ITAT Mumbai Strikes Down Conditional 12AB Registration and 80G Approval — CIT(E) Cannot Impose Extra-Statutory Conditions or Suspend Tax Benefits Pending Supreme Court Outcome

Overview of the Case

In a significant ruling by the Income Tax Appellate Tribunal (ITAT), Mumbai, a consolidated batch of four appeals filed by ILLA Rajesh Foundation was adjudicated, arising from orders passed by the Commissioner of Income Tax (Exemptions), Mumbai — CIT(E) — under Section 12A and Section 80G(5) of the Income Tax Act. The orders in question were dated 28.02.2026 and 04.04.2026 respectively.

The four appeals were clubbed together for hearing due to their common factual background and were decided through a single consolidated order. Two appeals — ITA No.4489/Mum/2026 and ITA No.4490/Mum/2026 — pertained to the challenge against the conditional grant of registration under Section 12AB and approval under Section 80G. The remaining two — ITA No.4491/Mum/2026 and ITA No.4488/Mum/2026 — challenged the prior rejection of these very applications.

Background and Factual Matrix

The assessee is a charitable trust that had filed an application in Form No. 10AB under Section 12A(1)(ac)(ii) of the Income Tax Act, seeking renewal of registration under Section 12AB and corresponding approval under Section 80G of the Act.

The Irrevocability Issue

In the course of processing the application, the CIT(E) noticed that the trust's governing instrument did not include an explicit clause affirming the irrevocable nature of the trust. A notice was accordingly issued under Rule 17A(2) of the Income Tax Rules, 1962, directing the assessee to furnish the relevant documents.

Since the assessee did not incorporate the irrevocability clause even during the course of hearings, the CIT(E), by order dated 28.02.2026, rejected the application for renewal of registration under Section 12AB. As a natural consequence, the application for approval under Section 80G was also refused, being contingent upon a valid Section 12AB registration.

The Bombay High Court Intervention

Subsequently, in a significant judicial development, the Hon'ble Bombay High Court, in the case of Chamber of Tax Consultants vs. Commissioner of Income Tax (Exemption), reported in [2026] 184 taxmann.com 374 (Bom), laid down that a public charitable trust is deemed irrevocable by operation of law unless the trust deed expressly provides a power of revocation. The Court issued a direction to the Department to refrain from rejecting applications for registration or renewal under Section 12AB solely on the ground of the absence of an explicit irrevocability clause.

Conditional Grant of Registration

In compliance with the binding directions of the jurisdictional High Court, the CIT(E) passed a fresh order dated 04.04.2026, granting renewal of registration and Section 80G approval to the assessee trust. However, the CIT(E) attached a notable cautionary condition to this grant — essentially informing the assessee, donors, and other stakeholders that the consequential tax benefits arising from this registration, with effect from 01.04.2026, would remain subject to the outcome of proceedings before the Supreme Court, as the Revenue intended to prefer a Special Leave Petition (SLP) against the Bombay High Court's judgment.

The operative text from the impugned order in the Section 12A proceedings (paragraph 15) reads as follows: