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Facts
The assessee, TIH Foundation for IOT & IOE, a Section 8 company, applied for renewal of its registration under Section 12AB of the Income Tax Act. The Commissioner of Income-tax (Exemption) [CIT(E)] rejected the application, citing the possibility of the assessee incurring expenditure outside India as per its Memorandum of Association, which the CIT(E) believed contravened Section 11 of the Act.
Held
The Tribunal, relying on judicial precedents from the Delhi High Court and ITAT Mumbai, held that the mere possibility of applying income outside India, as reflected in the objects, is not a valid ground to deny or cancel registration under Section 12AB. The scope of Section 12AB is limited to examining the genuineness of activities and objects, with the actual application of income (whether within or outside India) being addressed by Section 11 for exemption purposes. Therefore, the CIT(E)'s order was deemed unsustainable.
Key Issues
Whether the potential for an assessee to incur expenditure outside India, as reflected in its objects, constitutes a valid ground for rejecting or denying registration under Section 12AB of the Income Tax Act, 1961.
Sections Cited
11, 11(1), 12A, 12AA, 12AB, 12AB(1)(b), 12AB(4), 10G
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
The instant appeal of the assesse filed against the order of the Learned Commissioner of Income-tax (Exemption), Mumbai [for brevity the “Ld. CIT(E)] passed under section 12A of the Act, date of order 22/03/2025.
2. The assessee has taken the following grounds of appeal:-
“On the facts and in law, 1. The Hon. CIT (Exemption) erred in rejecting the application seeking registration u/s 12AB of the IT Act, 1961, for the sole reason that the appellant could carry out activities/incur expenditure outside India and this according to the Hon. CIT(Exemption) precluded the appellant from enjoying registration u/s 12A/12AB of the IT Act, 1961.
The order passed by the Hon. CIT (Exemption) in Form no. 10AD dated 22.03.2025, rejecting the application filed by the appellant for registration u/s 12AB, being not justified be set aside and the appellant be declared eligible for registration u/s 12A of the IT Act, 1961.
The appellant craves leave to add, alter, amend and/or vary any of the above grounds of appeal
at any time before the decision of the appeal.”
3. The brief facts of the case are that the assessee, TIH Foundation for IOT & IOE was incorporated on 25th August 2020 under section 8 of the Companies Act, 2013, with the primary objective of promoting Technology Research and Development under Central Government grants and mission. The assesse company is set up by the Indian Institute of Technology, Bombay pursuant to the directions from the Ministry of Science and Technology and funded by grant sanctioned under (National Mission on Interdisciplinary Cyber-Physical Systems (NM-ICPS) scheme) from Central Government. The sanction order from the government is placed at pages 1 to 4 of the paper book relevant sanction order copy for financial assistance of general budget to assessee dt. 24.12.2020). One of the target area/deliverables from the grant sanction under NM-ICPS Mission, Ministry of Science & Technology is international collaboration for technology research & development to be used in India for various sectors (at present, mainly in defence & agriculture sector). This responsibility was placed on the assessee vide tripartite agreement dt. 07.12.2020 TIH Foundation for IOT AND IOE between the Hon. President of India, acting through Mission Director, Mission office, NM-ICPS, New Delhi, Indian Institute of Technology, Bombay (Host Institute) and TIH Foundation for IOT & IOE (Assessee), (Copy of agreement is placed at APB pages 05 to 27). The assesse enjoyed registration u/s 12AB of the Act from A.Ys. 2021-22 to A.Y. 2025-26 (copy of order of registration in form 10AD is placed at APB pages 75 to 78). The assesse applied for renewal of registration u/s 12AB in form no. 10AB on 27.09.2024. The Ld. CIT(E) has refused registration for the reason that there is possibility of future endeavor by the assessee which would require expenditure outside India. The relevant paragraphs 04 to 06 of the impugned order of Ld. CIT(E) discussed the reason for rejection of the application.
The main objects of the assesse, as per its Memorandum of Association are as under, page 57 of APB:
“1) To set up, establish, run and manage Technology Innovation Hub for developing Technologies such as IOT and IOE and/or other Technologies assigned to the Company and to create a platform for technology innovation between IIT Bombay, Government authorities and industry and to create Technology Business Incubators and other essentials.
