Nrisimha Priya Charitable Trust Vs Central Board of Direct Taxes (Madras High Court)
Madras High Court held that CBDT Circular no. 6 of 2023 dated 24.05.2023 giving differential treatment by not extending time for filing application to new trust having provisional approval u/s. 80G is violative of Article 14 of the Constitution of India.
Facts- The petitioner trust was established on 09.09.2021 and is allotted a Permanent Account Number under the Income-Tax Act, 1961 (from now on referred to as ‘the Act‘). The trust is formed with charitable and educational goals. The petitioner had to apply for a provisional registration/approval under the Act as per the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 which amended the provisions relating to the application for the registration. As per the said Act, the first and second proviso to Section 10(23C), Section 12A(1)(ac) and the first and second proviso to Section 80G(5) of the Act were amended.
The petitioner applied for provisional approval in Form No.10A to the second respondent seeking approval under clause (iv) of the first proviso to sub-section 5 of Section 80G of the Act on 25.09.2021. The petitioner was granted provisional approval on 06.10.2021. In the meanwhile, the petitioner commenced its activities from 09.09.2021 and therefore, had to apply for regular approval/registration in Form No.10AB within six months from the date of commencement i.e., within six months from 09.09.2021.
While so, considering the difficulties faced by the assessees in electronically filing Form No.10AB, the first respondent, namely, the Central Board of Direct Taxes, issued Circular No.8 of 2022, dated March 21, 2022, by extending the date for filing applications for regular registration or approval till September 30, 2022. The time extension was granted in respect of the existing trusts and the new trusts for registrations u/s. 10(23C), 12A, and 80G(5).
Even within the extended time, the petitioner did not file Form No. 10AB and applied only on March 22, 2023. Respondent issued Circular No. 6 of 2023, dated May 24, 2023, once again extending the time limit granted.
While extending further time in respect of the existing trusts, the time extension is not granted in respect of the first proviso to sub-section (5) of Section 80G. Therefore, the petitioner’s application in respect of approval for the benefit u/s. 80G(5) will not be considered within the time. Therefore, the petitioners’ trust has come up with the present Writ Petitions.
Conclusion- Held that when the respondents have thought it fit to extend the time, considering the hardship, there is no material which is placed before this Court nor any reasoning is contained in the impugned order that the new trusts did not face the hardship in respect of filing of the application under Section 80G5 of the Act alone. Therefore, leaving out the clause in respect of Section 80G5 of the Act alone that too only in respect of the new trusts does not in any manner relate to the object sought to be achieved by the impugned circular nor does it provide any basis for the discrimination/classification.
Held that the differential treatment is not based on any substantial distinction that is real and pertinent to the object of the circular. The discrimination is artificial. The respondents are evasive and could not provide any rationale for such a classification. Accordingly, we hold that the impugned clause (ii) of the Circular, dated 24.05.2023 is arbitrary and violative of Article 14 of the Constitution of India and accordingly, would be ultra vires the Constitution.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
A. The Writ Petition:
These writ petitioners are trustees representing their respective charitable trusts. Since the reliefs claimed by them are identical and common, these Writ Petitions were heard together, and disposed of by this common order.
B. The Factual Matrix:
2. The following facts in W.P.No.27030 of 2023 are adverted to illustrate the factual background :-
2.1. The petitioner trust was established on 09.09.2021 and is allotted a Permanent Account Number under the Income-Tax Act, 1961 (from now on referred to as ‘the Act‘). The trust is formed with charitable and educational goals. The petitioner had to apply for a provisional registration/approval under the Act as per the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 which amended the provisions relating to the application for the registration. As per the said Act, the first and second proviso to Section 10(23C), Section 12A(1)(ac) and the first and second proviso to Section 80G(5) of the Act were amended. The amended provisions inter alia provide the following:-
” a) New trusts or institutions need to apply for the provisional registration/approval at least one month prior to the commencement of the previous year relevant to the assessment year from which the said registration/approval is sought. Such provisional registration/approval shall be valid for a period of 3 years.
b) Provisionally registered/approved trusts or institutions will again need to apply for regular registration/approval at least six months prior to expiry of period of the provisional registration/approval or within six months of the commencement of activities, whichever is earlier. Regular registration/approval shall be valid for a period of 5 years.
c) The trusts and institutions will need to apply at least six months prior to the expiry of regular registration/approval.”
