ITAT Mumbai: Potential for Foreign Activity in Trust Deed No Bar to S. 12AB Registration if Operations are Expressly Limited to India - 2025-08-13

Trust's Potential Foreign Activity Not Grounds for Denying Tax Registration, Rules ITAT Mumbai

Mumbai, July 28, 2025 – The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has ruled that the mere existence of clauses in a trust deed that could potentially allow for activities outside India is not sufficient grounds to reject an application for registration under Section 12AB of the Income-tax Act, 1961. The Tribunal emphasized that such a rejection, based on apprehension rather than actual conduct, is premature and speculative, especially when the trust deed explicitly confines its operational area to India.

The bench, comprising Judicial Member Shri Sandeep Gosain and Accountant Member Shri Prabhash Shankar, allowed the appeals filed by Odhavji Chanabhai Peraj Charity Trust against the orders of the Commissioner of Income-tax (Exemptions) [CIT(E)], which had denied the trust registration under Section 12AB and approval under Section 80G.

Background of the Case

The Odhavji Chanabhai Peraj Charity Trust filed an application in Form 10AB for registration under Section 12AB. The CIT(E) rejected the application, citing several clauses in the trust deed that suggested a potential for applying funds outside India. These clauses mentioned "assisting students to study abroad," establishing institutions "in India and elsewhere," and arranging "foreign tours of the deserving candidates."

The CIT(E) concluded that these objects violated the provisions of Section 11 of the Act and that the trust had not amended its deed to remove these clauses. This, the CIT(E) argued, meant the trust did not fulfill the conditions for registration, which include satisfaction about the objects and genuineness of the trust's activities. Consequently, the application for 80G approval was also rejected.

Arguments Presented

The appellant trust argued that the CIT(E)'s decision was based on a misinterpretation of the trust deed and misplaced presumptions. They highlighted that the deed contained overriding clauses explicitly stating: - "The Trust Shall Operate within the Boundaries of India." - "The Trustees shall execute the Aims and Objects throughout the State of India Only."

The trust contended that any clauses referring to foreign elements were ancillary and intended to leverage foreign knowledge or technology for beneficiaries within India. They argued that no expenditure had actually been incurred outside India and that the CIT(E) had wrongly invoked Section 11, which governs tax exemption for assessed income, at the registration stage. The trust's counsel cited the Delhi High Court's decision in M.K. Nambyar Saarf Law Charitable Trust v. Union of India to support their claim.

The Departmental Representative , on the other hand, supported the CIT(E)'s order, arguing that the object clauses left room for future expenditure outside India, justifying the rejection of the registration application.

Tribunal's Analysis and Ruling

The ITAT conducted a thorough analysis of the new registration procedure under Section 12AB and its interplay with Section 11, which deals with the application of income. The Tribunal observed that the conditions for granting registration primarily concern the genuineness of the trust's objects and activities.

Citing its own coordinate bench ruling in Dedhia Music Foundation , the Tribunal held that the question of whether income applied outside India is eligible for tax exemption under Section 11(1)(c) is a matter to be determined by the Assessing Officer during the assessment process, not by the CIT(E) at the registration stage.

The Tribunal noted that denying registration based on a potential future action would unfairly penalize the trust for income applied for charitable purposes within India. It drew a clear distinction between the eligibility for registration and the computation of exempt income .

Pivotal excerpts from a relied-upon judgment explained the legal position:

"The scheme of the Act is that all entities carrying out charitable activities... qualify to be registered as charitable entities... but the exemption is provided/restricted only to the extent of income which is applied for charitable purpose in India."

"...application of income outside India is not a relevant criteria for rejecting the application for grant of registration u/s 12AA of the Act..."

The ITAT concluded that the CIT(E) had erred in rejecting the application based on a "hypothetical assumption" and "conjectures." It found that the trust had repeatedly and categorically stated that its operations and beneficiaries would be confined to India.

Final Decision

The ITAT set aside the CIT(E)'s order and directed the authority to grant the Odhavji Chanabhai Peraj Charity Trust registration under Section 12AB. Consequently, the order rejecting the Section 80G approval was also set aside, with a direction to allow the same. This judgment reinforces the principle that tax authorities cannot deny registration to a charitable entity based on a speculative interpretation of its objects, particularly when the deed itself contains clear geographical limitations.