ITAT Mumbai Mandates Opportunity to Amend Trust Deed: Section 12AB Registration Cannot Be Denied Solely on Cureable 'Overseas Funding' Clauses

In a significant ruling concerning the registration of charitable institutions, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has reinforced the principles of natural justice regarding the vetting of trust deeds. The Tribunal held that an application for registration under Section 12AB of the Income Tax Act 1961 should not be summarily rejected merely because the original trust deed contained clauses permitting the utilization of funds outside India, provided the assessee has initiated steps to amend the deed and submitted an undertaking that no such overseas activities were undertaken.

The case, titled Your Neighbourhood Church Association Vs CIT (E), underscores the necessity for the Revenue Department to consider bona fide amendments to a trust’s Memorandum of Association or Trust Deed before finalizing a rejection.

Background of the Dispute

The appeal arose from an order dated 25.08.2025, passed by the Commissioner of Income Tax (Exemption) [CIT(E)], Mumbai, under Section 250 of the Income Tax Act 1961. The central grievance of the assessee was the rejection of its application for registration under the new regime of Section 12AB.

Upon scrutinizing the application, the Revenue authorities identified specific provisions within the assessee’s constituent documents that raised compliance red flags. Specifically, the CIT(E) noted that clauses 3(g), 3(h), 3(i), and object (f) of the trust deed authorized the institution to receive funds from abroad or apply funds outside India. The Revenue contended that these enabling clauses were in direct contravention of Section 11 of the Act, which generally restricts the application of charitable funds to India unless specific approvals are obtained. Consequently, the registration was denied on the premise that the trust's objectives were not fully aligned with the statutory requirements for tax exemption.

Arguments Presented by the Assessee

During the appellate proceedings, the Authorised Representative for the assessee argued that the rejection was harsh and did not account for the corrective measures already undertaken by the institution. The assessee submitted that: