Legal Updates (October 26 – October 31, 2026)
CASE UPDATES
RBI-authorised escrow structures protecting merchant funds have received judicial recognition, and the GST department must show more than allegations before freezing operational accounts
The Bombay High Court in the case of 1Pay Mobileware Private Limited vs Union of India [Writ Petition No.4586 of 2026] dated October 16, 2026, has emphasised that RBI-authorised escrow structures protecting merchant funds have received judicial recognition, and the GST department must show more than allegations before freezing operational accounts, and has accordingly quashed the provisional attachment of 1Pay Mobileware’s bank accounts under Section 83 of the CGST Act, 2017.
The Court also held that the escrow monies were impressed with a trust and did not belong to 1Pay, and consequently, they could not be attached under Section 83 of the CGST Act. Applying Radha Krishan Industries vs State of Himachal Pradesh [(2021) 6 SCC 771], the Court emphasised a live link between tangible material and the necessity for attachment.
The Court found that the attachment orders contained vague allegations without identifying specific transactions, the entities involved, the manner of GST evasion or the petitioner’s role in it. Neither the orders nor the affidavit disclosed material establishing that the petitioner fell within the category of a taxable person or a person specified in Section 122(1A) for the purpose of the attachment.
Redevelopment agreement terminated before commencement of CIRP is not protected as a corporate debtor’s asset. The moratorium under Section 14(1)(a) of the IBC does not bar proceedings initiated by the corporate debtor, including prosecution of its counterclaim in arbitration
The Bombay High Court in the case of A A Estates Pvt Ltd. vs Govind Niwas Cooperative Housing Society [Commercial Arbitration Petition (L) No. 12886 of 2025] dated October 26, 2026, has held that a redevelopment agreement terminated before commencement of CIRP is not protected as a corporate debtor’s asset, The Court reiterated that moratorium under Section 14(1)(a) of the IBC does not bar proceedings initiated by the corporate debtor, including prosecution of its counterclaim in arbitration.
The High Court clarified that once continuation of the corporate debtor’s counterclaim is permitted, the arbitral tribunal retains jurisdiction to pass interim and procedural orders connected with that surviving claim.
The Court also said that NCLT does not have exclusive jurisdiction over every contractual dispute involving a corporate debtor. Essentially, disputes concerning the validity of a redevelopment agreement’s pre-insolvency termination continue to be governed by the chosen dispute-resolution mechanism and do not automatically fall within the exclusive jurisdiction of the NCLT.
The court observed that Section 14(1)(a) of the IBC prohibits institution or continuation of proceedings against a corporate debtor during CIRP. However, the provision does not prohibit proceedings that are pursued by the corporate debtor. Therefore, a counterclaim filed by a corporate debtor stands on a different footing from proceedings initiated against it and therefore upheld the arbitral order permitting a housing society to proceed with redevelopment through a new developer..
The Court noted that an earlier order passed under Section 29A of the Arbitration Act had already permitted continuation of the arbitral proceedings to the extent of the developer’s counterclaim. That order had attained finality and was never challenged. Hence, the arbitral tribunal retained jurisdiction to pass consequential interlocutory orders in relation to the counterclaim.
Relying upon the Supreme Court’s decision in A.A. Estates Pvt. Ltd. v. Kher Nagar Sukhsadan Co-operative Housing Society Ltd. [2025 SCC OnLine SC 2579], the Court held that a development agreement which had already been terminated prior to commencement of CIRP does not constitute an asset of the corporate debtor. The moratorium under Section 14 cannot revive rights that have already been extinguished through a valid pre-insolvency termination.
The Court also rejected the contention that only the NCLT could decide the controversy under Sections 60(5)(c) and 63 of the IBC. It observed that the NCLT’s jurisdiction is not unlimited and extends only to disputes which arise from or are directly connected with the insolvency process. Since the termination of the redevelopment agreement was based on alleged contractual defaults that occurred prior to insolvency, the dispute did not fall within the exclusive domain of the NCLT.
The Court emphasized that interim protective measures in arbitration are primarily within the arbitral tribunal’s domain. A court hearing an appeal under Section 37 should not interfere merely because another view may also be possible, especially where the tribunal’s view is reasonable.
