Territorial Restriction of Charitable Expenditure: Denial of Registration for Trusts Benefitting Persons Outside India

Facts

The Application: The assessee-trust filed an application for regular registration under Section 12A(1)(ac)(iii) (read with Section 12AB) for the Assessment Year 2022-23.
The Objection: Upon reviewing the trust deed, the CIT (Exemptions) observed that the objects of the trust were not confined to the public within India.
Global Ambit: The trust’s clauses allowed for the application of income for the benefit of people residing outside the territory of India.
The Rejection: The CIT(E) concluded that such global objectives were in direct conflict with Section 11 of the Act. Consequently, the application for registration was rejected on the grounds that the trust failed to prove it was “wholly” for charitable purposes as recognized under Indian tax laws.

Decision

Final Verdict: In favour of the Revenue.
Ratio Decidendi:
- Territorial Nexus: The Court/Tribunal upheld the CIT(E)’s order, emphasizing that Section 11(1) primarily allows for exemptions only when the income is applied to charitable or religious purposes within India.
- Expenditure Outside India: While Section 11(1)(c) allows for expenditure outside India in specific, restricted scenarios (with prior approval from the CBDT), a general object clause that takes the entire world into its ambit is not in agreement with the core mandate of the Act.
- Statutory Conflict: Since the trust’s foundational document permitted activities that the Act does not generally recognize for tax exemption, the trust could not be classified as being “wholly for charitable purposes” within the meaning of Section 2(15) read with Section 11.

Key Takeaways

Drafting Precision: When forming a charitable trust or society intended for Section 12AB registration, it is critical to explicitly limit the primary objects to “the public in India” or “charitable activities within India.”
The “Outside India” Trap: If a trust intends to operate globally, it must navigate the rigorous requirements of Section 11(1)(c), which typically requires the trust to be created before April 1, 1952, or receive a specific order from the CBDT. Absent this, a “Global Benefit” clause is a fatal flaw for registration.
CIT(E) Scrutiny: This ruling confirms that the CIT(E) has the authority to examine the potential application of income based on object clauses, even if no money has been spent abroad yet.
IT Act 2025 Transition: While the provisions are renumbered (Sections 332 and 351), the “Territoriality Principle” remains a cornerstone of Indian tax exemptions for charities. Professionals should review existing trust deeds for clients to ensure no broad “global” clauses exist that might jeopardize their registered status during re-validation.

IN THE ITAT PATNA BENCH

Vriksh Be The Change

ITO (Exemption)-1^*

SONJOY SARMA, Judicial Member
and Laxmi Prasad Sahu, Accountant Member

IT Appeal No. 580 (PAT) of 2025
[Assessment year 2022-2023]

APRIL 13, 2026

Jitendra Kumar, Adv. for the Appellant. Smt. Rinku Singh, CIT(DR) for the Respondent.

ORDER

Laxmi Prasad Sahu, Accountant Member.- This is an appeal filed by the assessee against the orders passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the Ld. Commissioner of Income Tax (Exemption)-Patna, [hereinafter referred to as “the Ld. CIT(E)], dated 23.08.2023, DIN & Notice No. ITBA/EXM/F/EXM45/2023-24/1055338382(1) challenging the order of the Ld. CIT passed in Form No. 10AB as per the grounds of appeal which is as under:

“1. That the order passed by the Learned Commissioner of Income-tax (Exemption), Patna cancelling the provisional registration u/s 12AB of the Income-tax Act, 1961 is bad in law, arbitrary, unjustified, and contrary to the facts and circumstances of the case.

2. That the Learned CIT(E) erred in cancelling the registration solely on the basis of a clause in the Trust Deed mentioning beneficiaries including NRIs and persons residing abroad, without appreciating that the objects of the Trust are purely charitable in nature and are not hit by any prohibitory provision of the Income-tax Act, 1961.

3. That the Learned CIT(E) failed to appreciate that merely mentioning NRIs or persons residing abroad as beneficiaries, without any profit motive and without violation of section 2(15) of the Act, cannot be a valid ground for cancellation of registration u/s 12AB.

4. That the Learned CIT(E) failed to appreciate that the Trust has never carried out any activity for the benefit of any NRIs, specific religious community, caste, or prohibited class, and all activities of the Trust are charitable, public-oriented, and for general welfare.

5. That the Learned CIT(E) grossly erred in law by not considering the settled legal position that registration u/s 12AB can be cancelled only if the activities of the Trust are not genuine or for the benefit of the NRIS person or not being carried out in accordance with its stated objects, neither of which is applicable in the present case.

6. That the Learned CIT(E) failed to consider that the Appellant Trust, upon being pointed out, has already modified its Trust Deed by deleting the clause relating to beneficiaries being NRIs and persons residing abroad, thereby removing the alleged objection completely.

7. That the Learned CIT(E) erred in not granting due opportunity and reasonable time to the Appellant Trust to rectify the Trust Deed, despite the fact that the defect, if any, was curable in nature and has since been duly cured.

8. That the cancellation of registration is highly disproportionate, harsh, and unjustified, especially when no adverse finding has been recorded regarding the genuineness of activities, misuse of funds, or violation of the provisions of the Income-tax Act, 1961.

9. That the Learned CIT(E) failed to appreciate that amendment or modification of a Trust Deed to align with statutory requirements is a recognized and permissible course of action, and once the objectionable clause has been deleted, there remains no basis for cancellation of registration.

10. That the order passed by the Learned CIT(E) is against the principles of natural justice, as the Appellant Trust was not afforded a fair and meaningful opportunity to explain and rectify the alleged defect before passing the impugned order.

11. That the Learned CIT(E) has failed to consider judicial precedents holding that registration once granted should not be cancelled lightly and that procedural or technical defects cannot override substantive charitable intent and genuine activities.