2) To work as a single point source of all information for Technologies for IOT and 10E and/or other Technologies assigned to the Company and connect to all the researchers, institutes and other centers of Excellence.
3) To receive or support projects to other institutes, industry and work towards delivery of technologies and applications and focus on generation of new knowledge through basic and applied research in areas assigned to the Company, to develop itself and act as the source for fundamental knowledge/technologies needed to keep India prepared for the next generation of technologies and develop TIH Foundation for IOT AND IOE new knowledge (intellectual property) and highly knowledgeable human resource with top-order skills, besides serving as a repository of papers and patents.
4) To render special technical and/or advisory support and act as an Accelerator to organizations in accordance with the policies of the Company and provide the eco- system for technology development and deployment and delivering technologies or technology solutions for the development of the nation.
5. The Ld.AR argued and filed a paper book containing pages 1 to 109, which is kept on record. The Ld.AR stated that the assessee – trust formed as per section 8 of the Companies Act, 2013 and in collaboration with Indian Institute of Technology, Bombay (IIT, Bombay), Ministry of Science & Technology, Government of India. The said agreement with the formation of the Trust is duly annexed at pages 5 to 227 of the paper book. The Ld. CIT(E) had rejected the said registration on the ground that the assesse has executed foreign expenses for running the trust which is contravening the provisions of section 11 of the Act. The relevant paragraphs 4 to 6 of the impugned order of Ld.CIT(E) are extracted below:-
“4. Applicant's reply is neither satisfactory nor conclusive. In its reply, the applicant states that The objects referred in the notice from pt. no 3 (B) are from the objects or ancillary to the attainment of the main objects for which company is established. This contention does not make much difference to the fact that the objects are in violation of section 11 of the Act because as per the MOA these objects are categorised as "Objects incidental or ancillary to the attainment of the main objects for which the Company is established (i.e. Main object)". Thus, even though these are not main objects, these are very much integral to attainment of main objects of the MOA. Such objects leave room for any potential future endeavour may be undertaken by the assessee trust which would require expenditure outside India. Further, in point no. 4 of the MOA, the applicant clearly expresses that the objects of the Company are extended to the whole of India and abroad. This point removes all the doubts and confirms that all the objects are extendable to TIH Foundation for IOT AND IOE anywhere in the world which will automatically result in expenditure outside India. The applicant trust ought to have amended the clauses of the objects mentioned above which are in violation of the Act as discussed above, however, the applicant has not considered it. The assessee has not presented/submitted any documentary evidence/proof of passing the resolution regarding amendment in trust deed nor has it provided any proof that it has initiated the process for amendment in trust deed/MoA before the competent authority.
Since Registration/approval under section 12AB is to be granted in terms of the provisions of section 12AB(1)(b) of the Act after being satisfied about the objects of the trust or institution, the genuineness of activities, and the compliance of any other law for the time being in force as are material for the purposes of achieving its objects. In absence of necessary compliance by the applicant, the undersigned is unable to arrive at a satisfactory conclusion on these parameters. The applicant is not fulfilling the stipulated conditions prescribed for approval of application filed in Form 10AB. As such, the undersigned is left with no other options but to reject the application seeking registration under section 12AB of the Act.
