The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that a charitable institution’s registration under Section 12AB of the Income Tax Act cannot be denied merely on a hypothetical apprehension that its objects may permit application of funds outside India. 

The bench of Kavitha Rajagopal (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) has observed that mere existence of an object clause that could potentially permit activities outside India does not constitute a “specified violation” under Section 12AB(4). 

The dispute arose after the CIT(E), Mumbai, rejected the Foundation’s application for regular registration under Section 12AB and the consequential approval under Section 80G(5) through separate orders dated December 18, 2025. The CIT(E) held that the assessee had delayed filing Form 10AB for regular registration and also observed that one of the object clauses in its Memorandum of Association allegedly enabled application of funds outside India, which was viewed as contrary to Section 11 of the Income Tax Act.

The Foundation, a Section 8 company engaged in charitable activities, had earlier received provisional registration under Section 12AB on September 20, 2024, valid from Assessment Year 2025-26 to Assessment Year 2027-28. It subsequently filed Form 10AB on October 9, 2025 seeking regular registration. According to the Revenue, the application was filed beyond the prescribed period and therefore deserved rejection.

Before the Tribunal, the assessee argued that its charitable activities had actually commenced only in December 2024 and that the delay occurred due to unavoidable circumstances and technical issues. It further contended that the Finance Act (No. 2), 2024 had introduced a proviso empowering the Commissioner to condone delay where reasonable cause exists, and therefore the CIT(E) should have exercised this discretion judiciously.

The assessee also challenged the finding regarding application of funds outside India. It submitted that the object clause relied upon by the Revenue had been misconstrued and merely referred to beneficiaries irrespective of nationality within India. The Memorandum specifically provided that the area of operation of the Foundation was the whole of India. The Foundation further pointed out that it had subsequently amended its object clauses to remove any possible ambiguity.

The Tribunal examined earlier decisions, particularly the Mumbai ITAT ruling in Shamkris Charity Foundation v. CIT(E), and observed that the law now permits condonation of delay where reasonable cause is shown. The Bench emphasized that the legislative intent behind the amendment was to mitigate hardship faced by charitable institutions and prevent them from being denied exemption benefits merely because of procedural lapses. Accordingly, authorities are expected to adopt an equitable, balanced and justice-oriented approach rather than a hyper-technical one while considering applications for registration.

The Bench noted that there was no finding by the CIT(E) that the Foundation had actually applied any funds outside India. The rejection was based only on a perceived possibility arising from the wording of the object clause.

The Tribunal held that registration under Section 12AB cannot be denied on speculative assumptions or hypothetical future contingencies. What is relevant is the genuineness of activities and the actual conduct of the institution rather than remote possibilities. The Bench observed that amendments to object clauses made to avoid ambiguity or future disputes cannot automatically be treated as evidence of any statutory violation.

Consequently, the ITAT set aside the order rejecting registration under Section 12AB and restored the matter to the file of the CIT(E) for fresh adjudication. The Commissioner has been directed to reconsider the Foundation’s application after examining the amended object clauses, the actual activities carried out by the institution, and the request for condonation of delay in a fair and judicious manner. Since the rejection of approval under Section 80G(5) was consequential to the denial of Section 12AB registration, that order was also set aside and remanded for fresh consideration.

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