Case Law Details
Atma Bodhodaya Sangham Vs CIT (Exemptions) (Kerala High Court)
The appellant, a charitable trust engaged solely in charitable activities, stated that it had originally obtained registration under Section 12A of the Income Tax Act, 1961, on 23 March 1988. According to the appellant, while applying for provisional registration for the assessment year 2020-21, a mistake occurred due to a system error whereby Section 10(23) was selected instead of Section 12A. As a result, provisional registration was granted under Section 10(23), followed by final registration under the same provision on 22 September 2021, which remained valid until March 2024.
The appellant submitted that upon noticing this error, it approached the tax authorities and was advised to surrender the registration obtained under Section 10(23). After surrendering that registration, it filed a fresh application seeking registration from the year 2021, relying on CBDT Circular No. 7/2024 dated 25 April 2024. According to the appellant, the authorities considered the application only for the current period and granted provisional registration only for the year 2023-24. Consequently, the appellant claimed that it remained without registration for the period covering the years 2022-2023. Challenging this position, the appellant pursued remedies before the authorities and eventually approached the Income Tax Appellate Tribunal (ITAT), Kochi. The ITAT rejected the appellant’s claim, holding that registration under Section 12A could not be granted with retrospective effect.
Before the Kerala High Court, counsel for the appellant argued that the trust had not sought a completely fresh registration for the year 2022-23. Instead, it had requested the benefit of CBDT Circular No. 7/2024, which extended the time until 30 June 2024 to rectify certain defects through fresh applications. It was contended that the authorities had failed to appreciate the true nature of the appellant’s request and had denied relief solely because a registration certificate under the wrong provision had already been issued earlier. The appellant sought the setting aside of the orders and requested that registration under Section 12A be granted with effect from the assessment year 2020-21.
The Revenue opposed the appeal. The Senior Standing Counsel for the Income Tax Department argued that CBDT Circular No. 7/2024 was inapplicable to the facts of the case. According to the Department, the Circular was intended to benefit assessees whose earlier applications had been rejected because they had either been filed after the prescribed time or under an incorrect statutory provision. In the present case, however, the appellant had specifically applied under Section 10(23), and that application had been accepted. Since the application had not been rejected, the Department contended that the Circular could not be invoked. It was further argued that the subsequent application under Section 12A had already been considered, resulting in provisional registration for the year 2023-24, and therefore no further challenge could be sustained.
The High Court noted the substantial questions of law framed in the appeal. These included whether the authorities had erred in refusing exemption under Sections 11 and 12 for the assessment year 2022-23 despite the filing of Form 10AB on 7 June 2024, whether the denial of exemption merely because an earlier application had been made under the wrong section violated the principle of substance over form, whether filing a valid Form 10AB within the extended period created a vested statutory right to exemption, and whether the ITAT had failed to apply its mind by not considering the Form 10AB filed by the appellant.
The Court observed that the central issue in the case was whether CBDT Circular No. 7/2024 could support the appellant’s claim. However, it recorded that this specific issue did not appear to have been raised before the ITAT. The Court also noted that the appellant’s assertion regarding a system error resulting in the filing of an application under Section 10(23) lacked supporting material on record. Consequently, the Court held that this assertion could not be accepted merely on the basis of the appellant’s statement.
At the same time, the Court recognised that the appellant had been registered under Section 12A as early as 1988. Therefore, it observed that it was probable that a mistake had occurred while applying for registration for the year 2020-21 through the selection of an incorrect code.
The Court further noted that, under the terms of CBDT Circular No. 7/2024, if the appellant’s original application had been rejected because it had been filed under an incorrect provision, the appellant would have been entitled to make a fresh application within the extended period contemplated by the Circular. The distinguishing feature in the present case, however, was that the application filed under Section 10(23) had been accepted. It was this circumstance that had given rise to the present controversy.
The Court observed that after obtaining registration under Section 10(23), the appellant had surrendered that registration and submitted a fresh application under Section 12A seeking registration from 1 April 2021. However, the authorities granted only provisional registration commencing from 18 March 2023.