2.2. As per the said requirement, the petitioner applied for provisional approval in Form No.10A to the second respondent seeking approval under clause (iv) of the first proviso to sub-section 5 of Section 80G of the Act on 25.09.2021. The petitioner was granted provisional approval on 06.10.2021. In the meanwhile, the petitioner commenced its activities from 09.09.2021 and therefore, had to apply for regular approval/registration in Form No.10AB within six months from the date of commencement i.e., within six months from 09.09.2021.
2.3. While so, considering the difficulties faced by the assesses in electronically filing Form No.10AB, the first respondent namely, the Central Board of Direct Taxes, issued Circular No.8 of 2022, dated 21.03.2022, thereby, extending the date for filing applications for regular registration/approval till 30.09.2022. The time extension was granted in respect of the existing trusts and the new trusts for registrations under Sections 10(23C), 12A and 80G(5) of the Act.
2.4. Even within the extended time, the petitioner did not file Form No.10AB and applied only on 22.03.2023. While so, considering the representations received from various trusts and institutions whose applications were rejected as beyond the time limit, to mitigate the genuine hardship faced by them, the first respondent issued Circular No.6 of 2023, dated 24.05.2023 once again extending the time limit granted. It is essential to extract the relevant portion of the circular which reads as follows:-
” 5. In order to mitigate genuine hardship in such cases, the Board, in exercise of the power granted under section 119 of the Act, extends the due date of making application in,-
(i) Form No. 10A, in case of an application under clause (i) of the proviso to clause (23C) of section 10 or under sub-clause (i) of clause (ac) of sub-section (1) of section 12A or under clause (i) of the first proviso to sub-section (5) of section 80G of the Act, till 30.09.2023 where the due date for making such application has expired prior to such date;
(ii) Form No. 10AB, in case of an application under clause (iii) of the first proviso to clause (23C) of section 10 or under sub-clause (iii) of clause (ac) of subsection (1) of section 12A of the Act, till 30.09.2023 where the due date for making such application has expired prior to such date.”
2.5. Thus, it can be seen that while extending further time, (a) in respect of the existing trusts, time was extended both in respect of proviso to clause (23C) of Section 10 or under sub-clause (i) of clause(ac) of subsection (1) of Section 12A or under clause (i) of the first proviso to subsection (5) of Section 80G of the Act till 30.09.2023; (b) While the same extension is granted to the new trusts also in respect of the first proviso to clause (23C) of Section 10 or under sub-clause (iii) of clause (ac) of subsection (1) of Section 12A, the time extension is not granted in respect of the first proviso to sub-section (5) of Section 80G of the Act.
2.6. Therefore, the petitioner’s application in respect of approval for the benefit under Section 80G(5) of the Act will not be considered as within the time. Therefore, the petitioners’ trust has come up with the present Writ Petitions for declaration declaring the aforementioned clause 5(ii) of the Circular No.6 of 2023, dated 24.05.2023 insofar as it fails to extend the due date for making an application for approval under clause (iii) of the first proviso to sub-section 5 of Section 80G of the Act as arbitrary and ultra vires the Constitution of India.
2.7. The writ petitioners contend that the impugned circular is discriminatory. Once the respondents decided to grant further time, extending in respect of the existing trusts alone in respect of both limbs and not in respect of the new trusts in respect of Section 80G would be violative of Article 14 of the Constitution of India. In the absence of approval under Section 80G, donors may not come forward, which ultimately would spell doom for the very existence of the petitioner trusts. No reason is given and the decision is irrational.
C. The Counter :
3. The Writ Petitions are resisted by the respondents by filing a counter-affidavit. It is stated that the original date of filing was extended till 30.09.2022 to grant an opportunity. The petitioner trusts ought to have filed their Form No.10AB well within time or at least within the extended time. However, considering various hardships, the time was further extended up to 30.09.2023. While granting further extension for the second time, in respect of the new trusts, time was extended only in respect of registrations under Sections 10(23C), 12A of the Act and not for approvals under clause (iii) of the first proviso to Section 80G(5) of the Act. While extending the time, no extension was provided for approval under Section 80G5 of the Act for the institutions that are provisionally approved under the said Section.
