“We’ve been rejected again,” your client, the trustee of a charitable foundation, says with frustration.
“The CIT says our trust deed mentions ‘activities in India and abroad,’ so we can’t get registration under Section 12A of the Income-tax Act, 1961. But we haven’t spent a single rupee outside India!”
As their Chartered Accountant, you explain:
“This is a recurring issue. The law is clear—Section 2(15) has no geographical limits on charitable purpose. The restriction on foreign spending under Section 11(1)(c) is a computation provision, not a registration barrier. Most tribunals agree, but there’s a recent contrary view that’s causing confusion.”
For charitable trusts seeking tax exemption under Sections 11 to 13, obtaining Section 12A (now Section 12AB) registration is critical. Yet, a clause permitting spending on charitable activities outside India has become a flashpoint for denials.
While most judicial precedents support that such a clause cannot be grounds for rejection, a recent Mumbai Tribunal decision has created uncertainty.
Below are three critical lessons every CA must understand about this contentious issue.
1. The Law Is Clear: Charitable Purpose Has No Borders
The definition of “charitable purpose” under Section 2(15) is expansive, covering:
- relief of the poor,
- education,
- medical relief,
- environmental preservation, and
- advancement of any other object of general public utility.
Crucially, Section 2(15) contains no geographical restriction. Nothing in the provision mandates that charitable activities must be confined within India’s borders.
Scope of Examination at the Section 12AB Stage
When the Commissioner examines a registration application under Section 12AB, the enquiry is limited to:
- the charitable nature of the objects,
- the genuineness of activities, and
- compliance with relevant laws.
An object clause permitting future foreign spending does not undermine any of these criteria. The objects remain charitable, the activities remain genuine, and no law is violated merely by having such a clause.
2. Section 11(1)(c) Is a Computation Provision, Not a Registration Barrier
The confusion primarily arises from Section 11(1)(c), which restricts exemption for income applied outside India unless prior approval of the CBDT is obtained. Tax authorities often rely on this provision to justify denial of registration.
This approach conflates two distinct stages of the exemption framework.
Registration vs. Computation — A Critical Distinction
- Section 12AB governs eligibility and registration
- Section 11(1)(c) governs computation of exempt income after registration
At the registration stage, the Commissioner must assess whether the trust’s objects are charitable, not pre-emptively apply computation restrictions.
As held by the Chandigarh Tribunal in Sarbat the Bhala Gurmat Mission Charitable Trust, denying registration on this ground would result in denial of exemption even for income applied within India—an outcome that is legally unsound and illogical.
Practical Compliance Reality
Further, such a clause is essential if a trust intends to seek CBDT approval under Section 11(1)(c).
Without an enabling clause in the trust deed, the trust would have no legal foundation to apply for approval in the future.
3. The Mumbai Tribunal’s Contrary View: A Dangerous Precedent
Despite consistent judicial consensus, the Mumbai Tribunal adopted a contrary stance in Sila for Change Foundation, upholding the denial of registration.
The Tribunal reasoned that the 2022 amendments to Sections 12AB(4) and 12AB(5) require compliance with all material laws at the registration stage itself.
Why This Interpretation Is Problematic
First, none of the “specified violations” under Section 12AB(4) are triggered merely by the presence of a global activity clause. These violations relate to:
- non-genuine activities,
- non-compliance with applicable laws, or
- misuse or diversion of funds.
None of these arise simply because a trust deed contemplates possible foreign charitable activities.
Second, this interpretation creates a circular compliance trap.
If a trust is denied registration because of such a clause, it can never seek CBDT approval to spend abroad—thereby rendering Section 11(1)(c) meaningless.
A statutory provision cannot be interpreted in a manner that nullifies another provision of the same Act.
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