CIT(E) Cannot Dilute Section 12AB Registration Order

CIT(E) Cannot Dilute Section 12AB Registration Order by Incorporating Caveats Based on Potential Future Supreme Court Challenges

Issue

Whether the Commissioner of Income-tax (Exemption) can validly attach caveats or conditional observations to a Section 12AB registration order based on a potential future Supreme Court challenge after accepting a binding High Court precedent.

Facts

The assessee-trust submitted an application for registration under Section 12AB of the Income-tax Act, 1961.
The CIT (Exemption) initially rejected the trust’s application for registration due to the lack of an express irrevocability clause in the trust deed.
While the appeal was pending, the Bombay High Court ruled that a public charitable trust is presumed irrevocable unless the instrument specifies otherwise, directing that registration applications should not be rejected solely for lacking an explicit irrevocability clause.
In compliance with the High Court ruling, the CIT (Exemption) granted registration under Section 12AB to the assessee-trust.
However, the CIT (Exemption) inserted a caveat in the registration order stating that the registration and its associated benefits would remain subject to the outcome of a proposed challenge before the Supreme Court.

Decision

Invalidity of Future Contingency Caveats: Held, yes. Once the CIT (Exemption) accepts a binding High Court judgment and grants registration under Section 12AB, it is not permissible to dilute the order’s effect by inserting observations based on hypothetical future appeals.
Deletion of Restrictive Caveats: Held, yes. Conditional clauses that introduce uncertainty regarding the status and validity of a Section 12AB registration cannot be sustained legally and must be deleted from the order.

Key Takeaways

Binding Precedent Must Be Applied Without Qualifiers: Statutory authorities must comply with binding Judicial precedents unconditionally without attaching qualifying reservations regarding potential future litigation.
Certainty in Tax Orders: Registration orders issued under Section 12AB must provide legal finality to charitable trusts rather than subjecting their tax-exempt status to speculative contingencies.

IN THE ITAT MUMBAI BENCH ‘D’

IMC Ramakrishna Bajaj National Quality Award Trust

Commissioner of Income-tax (Exemptions)^*

Amit Shukla, Judicial Member
and ARUN KHODPIA, Accountant Member

IT Appeal No. 6854 (Mum.) of 2026
[Assessment year 2027-28]

JULY 10, 2026

Viral Shah for the Appellant. Azhar Kabir, Sr. DR for the Respondent.

ORDER

Amit Shukla, Judicial Member. – The present appeal has been preferred by the assessee trust against the order passed by the learned CIT (Exemption) in relation to grant of registration under section 12AB of the Income-tax Act, 1961.

2. The facts, in brief, are that the assessee trust had applied for registration under section 12AB of the Act. The learned CIT (Exemption), vide order dated 28.03.2026, rejected the application primarily on the ground that the trust deed did not contain any specific clause declaring the trust to be irrevocable or providing that the trust property stood irrevocably dedicated for charitable purposes. According to the learned CIT (Exemption), in the absence of an express irrevocability clause, the assessee did not satisfy the statutory requirements contemplated under section 332(2)(v) of the Income Tax Act, 2025, and consequently the application for registration was liable to be rejected. Aggrieved by the aforesaid order, the assessee preferred the present appeal before the Tribunal.

3. During the pendency of the present appeal, the issue relating to rejection of registration applications solely on the ground of absence of an express irrevocability clause in the trust deed came up for consideration before the Hon’ble Bombay High Court in Chamber of Tax Consultants v. CIT (Exemptions) (Bombay)/Writ Petition (L) No. 7587 of 2026 . The Hon’ble High Court, after considering the legal framework governing public charitable trusts, held that a public charitable trust is presumed to be irrevocable by operation of law unless the trust instrument itself contains a specific provision enabling revocation. The Hon’ble High Court further directed the authorities not to reject applications for registration merely on the ground that the trust deed does not contain an explicit irrevocability clause. The aforesaid judgment thus directly addressed the very foundation on which the assessee’s application had earlier been rejected.

4. In compliance with the aforesaid judgment of the Hon’ble Bombay High Court, the learned CIT (Exemption) subsequently granted registration under section 12AB to the assessee trust. However, while granting such registration, the learned CIT (Exemption) recorded certain observations stating that the Revenue was contemplating challenge to the judgment of the Hon’ble Bombay High Court before the Hon’ble Supreme Court and, therefore, by way of abundant caution, the assessee trust and other stakeholders were being informed that the registration and consequential benefits flowing therefrom would remain subject to the ultimate outcome of the proceedings before the Hon’ble Supreme Court. It is against these observations and caveats incorporated in the subsequent registration order that the assessee has preferred the present appeal.

5. Before us, the learned counsel submitted that once the jurisdictional High Court had conclusively settled the issue and the learned CIT (Exemption) had acted upon such binding directions by granting registration, no qualification or conditional rider could have been attached to the grant itself. It was submitted that the observations made by the learned CIT (Exemption) create an atmosphere of uncertainty regarding the legal status of the registration and are likely to adversely impact the activities of charitable institutions. It was further submitted that charitable organisations depend substantially upon public confidence and statutory recognition and any such cautionary remarks in the order granting registration have the potential of creating unwarranted apprehensions amongst stakeholders. Reliance was also placed upon the decision of the Coordinate Bench in the case of IAA Rajesh Foundation v. CIT (Exemption), order dated 15.05.2026, wherein an identical caveat incorporated while granting registration was directed to be deleted.

6. We have carefully considered the rival submissions and have perused the material available on record. The issue which requires our adjudication is whether the learned CIT (Exemption), while granting registration in compliance with a binding judgment of the jurisdictional High Court, was justified in attaching a caveat that the registration and consequential benefits would remain subject to the outcome of a proposed challenge before the Hon’ble Supreme Court. In our considered opinion, such an approach is legally unsustainable and cannot be approved.

7. It is a fundamental principle governing judicial discipline that a judgment rendered by the jurisdictional High Court is binding upon all authorities functioning within its territorial jurisdiction so long as it continues to hold the field. The efficacy and binding character of such a judgment do not depend upon whether one of the parties proposes to challenge it before a superior forum. A contemplated appeal, a proposed Special Leave Petition or even a pending challenge before a higher court does not dilute the binding force of the judgment unless its operation is stayed, modified or reversed by a competent judicial authority. Therefore, once the learned CIT (Exemption) accepted the binding nature of the judgment of the Hon’ble Bombay High Court and proceeded to grant registration on that basis, it was not open to simultaneously dilute the effect of such grant by incorporating observations founded merely upon a possible future contingency.

8. We further find that the observations incorporated by the learned CIT (Exemption) travel beyond the scope of the directions issued by the Hon’ble Bombay High Court. The High Court directed that applications should not be rejected solely on the ground of absence of an express irrevocability clause. The learned CIT (Exemption), while implementing those directions, was required to grant or refuse registration in accordance with law and on the basis of the facts before him. Once registration was granted, the statutory recognition so conferred could not be converted into a tentative or conditional recognition by referring to a possible future challenge. Such observations do not emanate from any provision of the Act and are unsupported by any statutory mechanism permitting a registration order to remain perpetually subject to an anticipated future event.

9. We also find considerable force in the submission of the learned counsel that such caveats have wider practical ramifications. Registration under section 12AB is not merely a procedural recognition. It constitutes the foundation upon which charitable institutions organise their activities, mobilise resources and secure public participation. An observation by the statutory authority itself suggesting that the registration presently granted may remain subject to an uncertain future outcome is capable of creating avoidable ambiguity and hesitation in the minds of stakeholders. Such uncertainty is neither contemplated by the statutory scheme nor warranted by the judicial directions pursuant to which the registration has been granted.

10. We also note that an identical issue had come up before the Coordinate Bench in the case of IAA Rajesh Foundation v. CIT (Exemption), vide order dated 15.05.2026, wherein the Tribunal observed that once registration has been granted pursuant to the binding judgment of the jurisdictional High Court, the authority cannot append qualifying observations based merely upon a proposed challenge before the Hon’ble Supreme Court. The Tribunal accordingly directed deletion of such caveats. The principle emerging from the said decision fully supports the assessee’s grievance before us.

11. Having regard to the entirety of the facts and circumstances of the case, we are of the considered view that the observations made by the learned CIT (Exemption) stating that the registration and consequential tax benefits would remain subject to the outcome of proceedings before the Hon’ble Supreme Court cannot be sustained. Such observations neither emanate from the statutory provisions governing registration under section 12AB nor can they coexist with a grant made in compliance with a binding judgment of the jurisdictional High Court. The validity and efficacy of the registration granted to the assessee must be examined with reference to the law as it exists on the date of grant and not on the basis of speculative future developments. Needless to state, if at any future point of time any superior judicial forum lays down a different legal position, the consequences, if any, would follow in accordance with law. However, such hypothetical future possibilities cannot furnish a legal basis for qualifying a registration that presently stands validly granted.

12. Accordingly, the impugned observations contained in the order granting registration under section 12AB, which make such registration and consequential benefits subject to the outcome of a proposed challenge before the Hon’ble Supreme Court, are directed to be deleted. The assessee shall be entitled to registration under section 12AB as granted by the learned CIT (Exemption) without any such qualification, restriction or conditional rider.

13. In the result, the appeal of the assessee is allowed.