NCLT-supervised auction price prevails over Annual Statement of Rates for stamp duty, and the price fetched in an e-auction conducted by a liquidator appointed under Section 34 of the IBC, following the IBBI (Liquidation Process) Regulations, 2016, is the true market value of the property for stamp duty purposes under the Maharashtra Stamp Act, 1958
The Bombay High Court in the case of Bhadrashree Steel & Power vs State of Maharashtra [Writ Petition No. 1094 of 2022] dated October 09, 2026, has ruled that NCLT-supervised auction price prevails over Annual Statement of Rates (ASR) for stamp duty, and the price fetched in an e-auction conducted by a liquidator appointed under Section 34 of the IBC, following the IBBI (Liquidation Process) Regulations, 2016, is the true market value of the property for stamp duty purposes under the Maharashtra Stamp Act, 1958. The Collector of Stamps cannot substitute the ASR value merely because it is higher.
The Court rejected the argument of the State that Article 16 of Schedule I, which covers sale certificates granted by a ‘Civil or Revenue Court’, does not apply to NCLT-conducted auctions, holding that the NCLT, acting as the Adjudicating Authority under the IBC, exercises powers vested in it by the Companies Act, 2013, and its proceedings are deemed judicial proceedings before a Civil Court under Section 424(4) of the Companies Act. The term ‘Civil or Revenue Court’ in Article 16 must be read to include the NCLT.
The Court placed significant weight on the fact that the liquidator obtained independent valuations from IBBI-registered valuers under Regulation 35 of the Liquidation Process Regulations, formed a Stakeholders’ Consultation Committee, fixed a reserve price based on the average of the two closest valuations, conducted a public e-auction with 16 bidders, and filed nine progress reports before the NCLT. This systematic process ensured fair price discovery and could not be second-guessed by stamp authorities.
The High Court acknowledged that a liquidation or SARFAESI auction is a distress sale and may fetch a price lower than the ASR. But that alone does not justify the stamp authorities demanding duty on a higher valuation. The purpose of the stamp valuation mechanism is to prevent intentional undervaluation, not to penalise genuine open-market transactions.
The Court carved out a narrow exception. If the Collector or Registrar has good reason to believe that the true market value has been intentionally reduced or suppressed to evade stamp duty, they may step in and adjudicate the true market value. However, on the facts before it, the Court found no such basis, as the auction was transparent, well-documented, and supervised by the NCLT, with the sale price exceeding the reserve price by approximately Rs. 2.5 crores. The Court found that the liquidator had followed the prescribed valuation and auction procedure, obtained reports from registered valuers, and kept the NCLT informed through progress reports. The auction process had also been examined by the NCLT and NCLAT, with no flaw found.
Participation in policy-making under Section 5(24)(m)(i) IBC does not require stronger positive-control test under Section 29A IBC, and a corporate guarantee may nevertheless constitute financial debt without pre-CIRP invocation
The Supreme Court in the case of ECL Finance Ltd vs Abhinav Mukherjee [Civil Appeal No.6268 of 2022] dated October 27, 2026, has held that:
(a) participation in policy-making under Section 5(24)(m)(i) of IBC does not require the stronger positive-control test under Section 29A IBC,
(b) a corporate guarantee may nevertheless constitute financial debt without pre-CIRP invocation.
(c) an uninvoked corporate guarantee can still be financial debt, and
(d) an individual homebuyer can challenge CoC composition even where an authorised representative has been appointed for the class, notwithstanding appointment of authorised representative for such class of homebuyers.
The Court rejected the reasoning that the corporate debtor’s position as guarantor, or non-invocation of the guarantee before CIRP, prevented recognition of financial debt. Default is relevant to initiating CIRP under Section 7 IBC, not to the existence of financial creditor status. The Court also upheld the homebuyer’s right to seek exclusion of related-party creditors, and said that appointment of an authorised representative for the class did not extinguish the individual creditor’s right to approach the adjudicating authority.
The Supreme Court emphasised that policy-making participation requires less than being in the “driving seat”, while distinguishing Section 5(24)(m)(i) from the positive-control standard under Section 29A IBC. A role in navigating policy and channelising business interests may suffice for related-party status. The Court found overall supervision of policy implementation and business activities, rather than merely negative control. ECL’s disqualification as the sole debenture holder also barred its participation as lender and prevented ITSL from representing its debenture interest in the CoC.
