Whether form 10B/10BB is required to be filed if a 12AA/12AB registered entity is claiming exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae)?
Introduction: In the realm of taxation, registered educational or medical institutions in India often find themselves at the crossroads of choosing between two sections – Sec. 11 and Sec. 10(23C). The decision they make has implications not only on their tax liability but also on the obligations they must fulfill. This article explores whether Form 10B/10BB is required for entities registered under Sec. 12AA/12AB when claiming exemptions under Sec. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae).
An educational or medical institute is eligible for 100% exemption of its income u/s. 10(23C)(iiiab)/(iiiac) if it is existing solely for educational/philanthropic purposes and not for the purposes of profit and more than 50% of its gross receipts are by way of grants from government.
Similarly an educational or medical institute having gross receipts upto Rs. 5 Crores and existing solely for educational/philanthropic purposes and not for the purposes of profit is also entitled for 100% exemption of its income u/s. 10(23C)(iiiad)/(iiiae).
If these entities are also registered u/s. 12AA/12AB, a question is often asked whether they have to mandatorily go for exemption u/s. 11 only or they can enjoy a relatively easier exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae)? And even if they claim exemption under clauses of Sec. 10(23C), whether requirement of filing form 10B/10BB is there?
Whether an educational or medical institution registered u/s. 12AA/12AB may claim exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae)?
The simple answer is that mere registration u/s. 12AA/12AB is not a bar in claiming exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae) if the assessee is otherwise eligible for the same. There is no such requirement of law that if an entity is registered u/s. 12AA/12AB, it has to claim exemption only u/s. 11 and not under any other section. The matter gets quite clear by Sec. 11(7) which though denies exemption u/s. 10 to the entities registered u/s. 12AA/12AB but at the same time permits exemption u/s. 10(1), 10(23C) and 10(46) for such entities.
Accordingly even if an entity has taken registration u/s. 12AA/12AB, it can very well go for the exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae) if is otherwise eligible for the same.
Mere registration u/s. 12AA/12AB does NOT lead to requirement of filing audit report in form 10B/10BB
The requirement of form 10B/10BB does not automatically get triggered by the registration u/s. 12AA/12AB. Both these requirements i.e. Registration u/s. 12AA/12AB and submission of audit report in form 10B/10BB, independently form part of a set of conditions required to be fulfilled if one wants to claim exemption u/s. 11 but later is not always tagged with the former.
The requirement to file form 10/10BB emanates from Sec. 12A(1)(b). This section comes in to play “where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax”.
Accordingly, it is not the case that every entity registered u/s. 12AA/12AB has to mandatorily file form 10B/10BB every year. Submission of form 10B/10BB is required only when total income of the institution before taking into account Sec. 11 and 12 is more than maximum exemption limit. If it is not so then there is no other provision in the act asking it to still file form 10B/10BB.
Situation when a 12AA/12AB registered entity claims exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae)
As discussed above, Sec. 11(7) while generally denying exemption u/s. 10 for Sec. 12AA/12AB registered entities, permits exemption u/s. 10(23C) for them.
Per sec. 12A(1) read with clause (b) therein, form 10B/10BB is to be filed only when an entity is claiming exemption u/s. 11 and when income of such entity exceeds maximum exemption limit before taking into account provisions of Sec. 11 and 12.
Now if an entity is entitled to and is claiming exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae), its total income is already exempt before Sec. 11 comes into play and accordingly it wouldn’t be crossing the threshold set out u/s. Sec. 12A(1)(b) i.e. its total income is not more the exemption limit (the total income is in fact zero in such case). Thus Sec. 12A(1)(b) does not get triggered and there is no requirement for these institutions to go through the rigors of submission of form 10B/10BB.
Incidental issue 1 : Whether Sec. 115TD – Tax on Accreted Income may get triggered if Sec. 12AA/12AB registered entities do not file form 10B/10BB ?
As per Sec. 115TD(1) read with Sec. 115TD(3), provisions of Tax on Accreted Income comes into play, inter alia, when registration of entity u/s. 12AA/12AB gets cancelled.
As discussed above, filing of form 10B/10BB is a requirement only for claiming exemption u./s. 11 in a given previous year. It is NOT a requirement for continuation of registration u/s. 12AA/12AB. Amongst all the reasons enumerated in sec. 12AB(4) read with Explanation thereto, basis which 12AA/12AB registration may be cancelled, non submission of form 10B/10BB is not listed as the reason for cancellation of registration. Thus any apprehension that a Sec. 12AA/12AB registered entity may get caught by tax on accreted income due to non submission of form 10B/10B, is unfounded.
Incidental issue 2 :What is the due date of filing of ITR if form 10B/10BB is not to be filed
All such institutes which are claiming exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae) are required to file ITR u/s. 139(4C), applicable ITR form being ITR 7. Even if, as discussed above, they are not required to get an audit done under Income tax Act and submit form 10B/10BB, they are normally required to get an audit under other acts like Society Registration Act/ Trust Act/IIM Act etc. Accordingly, the ITR due date applicable for them u/s. 139 is normally 31st of October.
For AY 23-24 Vide circular no. 16/2023 dt. 18/09/2023, CBDT has extended the due date of filling of l ITR 7 from 31st Oct to 30th Nov. 2023. Accordingly for all the charitable trusts/institutions claiming exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae), even if not required to submit form 10B/10BB under Income tax Act but required an audit under some other act, the due date of filing of ITR for AY 23-24 is 30th Nov. 23.
Conclusion
Presented with a choice between exemption u/s. 11 or u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae), an entity may prefer to go for the later due to the comparative easiness involved therein.
The above analysis should help such entities and their tax consultants appreciate that in exercising the choice in favour of exemption u/s. 10(23C)(iiiab)/(iiiac)/(iiiad)/(iiiae) even though registered u/s. 12AA/12AB, they are perfectly in compliance with the scheme of the Income tax Act. In the process, they would also get saved from the onerous responsibilities casted by bahuballi avatar of form 10B/10BB.
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