6. In conclusion, this application for grant of registration stands rejected.”
The Ld.AR respectfully relied on the order of Hon’ble Delhi High Court in case of N.K. Nambyar Saarf Law Charitable Trust – vs- Union of India, [2004] 269 ITR 556 (Delhi). The relevant paragraph 3 of the order is extracted below:-
3. So far as the benefit of section 11(1)(a) is concerned, it can be extended only to the extent to which such income is applied to such purposes in India. However, if the income is applied to the purposes outside India, then clause (1) will be applicable and if the permission is granted by the Board either by general or special order then, benefit can be extended. Section 12AA prescribes the procedure for registration. Reading the section, it becomes clear that after the application is made, the officer has to call for documents or information from the Trust to satisfy himself about the genuineness of the activities of the Trust. He can make further enquiry as he may deem necessary. It is only after satisfying himself about the objects of the Trust and the genuineness of TIH Foundation for IOT AND IOE its activities that he has to pass an order in writing registering the Trust or institution. And if he is not satisfied, he can reject the same. This section does not refer to the activities in India or outside India. It refers to application of income for charitable or religious purposes in India as also with direction of order of the Board for application of income as aforesaid outside India. Reading the order dated 24-2-2004, it is very clear that there is non-application of mind. It was necessary for the Commissioner to examine the purpose for satisfying himself that the activities are genuine. It was open for him to make necessary enquiries in this behalf and to pass an order as per the procedure laid down under section 12AA of the said Act. So far as income which is applied outside India is concerned, is not a relevant criteria for rejecting the application. In absence of order under section 11(1)(a)(c), one cannot seek benefit for application of income for charitable or religious purposes, outside India Therefore, the order dated 24-3-2004 made by the Director of Income-tax (Exemptions), Annexed at page 32 which is based on irrelevant criteria is quashed and set aside with a direction to consider the application strictly in accordance with law. It is made that even application under section 10G is required to be considered afresh. It is directed that the application shall be disposed of within a period of four weeks by the Commissioner.
The Ld. AR further respectfully relied on the order of coordinate bench of ITAT-Mumbai, D-Bench in Dedhia Music Foundation vs. Commissioner of Income- tax (Exemption) [2025] 173 taxmann.com 394 (Mumbai - Trib.) date of order 02- 04-2025. The observation in relevant paragraphs 12 to 15 are reproduced as follows.
12. In the present case, according to Ld CIT(E), the objects clause enables the assessee to apply its income outside India. According to Ld CIT(E), the same is not permitted under the Act and hence the registration provisionally granted to the assessee may be cancelled. We shall now examine as to whether the existence of objects for carrying out activities outside India or actual application of income outside India in accordance with its objects, would fall under any of the categories of specified violations" listed out in the Explanation to sec. 12AB(4) of the Act or not.
TIH Foundation for IOT AND IOE "(i) Clause (a) would be attracted only if any income derived from the property held for charitable purpose is applied other than for the objects of the charitable trust or institution. Hence, so long as any income is applied for the objects of the charitable trust or institution, the clause (a) would not get attracted. Thus, if the objects clause of a charitable Trust or Institution permits carrying on objects outside India and if any income is applied for such objects, then it cannot be considered as application of income "for objects other than the objects of the charitable trust or institution" falling within the meaning of clause (a). Consequently, the clause (a) would not be attracted.
(ii) Clause (b) would be attracted only if any business or profession is carried on and there is violation as mentioned therein. This clause will not be attracted for application of income for permitted objects outside India.
(iii) Clause (c) would be attracted when income of trust held for private religious purposes is applied for those purposes, which does not ensure for the benefit of public. The assessee herein is not a trust held for private religious purposes and hence this clause will not apply to the assessee herein.
(iv) Clause (d) would be attracted when income of the trust is applied for particular religious community or caste. This clause will also not apply to the assessee herein.
(v) Clause (e) would be attracted when any activity being carried out by the trust or institution —
(i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered.
This clause would be attracted when the activities of the charitable trust or institution is not genuine or in violation of any of the conditions subject to which the registration u/s 12AB was granted. In the instant case, the Ld CIT(E) has stated the activities claimed to TIH Foundation for IOT AND IOE have been carried on is not supported by the expenses incurred. According to Ld A.R, the above said observations are against the facts available on record. Hence the above said observations of Ld CIT(E) is dealt with separately infra.
(vi) Clause (f) would be attracted when there is failure to comply with the requirements of "any other law". Under this clause "any other law" would mean any law other than Income tax Act. This meaning can be understood from the Sub-clause (B) of clause (i) of sec.12AB(1)(b) of the Act, which reads as under:-
" (B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects".
The Ld CIT(E) has to ensure that the charitable trust or institution has complied with the requirement of „any other law for the time being in force', as are material for the purpose of achieving its objects. Here, it is pertinent to note that the verification by Ld CIT(E) should be restricted to compliance of those laws as are material for the purpose of achieving its objects.