On related-party status, the Court explained that Section 5(24)(m)(i) of IBC requires participation in the corporate debtor’s policy-making process, not the stronger degree of positive control required under Section 29A. A creditor need not occupy the “driving seat”, and a role in navigating policy and business decisions may suffice. The Court examined rights concerning board deadlocks, construction-budget approval, managerial appointments, project sales and revenue accounts. It found that these arrangements gave ECL and the trustee overall supervision of policy implementation and business activities, rather than merely protective or negative control.
The Court disagreed with the reasoning that a corporate guarantee could not constitute financial debt merely because the corporate debtor was not the principal borrower or the guarantee had not been invoked before insolvency began. It explained that financial creditor status does not depend on a payment default, as default becomes relevant when a creditor seeks to initiate insolvency under Section 7 IBC. The Court also upheld the individual homebuyer’s right to challenge the creditors’ inclusion, notwithstanding the appointment of an authorised representative for homebuyers as a class.
A buyer acquiring a company as a going concern during liquidation also acquires its attendant liabilities, and GST dues arising during CIRP or liquidation do not automatically stand extinguished
The Madras High Court in the case of EMC Limited vs State Tax Officer [W.P.(MD)No.25527 of 2026] dated October 15, 2026, has held that a buyer acquiring a company as a going concern during liquidation also acquires its attendant liabilities, and GST dues arising during CIRP or liquidation do not automatically stand extinguished. The Court explained that when a corporate debtor is sold as a going concern during liquidation, the business continues as a functional enterprise, and the purchaser acquires the undertaking along with its identified liabilities.
The High Court clarified that the Supreme Court’s ruling in Ghanshyam Mishra & Sons Pvt Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [(2021) 9 SCC 657], cannot be automatically applied to every going-concern sale undertaken during liquidation proceedings. Thus, GST dues arising during the moratorium, CIRP, or liquidation period do not automatically disappear merely because the corporate debtor is subsequently sold as a going concern.
The Court also emphasized that Section 85 of the GST enactments contemplates joint and several liability in cases of business transfer, indicating that a transferee may also be answerable for outstanding tax dues connected with the transferred business.
The Court undertook an extensive examination of the IBC, particularly the provisions governing liquidation and sale of a corporate debtor as a going concern under Regulations 32 and 32A of the IBBI (Liquidation Process) Regulations. The Court observed that when a company is sold as a ‘going concern’, the transaction is fundamentally different from a simple sale of assets. In such sales, the corporate entity continues to exist, its business survives, and the purchaser acquires the enterprise as an ongoing commercial unit.
The Court observed that a buyer purchasing a corporate debtor as a going concern does not merely acquire assets. The buyer also assumes the liabilities that form part of the identified business package. Such acquisition is a commercial decision involving an assessment of both benefits and risks. Therefore, liabilities cannot be selectively discarded while retaining the advantages of the business.
The Court further observed that liabilities incurred during the moratorium period, CIRP, or liquidation process cannot automatically be written off merely because the corporate debtor was later sold as a going concern. According to the Court, the ‘clean slate’ principle recognized in insolvency jurisprudence cannot be mechanically extended to every going-concern sale conducted during liquidation.
Clause 6(ii) of the RBI circular DBR.NO.LEG.BC.78/09.07/005/2017-18 dated 06/07/2019 provides zero liability for qualifying third-party breaches reported within three working days, not under the customer-negligence provision in Clause 7(i) applied by the Ombudsman
The Kerala High Court in the case of Remadevi T.L. vs Reserve Bank of India [WP(C) NO.28970 OF 2021] dated October 05, 2026, applied zero liability protection, relying on immediate reporting and police findings that the petitioner was not privy to the fraud. The Court placed the case under Clause 6(ii) of the RBI circular DBR.NO.LEG.BC.78/09.07/005/2017-18 dated 06/07/2019, which provides zero liability for qualifying third-party breaches reported within three working days, not under the customer-negligence provision in Clause 7(i) applied by the Ombudsman.
Finding that the customer complained on the same day, the Court noted that the bank took no steps to ensure recredit of the money and no further action even after the police identified the fraudster. The Court relied on the Gauhati High Court’s decision in W.A. No.364 of 2022 dated Sep 13, 2024, reasoning that banks must establish customer negligence through reliable material.
