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Issues: (i) Whether grant of scholarship to an Indian student for pursuing education abroad amounted to application of income outside India so as to justify refusal of registration under section 12AB; (ii) whether rejection of approval under section 80G could survive once the refusal of registration under section 12AB was set aside.
Issue (i): Whether grant of scholarship to an Indian student for pursuing education abroad amounted to application of income outside India so as to justify refusal of registration under section 12AB.
Analysis: The reasoning for refusal rested on the view that scholarship support for overseas education attracted section 11(1)(c). The Tribunal followed the coordinate bench decision holding that scholarship or loan scholarship granted to Indian students for study abroad is application of income for charitable purposes in India, because the relevant test is the situs of application of funds and the charitable object remains education of Indian beneficiaries. No adverse finding existed on the charitable nature of the objects or the genuineness of activities.
Conclusion: The refusal of registration under section 12AB was unsustainable and the assessee was entitled to registration.
Issue (ii): Whether rejection of approval under section 80G could survive once the refusal of registration under section 12AB was set aside.
Analysis: The rejection of approval under section 80G was founded solely on the rejection of registration under section 12AB. Once the basis for that rejection was removed, the consequential bar under section 80G(5)(i) no longer operated.
Conclusion: The rejection of approval under section 80G could not be sustained and approval was to be granted in accordance with law.
Final Conclusion: Both appeals succeeded, and the assessee obtained registration under section 12AB as well as the consequential approval under section 80G.
Ratio Decidendi: Scholarship support granted in India to Indian students for overseas education constitutes application of income for charitable purposes in India, and refusal of charitable registration cannot rest on the mistaken premise that such expenditure is application of income outside India.
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