Income Tax Department Cancels Registration of Mumbai Hospital and Spiritual Trust Over Profit Motive
A serious conflict is growing between India’s Income Tax Department and charitable organisations. These charities are often supported by big business groups and international organisations, and the tax authorities are closely examining their activities.
Three big hospitals in Mumbai and a famous international spiritual organisation, registered as charitable trusts, have been denied income tax exemption. The tax department believes that they are carrying out business-like or commercial activities and not purely charitable activities. These registrations were supposed to be renewed in March 2026, but they were not approved. Some of these organisations have already challenged the decision in the Income Tax Appellate Tribunal.
Charitable trusts, religious organisations, and non-profit organisations should register with Section 12AB of the Income Tax Act. The registration under this section is important because it allows these organisations to get tax exemptions. If a charitable organisation does not have valid registration, any surplus it earns can be taxed just like business profit.
When the registrations of these organisations came up for renewal, the tax department raised concerns. It found some of them were earning high profits or huge surpluses, and this raised doubts among officials about whether they were really operating as charities. Tax officers have powers to probe whether a trust is doing genuine charitable work and whether it is properly adhering to its stated objectives, experts say.
The Income Tax Act uses the word “genuineness” to make it clear that tax benefits for charities are not just about paperwork. It is not enough for a trust or organisation to just show documents or formal compliance. The real question is whether it is actually doing genuine charitable work in practice.
Authorities don’t just rely on what is written in documents. They check what the organisation is actually doing in real life. So, if a trust is not really following its stated charitable goals, it can face serious consequences or penalties.
An important case on this topic is a 2022 Supreme Court decision about the Ahmedabad Urban Development Authority. The Court said that organisations meant for public welfare can charge enough to cover their costs and even make a small surplus, as long as it is directly linked to their charitable work and stays within legal limits. But if they charge much more than what it actually costs, it may look like they are acting like a business instead of a charity.