A Court accepted the petitioner’s explanation that she believed the OTP was only for registering the app and that a further OTP would be necessary to debit money. Her contention that the app had not received wide publicity, and the facts stated in her petition, had not been specifically denied in the bank’s counter affidavit.
The Court also noted that she reported the fraud on the same day, but the bank took no steps to secure recredit of the money or further action even after the police identified the fraudster. The police report showed that she was not privy to the fraud.
The Court relied on the Gauhati High Court’s decision in W.A. No.364 of 2022 dated Sep 13, 2024, that banks cannot avoid liability merely based on perceived customer negligence, and that negligence must be established through reliable material. It also acknowledged the Supreme Court’s caution that customers must remain vigilant, must not share OTPs, and may themselves be held negligent depending on the facts.
Borrowers who have pursued statutory remedies and whose appellate proceedings have failed for non-compliance with the SARFAESI Section 18 pre-deposit requirement cannot circumvent that requirement by subsequently invoking Article 226 to reopen the recovery process through a challenge to the original NPA classification
The High Court of Karnataka in the case of Shri Lakshmi Venkataramana Yajamana Industries vs Union of India [Writ Appeal No.935 of 2026 (GM-DRT)] dated September 30, 2026, has held that borrowers who have pursued statutory remedies and whose appellate proceedings have failed for non-compliance with the Section 18 pre-deposit requirement cannot circumvent that requirement by subsequently invoking Article 226 to reopen the recovery process through a challenge to the original NPA classification.
The Court explained that borrowers whose statutory appeal failed for non-compliance with Section 18 cannot reopen the recovery process through a belated challenge to the original NPA classification under Article 226. The Court said that the alternative-remedy rule, though discretionary, must be applied with greater rigour in bank-recovery matters. The Court held that allowing this course would permit indirectly what the statutory scheme did not permit directly, the “circuitous route” deprecated by the Supreme Court.
The Court observed that the borrowers had not been remediless, as they actively pursued DRT proceedings, approached the High Court once, and then went to the DRAT. The DRAT proceedings failed only because the statutory pre-deposit under Section 18 was not met. The Court thus clarified that permitting them to then reopen the entire recovery process by tracing the grievance back to the original NPA classification would, in substance, accomplish indirectly what the statutory scheme did not permit directly.
The Court also noted the considerable delay in challenging the NPA classification, which was known to the borrowers when they first approached the DRT. Article 226, being discretionary, cannot ordinarily be invoked to challenge an antecedent cause of action after a litigant has pursued successive remedies against its consequential measures. The Court observed that the borrowers were aware of the NPA classification when they first challenged the Bank’s enforcement measures before the DRT. Relying on Supreme Court decisions, the Court reiterated that although the alternative-remedy rule is discretionary, High Courts must exercise particular restraint in bank-recovery matters where an effective statutory mechanism exists. It also noted the considerable delay in challenging the original NPA classification.
Participation in arbitration without timely objection amounts to waiver and further clarifies that insolvency does not bar a corporate debtor from pursuing its own claims. The extension of an arbitrator’s mandate under Section 29A must be sought before the competent court under Section 2(1)(e) of the Arbitration and Conciliation Act
The Supreme Court in the case of South Bihar Power Distribution company vs India Power Corporation [Civil Appeal No. 9313 of 2026] dated October 28, 2026, has held that participation in arbitration without timely objection amounts to waiver and reiterates that extension of an arbitrator’s mandate under Section 29A must be sought before the competent court under Section 2(1)(e) of the Arbitration and Conciliation Act.
It has further held s that insolvency does not bar a corporate debtor from pursuing its own claims, The Court held that a party that agrees to the appointment of a sole arbitrator, participates in proceedings, files pleadings and counterclaims, and raises no timely objection cannot subsequently challenge the tribunal’s composition. Hence, the Court disapproved attempts to question the validity of a sole-arbitrator tribunal after years of participation, holding that such conduct amounts to acquiescence and waiver.
The Court also said that insolvency proceedings do not bar a corporate debtor from prosecuting arbitration claims that may result in recoveries for its benefit and enhance the value of its assets. The power to extend the mandate of an arbitral tribunal under Section 29A rests with the court defined under Section 2(1)(e) of the Arbitration and Conciliation Act, and not merely with the High Court that appointed the arbitrator under Section 11.