12. That the present appeal has been filed with a delay of 738 days, which is neither intentional nor deliberate, but occurred due to circumstances beyond the reasonable control of the Appellant Trust. During the relevant period, the Secretary of the Trust, who is the principal person responsible for day-to-day administration, compliance, and liaison with tax authorities, was engaged in pursuing higher studies outside the State, and was therefore not available to attend to the affairs of the Trust, including timely filing of appeal. Due to the absence of the Secretary, the Trust was unable to take appropriate steps within the prescribed limitation period, as the records, correspondence, and tax matters were primarily handled by him.

13. That immediately upon the Secretary’s return and upon becoming aware of the impugned order and the adverse consequences thereof, the Trust acted with due diligence and without any further delay and took necessary steps to file the present appeal. The delay has occurred due to a bona fide and reasonable cause, and there was no malafide intention, negligence, or deliberate inaction on the part of the Appellant Trust.

14. That the Appellant Trust has a strong prima facie case on merits, and the issues involved in the appeal relate to charitable registration, which has serious civil consequences affecting the very existence and functioning of the Trust.

15. That if the delay is not condoned, the Appellant Trust would suffer irreparable loss and injustice, whereas no prejudice whatsoever would be caused to the Revenue if the delay is condoned and the appeal is decided on merits.

16. That it is a settled principle of law that procedural delays should not defeat substantial justice, and the Hon’ble Courts and Tribunals have consistently held that a liberal approach should be adopted while considering applications for condonation of delay, particularly in cases involving bona fide reasons.

17. That the Appellant Trust humbly prays that the Hon’ble Tribunal, in the interest of justice, equity, and fair play, may kindly condone the delay of 738 days in filing the present appeal and admit the same for adjudication on merits.

18. That the Appellant craves leave to add, alter, amend, or withdraw any of the above grounds of appeal at the time of hearing.

PRAYER

In view of the above grounds, the Appellant Trust VRIKSH BE THE CHANGE, most respectfully prays that the Hon’ble Tribunal may kindly:-

Set aside the impugned order passed by the Learned Commissioner of Income-tax (Exemption), Patna OR, Restore the regular registration u/s 12AB of the Income-tax Act, 1961, OR Pass such other order(s) as the Hon’ble Tribunal may deem fit and proper in the interest of justice.”

2. At the outset of hearing, we noted that the appeal filed by the assessee is time barred, the order of Ld. CIT(E) passed on 23.08.2023 against which the assessee filed before ITAT on 22.12.2025 with the delay. The Secretary Chandrakant Pateshwari has filed an affidavit stating the reason for delay in filing the appeal vide affidavit dated 17.12.2025 which is placed on record at paper book No. 79-78.

3. On going through the above affidavit, we noted that the assessee had reasonable cause for not filing appeal within the due date therefore, considering the judgment of Collector, Land Acquisition v. Mst. Katiji ITR 171 (SC), we condone the delay and the appeal is taking for adjudication.

4. Briefly stated the facts of the case are that the assessee filed an application in Form No. 10AB on 21.02.2023 for grant of registration under sub clause (iii) of clause (ac) of sub-section (1) of section 12A read with section 12AB(1)(b) of the Act. The assessee is a trust and it is situated at Buniyadganj, Gaya. During the course of proceedings for registration the Ld. CIT(E) issued various notices and the assessee partly replied. On going through the trust deed, the Ld. CIT(E) noted as under:

“4. Therefore, it is concluded that the assessee Trust has not been created only for public of India but it takes into its ambit the application of income for benefit of people residing outside the territory of India. Therefore, the said clause is found not in agreement with the intention of the provisions laid down u/s 11 of the Income Tax Act which leaves scope for utilization of money by the trust beyond the scope of section 11.

5. Therefore, it is held that the applicant failed to prove the creation of such Trust which is wholly for chantable or religious purposes within the meaning of section 11 read with section 2(15) of the IT Act 1961. Therefore, the application filed in Form 10AB for grant of regular registration under sub clause (iii) of clause (ac) of sub-section (1) of section 12A is rejected.”

5. After observation of the above, crucial point in the trust deed, he rejected the application filed u/s 12A(1)(ac)(vi) of the Act in Form No. 10AC against which the assessee filed appeal before the ITAT raising the above grounds.

6. The Ld. Counsel reiterated the grounds of appeal (noted (supra) and submitted that in the impugned assessment year there is no any expenditure incurred for the benefit of NRI and requested that that the appeal of the assessee should be allowed. He referred to the paper books filed and stated that the assessee is engaged for charitable activities which is evident from the photographs enclosed in the paper book and financial statement. The Ld. CIT(E) has not pointed out any mis-utilisation of funds and no any expenditure incurred during the year for the benefit of NRI in outside India.

7. On the other hand, the Ld. DR relied on the order of Ld. CIT(E) and submitted that as per the trust deed, the Ld. CIT(E) has noted that at para number 4 of his order that it is a violation of section 11(1A) of the Act. The assessee applied for registration under the Indian Income Tax Act, therefore, the jurisdiction for incurring the expenditure must be within the India after getting registration, the assessee may incur expenditure outside India and may claim exemption.

8. After hearing the rival submissions and perusing the entire material available on record and the orders of authorities below. The Ld. CIT(E) has rejected the application filed by the assessee for the registration as observed in Para No. 4 and 5 (noted supra). We also gone through on the same. We refer to section 11(1A) of the Act which allows exemption only for the expenditure incurred for the charitable activity in India. The Assessee wanted to incur expenditure outside India but the Indian Income Tax Act does not permit to allow expenditure on such expenditure. Therefore, we do not find any infirmity in the order of Ld. CIT(E) and we upheld the order of Ld. CIT(E).

9. In the result, appeal of the assessee is dismissed.