased” tax authority of being “bent upon” cancelling registrations “by hook or crook”.
The Central Board of Direct Taxes has not responded to Newslaundry’s questionnaire.
Of the 20 ITAT cases reviewed by Newslaundry, 11 were within the Delhi jurisdiction, four were from Bengaluru, two from Indore, and one each from Mumbai, Pune and Jaipur. The orders – spanning June 2023 to March 11, 2026 – do not represent an exhaustive count. The earliest order was issued in June 2023; the most recent on March 11, 2026.
Beyond these, several prominent organisations have also challenged the retrospective use of Section 12AB(4) before the Delhi High Court and the ITAT – among them Oxfam India, Care India, the Centre for Policy Research, activist Harsh Mander’s Aman Biradari Trust, and Legal Initiative for Forest and Environment. The Income Tax Department carried out searches at these organisations in 2022 and revoked their tax exemptions the following year. These matters are sub-judice.
What has changed
Until March 2021, non-profit organisations registered under Section 12AA of the Income Tax Act enjoyed tax exemptions until cancellation. That exemption also meant the organisation didn’t pay income tax, and donors could claim tax deductions on their contributions under Section 80G.
When the government introduced the 12AB regime, civil society groups expressed concerns. They claimed that the new regime could pose a huge administrative burden and could be used as a tool to harass groups critical of the government.
From April 1, 2021, the government moved to the new system. Under Section 12AB, registrations now had to be renewed every five years. All the non-profits had to re-register.
Then, a year later, through the Finance Act of 2022, the government expanded the grounds on which a non-profit could lose its registration. This new provision – Section 12AB(4) – introduced the concept of “specified violations”: a list of six offences that could trigger cancellation. Among them: using income to benefit a particular religious community or caste, or non-compliance of any other law. These additions took effect from April 1, 2022.
The problem? Tax authorities have been using this 2022 provision to cancel registrations for alleged violations going back years – sometimes to assessment years as far back as 2012-13.
The cost
When a non-profit loses its tax-exempt registration, the consequences ripple outward fast.
Its income, which was previously untaxed, is now assessed at commercial rates – as if it were a regular business, not a charity. Donors can no longer claim tax deductions on their contributions, which tends to dry up domestic fundraising quickly. And the organisation’s leadership must divert time, money and energy to fighting legal battles instead of doing the work they set out to do.
Senior advocate Sachit Jolly, who practises at the Delhi High Court, explained what he called a double blow: “The NGO is treated as a commercial organisation, not charitable. Its income is then assessed as such…even donors can’t claim deductions…This dries up domestic funds for NGOs.”
Gaurav Padhan, partner at accounting firm KPSG & Co, said that under tax rules, non-profits must spend at least 85 percent of their income on charitable activities and may retain only 15 percent. After a cancellation, it is largely this retained portion – plus any expenditure deemed “not genuine” – that becomes taxable. “With penalties and taxes, the total becomes a huge burden,” he said.
Then there is reputational damage. Environment lawyer Ritwick Dutta, whose organisation Legal Initiative for Forest and Environment had its registration cancelled in 2023, alleged: “First, they defame the organisation despite the fact that they have no authority to do so. On the other hand, there is no such reputational harm to officials who are issuing such illegal cancellations.”
Abhishek Jebaraj, lawyer and partner at Isaac and Jacob, said the cancellation of registration always results in a loss of withdrawal of tax exemption.
He further said that the legal process itself is punishment. “Arbitrary cancellation without clear evidence of serious tax evasion, ends up crippling non profit organisations, even if courts subsequently reverse the cancellations. This is because NGOs can't accrue profits and even litigating against large tax demands, that too retrospectively, is simply unsustainable. The process itself becomes the punishment.”
Lawyer Abhik Chimni alleged that any application of “specified violations” before 2022-23 is not only “illegal” but also “malicious”.
Let’s take a closer look at a few of the tribunal cases.
Hemkunt Foundation, Gurugram
In the winter of 2020, as farmers from Punjab, Haryana and western Uttar Pradesh camped at Delhi’s borders to protest three controversial farm laws, the Gurugram-based Hemkunt Foundation built tent cities for 8,000 of them at the protest sites. When internet shutdowns hit, it ran what it called a #WiFiLangar. The foundation had also been at the forefront of Covid relief efforts.
The Income Tax Department searched its Gurugram premises in September 2021. An assessment report later alleged that its humanitarian aid to farmers was not “charitable” and that its activities were “not genuine” for assessment years 2019-20 to 2021-22 – all years before the 2022 provision existed. The foundation’s registration was cancelled in December 2023.
Aggrieved, the trust challenged the cancellation before the ITAT. Before the tribunal, Hemkunt described the cancellation order as “perverse” and “erroneous”. It also argued that the principal commissioner had “erred” in alleging that aid to farmers was not “charitable”.