On objection to the Sole Arbitrator, the Court observed that the appellant had expressly consented on two separate occasions before the High Court to appointment of a sole arbitrator and had also participated in the arbitration without objection for a substantial period. The appellant filed its statement of defence, counterclaim and supplementary counterclaim, and even agreed to extension of the arbitral timeline. Having participated throughout the proceedings, it could not later challenge the composition of the arbitral tribunal only when a further extension was sought.
The Court held that such conduct clearly attracted the principle of waiver under Section 4 of the Arbitration and Conciliation Act, 1996. The appellant’s conduct also amounted to acquiescence, disentitling it from reopening the issue of whether the tribunal should have comprised three arbitrators. The earlier High Court orders appointing sole arbitrators were never challenged and had therefore attained finality.
On effect of Insolvency Proceedings, the Supreme Court observed that the insolvency moratorium under Section 14 of the Insolvency and Bankruptcy Code is intended to protect the corporate debtor from recovery actions against it. However, the moratorium does not prevent the corporate debtor from pursuing claims that may result in recovery of money in its favour. Such proceedings can enhance the value and financial position of the corporate debtor.
The Court further noted that the Resolution Professional had authorised continuation of the arbitration and that such action had also received approval from the Committee of Creditors in accordance with the IBC framework. Therefore, there was no legal impediment preventing the special purpose vehicle from continuing the arbitration proceedings.
On jurisdiction under Section 29A, the Supreme Court found that the Patna High Court had erred in holding that it had jurisdiction under Section 29A merely because it had exercised powers under Section 11 and appointed the arbitrator. The Court reiterated its recent precedents holding that the ‘court’ referred to in Section 29A is the court defined under Section 2(1)(e) of the Arbitration Act, namely the Principal Civil Court of original jurisdiction or a High Court exercising original civil jurisdiction. It is not the High Court acting under Section 11.
The Court clarified that once an arbitral tribunal is constituted under Section 11, the appointing High Court does not retain supervisory jurisdiction over the arbitral proceedings. Consequently, applications for extension of time under Section 29A must be considered by the competent court under Section 2(1)(e) and not by the Section 11 court.
Where a registered agreement for sale with possession has already suffered stamp duty as a deemed conveyance, the final conveyance is only an ancillary instrument under the Maharashtra Stamp Act
The Bombay High Court in the case of Thakkar Investment & Finance Company vs Chief Controller [Writ Petition No.7229 of 2018] dated October 28, 2026, has quashed additional stamp duty demand raised on a later conveyance deed, holding that where a registered agreement for sale with possession has already suffered stamp duty as a deemed conveyance, the final conveyance is only an ancillary instrument under the Maharashtra Stamp Act. The Court clarified that where a registered agreement for sale records delivery of possession, it attracts stamp duty as a conveyance under Explanation I to Article 25 of the Maharashtra Stamp Act.
The Court further observed that the Agreement for Sale and the later Conveyance Deed related to the same property, the same parties, and the same consideration. There was no change in the essential terms of the transaction. The final deed was only executed to complete the transaction already embodied in the earlier agreement.
Emphasising that duty once paid cannot be revisited through a later conveyance, the High Court said that after the competent authority impounded the agreement, assessed deficit duty, and accepted payment, the transaction stood duly stamped as a deemed conveyance. If the later conveyance merely completes the same transaction between the same parties and for the same consideration, it cannot be independently charged on prevailing market value.
The Court also pointed out that increase in property value is irrelevant. Authorities cannot levy additional stamp duty on the basis that the property’s market value increased by the time the formal conveyance deed was executed. Further, a mere audit objection does not nullify an earlier determination of stamp duty unless that determination is legally set aside through appropriate statutory proceedings.
Absence of a written loan agreement or an Income Tax Return entry did not automatically make a modest hand loan of Rs. 30,000 legally unenforceable, particularly when the accused had not raised a probable challenge to the complainant’s financial capacity
The Calcutta High Court in the case of Tuhin Gangopadhyay vs State of West Bengal [CRR 1371 OF 2024] dated September 30, 2026, has held that the absence of a written loan agreement or an Income Tax Return entry did not automatically make a modest hand loan of Rs. 30,000 legally unenforceable, particularly when the accused had not raised a probable challenge to the complainant’s financial capacity.