Importantly, the Court noted that the ITAT had not been afforded an opportunity to examine the implications of CBDT Circular No. 7/2024 because the appellant had not raised that issue before the Tribunal. The Tribunal had only considered the appellant’s request for retrospective registration from the year 2021 and had concluded that such retrospective effect could not be granted.
Despite this, the High Court held that the effect and applicability of the Circular required proper consideration by the competent authority before any final decision could be taken regarding the appellant’s claim. The Court reiterated that, had the appellant’s original application for the year 2020-21 been rejected because it had been filed under the wrong statutory provision, the Circular might have applied. The difficulty arose because the application had initially been allowed.
The Court therefore formed the view that the Commissioner of Income Tax (Exemptions), being the competent authority, should reconsider the appellant’s request for registration from the year 2021. Such reconsideration was directed to specifically address the scope and effect of CBDT Circular No. 7/2024 dated 25 April 2024. The Commissioner was also directed to examine the appellant’s contention that, because the registration granted under Section 10(23) had subsequently been surrendered, the situation ought to be treated as equivalent to one where the original application had effectively been rejected due to the selection of an incorrect statutory provision.
Accordingly, the High Court allowed the appeal and set aside both the order of the ITAT and that of the Commissioner of Income Tax (Exemptions). The matter was remitted to the Commissioner of Income Tax (Exemptions) for fresh consideration. The authority was directed to reconsider the appellant’s application, particularly in relation to its request for registration with effect from 1 April 2021, while taking into account the provisions of CBDT Circular No. 7/2024 and after affording the appellant an adequate opportunity of being heard.
The Court expressly stated that, because the appeal was being allowed on the basis of remand, it was not answering the substantial questions of law that had been framed in the case. Those questions were left open for consideration in an appropriate case in the future if required.
The Court also clarified that its observations should not be interpreted as recognising any entitlement on the part of the appellant to the relief sought. Instead, the purpose of the judgment was to ensure that all the appellant’s contentions, including those specifically recorded in the judgment, were duly examined and addressed by the competent authority while deciding the matter afresh.
Finally, the Court directed that the reconsideration exercise be completed as expeditiously as possible and, in any event, within three months from the date of receipt of a copy of the judgment.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The appellant claims to be a charitable trust incorporated for the sole purpose of undertaking charitable activities; and say that they were originally registered under Section 12A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short), on 23.03.1988. They say that, unfortunately, due to an error in the system, when they applied for provisional registration for the year 2020-21, Section 10(23) came to be selected, instead of Section 12A of the ‘Act’; and that this led to a provisional registration being incorrectly issued to them under Section 10(23), followed by a final registration under the said Section on 22.09.2021, valid up to March 2024.
2. The appellant explains that when this omission was noticed, they approached the authorities who directed them to surrender the registration, which they did; and consequently, applied for registration afresh from the year 2021, relying upon Circular No.7/2024 dated 25.04.2024 of the Central Board of Direct Taxes (CBDT). They impute that, however, the said application has been considered only for the current year, and resultantly, a provisional registration granted to them solely for the year 2023-24, thus rendering a situation where they had no registration for the years 2022-2023. They say that they hence approached the authorities in hierarchy, finally leading to the impugned order of the Income Tax Appellate Tribunal, Kochi, (ITAT), which rejected their claim, holding that registration under Section 12A of the ‘Act’ does not permit any retrospective effect.
3. Sri. Augustine P. – learned counsel for the appellant, submitted that this is not a case where his client applied for registration afresh for they year 2022-23, but that they requested for the benefit of the Circular aforementioned which gave them time till 30.06.2024 to make necessary rectification application. He contended that, however, this has not been appreciated by any of the authorities solely for the reason that a wrong registration certificate had been issued earlier. He prayed that, therefore, the impugned order be set aside and the authorities be directed to issue to his client registration under Section 12A of the ‘Act’ with effect from 2020-21.
4. Sri. Jose Joseph — learned Senior Standing Counsel for the Income Tax Department, countered the afore submissions, contending that Circular No.7/2024 would not apply to this case because, as is clear therefrom, though it provides an opportunity to an assessee to apply afresh until 30.06.2024, it would be so, only in cases where the earlier application has been rejected on account of the fact that it is filed after the due date, or made under a wrong Section. He argued that, in this case, the application of the appellant was made specifically under Section 10(23) of the Act, which was allowed; and therefore, the afore Circular would never apply. He concluded his submissions, saying that when the appellant thereafter applied for a fresh registration under Section 12A of the ‘Act’, it was correctly granted provisionally for the year 2023-24 and hence that they cannot challenge the same. He prayed that this Appeal be, therefore, dismissed.