The ITAT set aside the cancellation in June 2025, ruling that Section 12AB(4) “could not have been used” for those years.
According to its website, the foundation works on humanitarian relief, poverty, disease, disaster response, healthcare support, education and livelihoods for economically weaker sections. Actors Ranveer Singh and Taapsee Pannu are on its advisory board.
Human Welfare Foundation, Delhi
This organisation provides scholarships, medical aid, drinking water, child support, food distribution and low-cost housing to marginalised communities. The Income Tax Department alleged that its work improperly benefited a particular religious community – on the basis that its Delhi offices were located in Muslim-majority neighbourhoods. The department said the organisation used its income for the benefit of a particular religious community and thus deviated from its stated aims and objectives
Two assessment years – 2012-13 and 2018-19 – were examined.
The ITAT, in an April 2025 order by judicial member Mahavir Singh and accountant member Manish Agarwal, rejected this logic and the retrospective cancellation. The bench added pointedly that the foundation’s beneficiaries “include all sections of society irrespective of their caste and creed”.
Lakhmi Chand Charitable Society, Delhi
The society, which runs GD Goenka School in Delhi’s Dwarka, had its registration cancelled in 2024 for “specified violations” spanning six assessment years: 2015-16 to 2021-22.
“Reliance placed to Section 12AB (4) of the Act for the alleged violations occurred during AY 2015-16 to AY 2021-22 is without any substance as Section 12AB(4) of the Act is made applicable w.e.f 01.04.2022,” stressed the society before the tribunal.
The ITAT ruled on August 28, 2024 that the cancellation was “erroneous, bad in law, whimsical, in non application of mind and thus, unsustainable”.
The bench reserved its sharpest language for one detail: the cancelling authority had directed that even if no “specified violation” was ultimately found to exist, the cancellation order would continue to operate regardless. The tribunal called this a “colourable exercise of power”, and evidence of “biasness on the part of the authorities below; by hook or crook the authority was bent upon to cancel the registration”. This case has since been widely cited in subsequent ITAT orders on Section 12AB(4).
Islamic Academy of Education, Mangalore
Registered in 1992, this trust runs the Yenepoya educational institutes. The IT department searched its premises in February 2021 and cancelled its registration in June 2023, alleging it had received money from students for college admissions.
The Bengaluru ITAT ruled on February 28, 2024 that the registration – granted under the old Section 12A – could not be cancelled under the new Section 12AB(4) for assessment year 2021-22 before the provision came into force.
“Since the assessee (Islamic Academy Education) has secured the registration u/s 12A of the Act dated 4.6.1992, which was effective till the date of 23.9.2021 and this registration granted u/s 12A cannot be cancelled u/s 12AB(4)(ii) of the Act for the previous year 2020-21 covering the assessment year 2021-22. On the other hand, he (PCIT) could cancel the registration from assessment year 2022-23 onwards u/s 12AB(4)(ii) of the Act,” it noted.
The bench drew on its own earlier ruling in the Amala Jyothi Vidya Kendra Trust case, delivered in December 2023, which had already established that the amended provision could not be read to have retrospective character without an explicit legislative direction to that effect.
Centre for Development Communication Trust, Rajasthan
The department alleged that this Rajasthan-based NGO was running waste-management contracts for local bodies for profit, making it a commercial rather than charitable operation. The Jaipur ITAT, in a June 2024 ruling, held that the cancellation for assessment year 2017-18 was invalid: the provision being invoked “does not operate” for years before April 1, 2022.
In the remaining 15 cases too, ITAT benches reiterated that section 12AB(4) and “specified violations” can’t be invoked for years before 2022-23. Relying on several ITAT judgments, the Indore bench, for example, in the Truba Education Society case, said: “The Bangalore, Jaipur and Delhi Bench of ITAT have clearly held that the impugned amendments in section 12AB(4) through Finance Act, 2022 are prospectively applicable from 01.04.2022 and they do not have retrospective application for the violations committed, if any, before 01.04.2022 and accordingly, the Benches of ITAT have decided this issue in favour of assessee, quashed the orders passed by PCIT and restored the registration of assessee.” In the Jindal Charitable Society case too, the Delhi bench said that “specified violations” were applicable only prospectively.
The Income Tax Department’s position, as reflected in tribunal orders, appears to be that since all non-profits now fall under the Section 12AB framework, any cancellation of registration should also happen under that framework – even for alleged violations from years before it existed. For older violations, the department has tried to shore up this argument by also invoking the previous registration law, Section 12AA, alongside the new one. In the Lakhmi Chand case, the tax authority put it this way before the tribunal: since the original registration was granted under Section 12AA, that section could be referenced alongside the currently applicable Section 12AB(4).
The tribunal was unconvinced.
It is not known whether the Income Tax Department has challenged any of these tribunal orders before a higher forum.
Newslaundry reached out to the union finance ministry for comment. This report will be updated if a response is received.
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