The Court also held that an independently uncorroborated police diary entry was insufficient to establish the lost-cheque defence. Once the drawer admits his signature, the presumptions under Sections 118(a) and 139 of the NI Act kick in, and the burden then shifts to the accused to rebut them on a preponderance of probabilities.
The Court explained that a General Diary entry is only the informant’s own account. Without independent, substantive corroboration, it does not establish a probable lost-cheque defence. Further, for a modest hand loan of Rs. 30,000, the absence of a written agreement or an ITR entry does not automatically make the debt unenforceable, especially when the accused never challenged the complainant’s financial capacity.
The Court also said that a proprietorship is not a separate legal entity, and not arraigning the trade name alongside the proprietor does not vitiate the prosecution. The Court observed that admission of the signature on the cheque attracted the statutory presumptions under Sections 118(a) and 139 of the N.I. Act. Although these presumptions could be rebutted on a preponderance of probabilities, the petitioner’s lost-cheque defence lacked sufficient independent corroboration. The Court found that the General Diary entry and supporting evidence did not establish actual loss or misuse sufficient to displace the presumptions. It therefore found no illegality or perversity in the concurrent rejection of that defence.
Thus, the Court retained Rs. 35,000 compensation and the default sentence while exempting the drawer from seven days’ substantive imprisonment.
UPDATES FOR RELIGIOUS/ CHARITABLE TRUSTS/ INSTITUTIONS
The absence of an explicit irrevocability clause in a trust deed cannot be a ground to reject the application of a charitable trust for registration or renewal under Section 12AB of the Income Tax Act
The Bombay High Court in the case of Chamber of Tax Consultants vs CIT [Writ Petition (L)No.7587 of 2026] has held that the absence of an explicit irrevocability clause in a trust deed cannot be a ground to reject the application of a charitable trust for registration or renewal under Section 12AB of the Income Tax Act, 1961. Section 12AB governs the grant and renewal of registration to charitable and religious trusts for the purpose of claiming tax exemption, and the Court observed that the statute does not require such a clause and that a trust is ordinarily irrevocable unless the instrument expressly provides for revocation.
The High Court said that the statute does not enact that the mere absence of an irrevocability clause makes a trust revocable. On the contrary, it implies that a trust is irrevocable (which is the normal principle in all transfers) unless it is expressly made revocable. Silence in the deed implies irrevocability, not revocability. The court made the observation while allowing a writ petition filed by The Chamber of Tax Consultants, who had challenged the rejection of their applications for renewal of registration under Section 12AB.
The Court held that Section 12AB does not require a trust deed to contain an express clause declaring the trust to be irrevocable, and such a condition cannot be read into the statute. The bench noted that the legislature had consciously made exemption under Section 11 subject to Sections 60 to 63, but had not imposed any similar requirement in Section 12AB dealing with registration. Interpreting Section 63, the Court held that a transfer can be treated as revocable only if the instrument contains a specific provision for re-transfer of assets or for re-assumption of control by the transferor and that the absence of an irrevocability clause does not make the trust revocable.
The Court also examined the legal framework under the Maharashtra Public Trusts Act, 1950, and held that once property is dedicated to a public charitable trust, the settlor is divested of ownership and the assets cannot revert back. Even where a trust is deregistered, the statutory scheme requires that the property be dealt with in accordance with the Act and not returned to the settlor.
The Court further observed that the Income Tax Act itself contains safeguards against misuse of trust property, including Section 13, which denies exemption where income is used for the benefit of specified persons, and Section 115TD, which provides for taxation of accreted income in certain cases. These safeguards, address the Revenue’s concerns and do not justify imposing additional conditions not found in the statute.
Where a permanent endowment was not made or where no donation stood imbued with some degree of permanency, then exemption is allowable on donations made by one charitable trust to other charitable institutions for a temporary period
The Delhi High Court in the case of CIT vs Jamnalal Bajaj Foundation [ITA 808/2017] has held that exemption is allowable on donations made by one charitable trust to other charitable institutions for a temporary period. The Court observed that Section 11(3) of the Income Tax Act and the adverse consequences would have been attracted provided the incomes so accumulated were diverted for a purpose other than charitable or religious, or where they were not utilized for the purpose for which they were so accumulated or set apart during the period of five years contemplated under Section 11(2)(a). This was not a case where a permanent endowment was made or one where the donation stood imbued with some degree of permanency. It also cannot possibly be said that the money was lost or became unavailable to be applied.