12.1. It may be noticed that clauses (a),(c),(d) and (e) would be attracted only when there is application of income as mentioned in those clauses. Hence "actual application of income" is the condition to be satisfied for attracting the above said four clauses.
In our view, the provisions of sec.11(1) would not fall under the category of "any other law", since it is only a computation provision. The provisions of sec.11(1) do not require the charitable trust or institution to comply with any requirements, which are essential to achieve the objects of the trust. Further provisions of sec.11(1) do not state that the application of income derived from property held under trust for activities carried outside India results in violation of any law. Sec. 11 only states that the exemption under that section is restricted to income applied for charitable purposes in India, i.e., it does not permit exemption of income applied outside India. Hence income, if any, applied for objects outside India cannot be construed to be violation of 'any other law' falling within the meaning of clause (f) of Explanation to sec. 12AB(4) of the Act.
TIH Foundation for IOT AND IOE 14. The foregoing discussions would show that the application of income of a charitable trust or institution outside India for carrying out its objects will not fall under any of the categories of "specified violation" as mentioned in the Explanation to sec.12AB(4) of the Act. Hence, the decision rendered by Hon'ble Delhi High Court in the case of M.K. Nambyar Saarf Law Charitable Trust v. Union of India [2004] 140 Taxman 616/269 ITR 556 (Delhi) will apply to the provisions of sec.12AB of the Act also, since the provisions of sec.12AB also do not refer to the activities carried in India or outside India.
In view of the foregoing discussions, it can be concluded that existence of any object for carrying out any activity outside India will not enable the Ld CIT(E) to deny registration u/s 12AB of the Act. As observed earlier, such kind of application of income outside India (unless it is permitted by the CBDT) will not be exempted u/s 11 of the Act.”
The Ld.DR argued and fully relied on the order of the Ld.CIT(E).
We have carefully considered the rival submissions and perused the material available on record. It is an undisputed fact that the assessee is a not-for-profit company incorporated under Section 8 of the Companies Act, 2013, established pursuant to the directions of the Ministry of Science and Technology, Government of India, and hosted by IIT Bombay. The assessee has been granted registration under Section 12AB of the Act for earlier assessment years, i.e., A.Y. 2021-22 to A.Y. 2025-26, and the present application was filed for continuation of registration. The only basis for rejection of registration by the Ld. CIT(E) is the possibility of the assessee incurring expenditure outside India in furtherance of its objects, which, according to the Ld. CIT(E), contravenes the provisions of Section 11 of the Act. However, such reasoning does not find support either in the statutory scheme of Section 12AB or in judicial precedents. In this regard, the Hon’ble Delhi High Court in the case of N.K. Nambyar Saarf Law Charitable Trust (supra) has categorically TIH Foundation for IOT AND IOE held that the scope of Section 12AA (now Section 12AB) is limited to examining the genuineness of activities and the objects of the trust, and not the place of application of income. The Hon’ble Court observed that the fact that the trust may apply income outside India does not constitute a valid ground for denial of registration, since Section 11 itself provides a framework for allowing or disallowing exemption based on application of income in or outside India. Thus, this objection, being premature and irrelevant at the stage of registration, cannot be sustained.
Similarly, the Coordinate Bench of the ITAT, Mumbai in Dedhia Music Foundation (supra) has held that the mere existence of an object permitting application of income outside India does not amount to a “specified violation” under Explanation to Section 12AB(4) of the Act. The Tribunal concluded that unless and until the income is actually applied outside India in violation of the conditions of Section 11, it cannot be construed as a ground for cancellation or denial of registration under Section 12AB. Moreover, the application of income outside India, even if made, would only affect the exemption under Section 11(1), but cannot be construed as a contravention of law attracting rejection of registration. In the present case, the assessee has neither undertaken any impermissible application of income nor has the Ld. CIT(E) brought on record any specific violation of conditions prescribed under Section 12AB(1)(b) or Explanation to Section 12AB(4). The objects of the assessee are in line with the mission of the Central Government under the NM-ICPS initiative, and the activities are genuine and aimed at technological development in public interest. In view of the foregoing legal position and judicial precedents, we find the order passed by the Ld. CIT(E) to be unsustainable in law.