2025 (11) TMI 405 - AT - Income Tax

Trust deed permitting spending abroad alone cannot justify refusal of registration under section 12AB; assess section 11(1) exemption

ITAT MUMBAI (AT) held that a trustee's deed provision permitting application of funds outside India cannot by itself justify denial of registration under ... Denial of registration u/s 12AB - trust deed containing provision for application of funds outside India - HELD THAT:- As decided in TIH FOUNDATION FOR IOT AND IOE VERSUS CIT (EXEMPTION), MUMBAI [2025 (7) TMI 972 - ITAT MUMBAI] Only basis for rejection of registration by CIT(E) is the possibility of the assessee incurring expenditure outside India in furtherance of its objects, which, according to the Ld. CIT(E), contravenes the provisions of Section 11 does not find support either in the statutory scheme of Section 12AB or in judicial precedents. Application of income outside India, even if made, would only affect the exemption u/s 11(1), but cannot be construed as a contravention of law attracting rejection of registration. Accordingly we direct the CIT(E) to keep in mind the ratio laid down by the decision of the coordinate bench in the above case while considering the application of the assessee for final registration on merits. It is ordered accordingly ISSUES PRESENTED AND CONSIDERED 1. Whether registration under section 12A/12AB can be refused by the Commissioner (Exemptions) on grounds of belated filing of Form 10AB where legislative amendment and administrative extensions permit condonation of delay and reasonable cause is shown. 2. Whether denial of registration under section 12AB for alleged procedural non-compliance (failure to respond to notices) is sustainable where the applicant has furnished explanations and there is no record of specific material non-compliance affecting satisfaction under section 12AB(1)(b). 3. Whether the existence in the objects clause of power to apply funds outside India (or the mere possibility of future expenditure outside India) constitutes a valid ground to refuse registration under section 12AB, having regard to section 11, the Explanation to section 12AB(4), and judicial precedents. 4. Whether the applicant was denied reasonable opportunity as mandated by section 12AB(1)(b) and whether such denial renders the order void. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing Form 10AB and power to condone Legal framework: Section 12A/12AB prescribes timelines for making application for registration/continuation; Finance Act (No.2) 2024 inserted a proviso to section 12A(1)(ac)(vi) empowering the Principal Commissioner/Commissioner to condone delay where a reasonable cause exists, effective 01.10.2024. Prior administrative relief by CBDT (Circular extending time to 30.06.2024) is relevant to interim filings. Precedent treatment: Tribunal applied ratio of Supreme Court on condonation of delay (Collector v. Katiji) to condone 19-day delay in filing the present appeal to the Tribunal; no authority contradicting the statutory proviso cited. Interpretation and reasoning: The amendment evidences legislative intent to alleviate harsh consequences of technical delay and to enable equitable consideration of applications filed slightly beyond prescribed timelines. Where an applicant establishes reasonable cause (e.g., inadvertent error by responsible employee) and the filing falls in an interim period between administrative extensions and statutory change, a balancing, equitable and judicious approach is mandated. Ratio vs. Obiter: Ratio - Commissioner has power post-01.10.2024 to condone delay where reasonable cause is shown; interim administrative extensions are relevant to fact-sensitive assessment. Obiter - comments on what constitutes 'reasonable cause' are illustrative only. Conclusion: The Tribunal condoned the delay and directed the Commissioner to consider the application on merits, holding that denial solely on ground of belated filing without exercising condonation power (where available and reasonable cause shown) is unsustainable. Issue 2 - Denial of registration for alleged procedural non-compliance / failure to respond to notices Legal framework: Section 12AB(1)(b) requires satisfaction as to objects, genuineness of activities and compliance with other laws material for achieving objects; the officer may call for information and make enquiries before forming satisfaction. Precedent treatment: Tribunal relied on established principle that refusal must be based on material showing lack of genuineness or non-compliance; absent cogent evidence of violation, rejection is impermissible. Interpretation and reasoning: The power to call for information is investigatory, but the rejection must rest on dissatisfaction grounded in material particulars. Where explanations and documents are furnished and there is no specific material showing violation of conditions in section 12AB(1)(b), a mechanical rejection for alleged non-submission is not warranted. Administrative responsibility of trustees to supervise does not convert every inadvertence by an employee into conclusive non-compliance justifying denial. Ratio vs. Obiter: Ratio - rejection for procedural non-compliance requires demonstrable prejudice or material non-compliance affecting statutory satisfaction; mere assertion of non-submission without proof is insufficient. Obiter - observations on trustee supervisory duties are illustrative. Conclusion: The Tribunal directed reconsideration on merits and held that procedural grounds alone, absent material non-compliance, cannot sustain refusal. Issue 3 - Objects permitting application of funds outside India and effect on registration under section 12AB Legal framework: Section 11 deals with exemption where income is applied to charitable purposes in India; section 12AB governs registration (satisfaction as to objects and genuineness); Explanation to section 12AB(4) lists 'specified violations' warranting denial or cancellation. Precedent treatment (followed): The Tribunal followed higher-court and coordinate bench authorities holding that mere existence of objects permitting activity or expenditure outside India does not, by itself, constitute a 'specified violation' under the Explanation to section 12AB(4) nor a ground to deny registration. Section 11 separately governs the question of exemption where income is applied outside India and permits relief only by Board order. Interpretation and reasoning: The statutory scheme separates registration (12AB) from computation/exemption (section 11). Section 12AB(1)(b) focuses on genuineness and compliance with laws material to achieving objects; the Explanation to section 12AB(4) enumerates discrete violations (application for non-objects, carrying business, private benefit, community-specific application, non-genuine activity or breach of condition, failure to comply with other laws). Application of income outside India, unless shown as contravening a material law or as an actual impermissible application, is not captured by these categories. Thus, a hypothetical or potential future expenditure abroad does not furnish a legal basis to deny registration; only actual contravention or specified violation can do so. Ratio vs. Obiter: Ratio - existence of object clauses permitting application of income outside India does not, without more, permit refusal of registration under section 12AB; alleged application outside India impacts exemption under section 11 but is not a stand-alone disqualification for registration. Obiter - remarks on administrative expectations to amend MOA/MOA clauses where appropriate are illustrative. Conclusion: The Tribunal held the rejection on this ground to be unsustainable and directed the Commissioner to apply the cited ratios when reconsidering the application; registration cannot be denied merely because objects permit overseas application of funds absent demonstrated violation. Issue 4 - Denial of reasonable opportunity under section 12AB(1)(b) Legal framework: Section 12AB requires satisfaction after enquiry and affords a process where information may be called for; principles of fair hearing require opportunity to explain before adverse action. Precedent treatment: Authorities emphasise that the officer must apply mind and afford opportunity; non-compliance with audi alteram partem may render order infirm. Interpretation and reasoning: The Tribunal examined whether the applicant was deprived of reasonable opportunity; finding no record of cogent material showing such deprivation in the instant order, it directed re-consideration. Where denial is premised on undeveloped or conclusory findings without proper opportunity to answer, the decision is liable to be set aside. Ratio vs. Obiter: Ratio - rejection without affording reasonable opportunity where required undermines the decision and warrants reconsideration. Obiter - procedural specifics may vary case-to-case. Conclusion: The Tribunal found the procedural approach of the Commissioner wanting in part and ordered reconsideration ensuring opportunity and application of the correct legal tests. Final disposition (as directed): Delay in prosecuting appeal to Tribunal condoned; Commissioner (Exemptions) directed to reconsider the final registration application under section 12AB on merits in light of legislative amendment permitting condonation of delay, relevant CBDT circulars, and judicial precedents that mere possibility of applying income outside India is not a ground for refusal; if no material specified violation is demonstrated, registration to be granted in accordance with law.