The Court opined that since the donations were in any case reversed and had been advanced only for an extremely short duration, the ITAT has clearly, and for justifiable reasons, answered the issue in favor of the assessee. In terms of Section 11(1)(a), the income derived from trust property is firstly liable to be applied for charitable or religious purposes, and to the extent of that application, it is liable to be removed from the total income of the charity.
Section 11(1)(a) then proceeds to accord a facility to a charity that may have failed to apply the income derived from property for charitable or religious purposes to accumulate a part, subject to the condition that the income so accumulated or set apart does not exceed 15% of that income. In terms of Section 11(1)(a), therefore, a charity becomes entitled to either employ the entire income derived from trust property for charitable or religious purposes or set aside not more than 15% of that income for charitable or religious purposes. Once an accumulation to the extent of 15% of that income is made, the provisions of Section 11(1)(a) get exhausted.
As per Section 11(2), the charitable entity becomes entitled to accumulate 85% of the income referred to in Section 11(1)(a) or (b), which could not be used for charitable or religious purposes. 85% of the income is thus enabled to be accumulated and set apart, subject to the fulfilment of the conditions specified in clauses (a), (b), and (c) of Section 11(2). In terms of the conditions which the statute imposes for the purposes of accumulation of 85% of the income, under clause (a), the charitable institution is required to furnish a statement in the prescribed form, setting out the purpose for which the income is sought to be accumulated or set apart, subject to the condition that the aforesaid accumulation would not exceed five years.
In terms of clause (b) of Section 11(2), the money accumulated is liable to be invested or deposited in accordance with the provisions contained in Section 11(5). The only additional condition that then stands attached to the accumulation of 85% of the income is the requirement under clause (c) of the statement spoken of in clause (a) being furnished at least two months prior to the date specified for filing a return of income in terms of Section 139(1). Sub-section (3) of Section 11 is concerned with the 85% of income that stands accumulated in terms of the facilities provided to charitable institutions by Section 11(2). Section 11(3) prescribes that any income referable to Section 11(2) that is either applied for a purpose other than charitable or religious or that ceases to be accumulated or set apart shall be deemed to be the income of the charitable institution of the previous year.
CBDT grants One-Time Relief for Charitable Institutions on Delayed Filing of Form 10AB for 80G Approval Renewal
The Central Board of Direct Taxes (CBDT) vide its Circular No. 06/ 2026, has issued a circular condoning delays in the electronic filing of Form No. 10AB by certain charitable funds and institutions seeking renewal of approval under Section 80G(5) of the Income-tax Act, 1961. The relief has been provided in view of genuine hardship faced by institutions whose existing 80G approval was due to expire on 31 March 2026 and which failed to file the prescribed application within the stipulated deadline of 30 September 2025.
Under the existing framework, a fund or institution whose approval under Section 80G was nearing expiry was required to apply for renewal in Form No. 10AB at least six months before the expiry date. However, representations received by the CBDT highlighted that several organizations could not comply with this timeline due to bona fide reasons, resulting in concerns regarding the continued receipt of donations and the availability of tax benefits to donors.
After examining the matter, the CBDT exercised its powers under Section 119(2)(b) of the Income-tax Act, 1961 read with Section 536(2) of the Income Tax Act, 2025, and condoned the delay in cases where Form No. 10AB was filed electronically between 1 October 2025 and 31 March 2026. Such applications are to be considered and decided on their merits by the jurisdictional Principal Commissioner of Income-tax or Commissioner of Income-tax, who have been directed to pass orders on or before 31 December 2026.
The circular further provides relief to applicants whose Form No. 10AB applications, filed during the above period, had already been rejected solely on the ground that they were filed beyond the prescribed due date. In such cases, the delay is deemed to have been condoned, and the concerned authorities have been authorized to reassess these applications on merits and pass appropriate orders on or before 31 December 2026.
Importantly, the CBDT has clarified that the condonation of delay does not confer any automatic right to approval or renewal under Section 80G. Every application will continue to be examined independently on its merits in accordance with the applicable statutory conditions before approval is granted.
Click here to read/ download the original circular
