ITAT says unregistered trust cannot be taxed on gross receipts without expenses

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, held on 23 October 2026 that a charitable trust which lacked registration cannot simply be taxed on its entire gross receipts without its expenses being checked. The tribunal sent the case of Subhasri Charitable Trust for assessment year 2018-19 back to the Assessing Officer. The amount in dispute was Rs 26,90,225 of expenditure out of receipts of Rs 27 lakh.

What Happened

According to the order, the trust filed a return declaring income of Rs 9,780. It had claimed that Rs 26,90,225 out of total receipts of Rs 27 lakh was applied to charitable purposes. The Centralised Processing Centre (CPC), which processes returns, disallowed the claim under section 143(1) and fixed total income at Rs 27 lakh.

The first appeal authority upheld this. It said the trust received registration under section 12AA only from 6 May 2019, so it was not eligible for exemption under section 11 for that year.

The tribunal accepted that the trust did not hold registration for the year. But it held that denial of exemption under section 11 does not automatically justify taxing the entire gross receipts without considering the expenditure incurred. It noted that the claimed expenditure had not been examined.

The tribunal directed the Assessing Officer to verify the expenditure and allow it to the extent admissible under the law. Any remaining income is to be assessed in the status of an Association of Persons (AOP), a group taxed as one unit, at the rates applicable in law. The officer must give the trust a reasonable opportunity to be heard. The appeal was allowed for statistical purposes, meaning the issue goes back for fresh decision.

What It Means

For small trusts and societies, the ruling says that losing the section 11 exemption is not the same as being taxed on every rupee received. Per this order, genuine expenses still need to be verified and allowed where the law permits, and the balance is taxed at the rates that apply to an AOP rather than on gross receipts alone.

The final tax for this trust now depends on the Assessing Officer's fresh verification.

Source: ITAT order