5. We see from the records that the substantial questions of law framed in this case are as under:
1. Whether the ITAT and CIT (Exemption) committed a legal error by refusing exemption under Sections 11 & 12 for AY 2022-23, without considering the valid Form 10AB filed on 07-06-2024, which stood protected and regularized by CBDT Circular No. 07/2024 issued u/s 119?
2. Whether denial of exemption only because the earlier application was filed under a wrong section code (Section 10 instead of 12AB) violates the principle of ‘substance over form’ when the objects and activities of the Trust are genuinely charitable and the defect is expressly curable?
3. Whether, upon filing of the valid Form 10AB within the extended period, a vested statutory right to exemption exists for AY 2022 -23, and whether mechanical refusal amounts to violation of natural justice and Article 14 of the Constitution?
4. Whether the ITAT’s refusal to consider the 0706-2024 Form 10AB constitutes non-application of mind and arbitrary exercise of jurisdiction?
6. In our view, the essential aspect in this case is whether the benefit of Circular No.7/2024 would lend strength to the request of the appellant. But, before we speak on this, we must record that it does not appear from the order that such an issue was ever raised even before the learned ITAT.
7. The appellant asserts that they made a wrong application for the year 2020-21, invoking Section 10(23) of the ‘Act’, because of an alleged system error. There is hardly any information on record to establish this and we cannot, therefore, accept it on face value. However, the fact remains that the appellant had obtained registration under Section 12A as early as on 03.1988 and it may be probable that they made a mistake in applying for registration for the year 2020-21 under a wrong code.
8. Interestingly, as per the Circular referred above, had such an application been rejected, then the appellant would have been in a position to make a fresh application until 04.2024. However, in this case, the application of the appellant made for the year 2020-21 came to be allowed and it is hence that the controversy has arisen. The appellant, thereupon, surrendered the registration which they obtained and made a fresh application under Section 12A seeking registration with effect from 01.04.2021. However, this has not been allowed and the provisional certificate issued pursuant thereto show that it is from 18.03.2023 only.
9. As mentioned above, the learned ITAT did not have an opportunity of considering the impact of the Circular because, such an issue was never raised before it by the appellant. What the appellant sought was that its registration be construed to have retrospective effect from the year 2021, which has been found to be untenable by the learned Tribunal.
10. That said, however, it is necessary that the impact of the Circular be properly assessed by the competent Authority before any final decision be taken on the claims of the appellant.
11. To reiterate, had the appellant’s application for the year 2020-21 been rejected for the reason that it was filed under a wrong Section code, the benefit of the Circular may have been available to them. It is singularly because it has been allowed, that the impugned order has been issued.
12. We are, therefore, of the firm view that the competent Authority — which is the Commissioner of Income Tax (Exemptions) — must reconsider the request of the appellant for registration from the year 2021, adverting to the ambit of the Circular No.7/2024 dated 25.04.2024 and to their specific contention that, since they have surrendered their registration which was wrongly given to them under Section 10(23) of the ‘Act’, it must be deemed that their first application had been rejected on account of furnishing of a wrong Section code.
In summation, we allow this Appeal and set aside the impugned order of the learned ITAT, as also that of the CIT (Exemptions); with a consequential direction to the latter Authority to reconsider the application of the appellant, particularly with respect to their claim for registration from 01.04.2021, on the strength of Circular No.7/2024 dated 25.04.2024, after affording them necessary opportunities.
In view of the fact that we have allowed this Appeal for the reasons above, thus ordering remit, we choose not to answer the questions of law framed specifically; but to leave them for future, if it becomes warranted to be answered.
We, however, clarify that our observations cannot be construed to mean that the appellant is entitled to any relief, but solely that all its contentions, including those which are recorded above, must be taken into account and adverted to by the Authority while completing the exercise; which shall be done as expeditiously as is possible, but not later than three months from the date of receipt of a copy of this judgment.
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