3.1. There are reasons for making the distinction. The same are mentioned in paragraph No.12 of the counter-affidavit which reads as follows:-
“The reason for making the above distinction is because approval under clause (i) of the first proviso to section 80G(5) may be applied by existing funds or institutions, by making an application in Form No.10A while applying for registration/approval in Form No. 10A under clause (i) of the first proviso of section 10(23C) or sub-clause (i) of section 12A(1)(ac). Hence, funds or institutions which take benefit of the extension of the due dates for filing Form No. 10A under the first regime or the second regime, were also allowed to make an application for approval u/s 80G(5) (beyond the due date) so that the donations received by them are also eligible for deduction under section 80G.
However, the requirement for new funds or institutions to seek approval by making an application in Form No. 10AB (as it stood prior to amendment by Finance Act 2023) arise only when such funds or institutions were provisionally approved u/s 80G(5) and had been granted approval in Form No. 10AC, or the approval to such funds or institutions is due to expire. Such funds or institutions were required to seek approval u/s 80G(5) by making application in Form No. 10AB within the due date (i.e. 30.09.2022). Further, the amendments made to section 115TD of the Act by Finance Act, 2023 do not directly or indirectly impact such funds or institutions.
Hence, there is a difference between the existing funds or institutions which were required to seek approval under clause (i) of the first proviso to section 80G(5) vis-a-vis the funds or institutions which were provisionally approved under section 80G(5) and required to seek approval by making an application in Form No. 10AB within the due date. The distinction made is reasonable and has a rational nexus with the object sought to be achieved. The two are a different class. Further, grant of exemption and extension of time are not a matter of right.”
3.2. It submitted that petitioners did not have any vested right to claim for an extension of time having failed to apply within the period. In the absence of any right to the petitioner trusts, the decision of the respondents not to extend time in respect of Section 80G of the Act cannot be questioned.
3.3. When the matter was being heard, we expressed our mind as to whether Section 80G of the Act was omitted by way of a conscious decision or whether it could have even been a typographical omission to leave out the sentence alone considering the wordings of the first circular granting extension for both the existing and new trusts and the wordings of the second impugned circular. Mr. AR.L. Sundaresan, learned Additional Solicitor General of India sought time to place the decision taken by the respondents by filing an additional counter-affidavit and accordingly, by the order, dated 19.02.2024, we granted further time for filing an additional counter-affidavit. Accordingly, an additional counter-affidavit, dated 06.03.2024 is also filed.
3.4. The additional counter-affidavit only reiterates that the petitioner trusts were bound to apply within time and that they cannot seek for extension of time as a matter of right. It again reiterates that in respect of the old trusts, time was extended for both matters, while, in respect of the new trusts having provisional approval, time is not extended in respect of Section 80G of the Act. It does not reveal any conscious decision which was taken by way of application of mind at the time of issuance of the impugned Circular No.6 of 2023 or any time before.
D. The Submissions:
4. We have heard Mr Suhrith Parthasarathy, learned Counsel for the petitioners in W.P.Nos.27030, 27041, 27042, 27034, 27048, 27051 of 2023 and Mr. AR.L. Sundaresan, learned Additional Solicitor General of India for the respondents in all the cases.
4.1. Mr. Suhrith Parthasarathy, learned Counsel for the petitioners in the said petitions would submit that the only question which was before the respondents was the hardship faced by the trusts in digital filing of the respective forms. While considering the same, an extension has been given both in respect of the existing as well as the new trusts on the first occasion and when the respondents thought it fit to extend the same for the second time up to 30.09.2023, there is no rationale in leaving out the provisions in respect of Section 80G of the Act alone in respect of the new trusts. The said classification does not in any manner relate to the object sought to be achieved and as such, there is no intelligible differentia in making a distinction between existing and new trusts. Therefore, the impugned subordinate legislation is liable to be struck down as arbitrary and violative of Article 14 of the Constitution of India.
4.2. He also submits that once the respondents choose to extend the time, then, there is a vested right on the part of the petitioner trusts and their very existence is put into jeopardy since the donors will not get an exemption under Section 80G of the Act in the absence of approval and therefore, would submit that the impugned legislation is illegal. In support of his submissions, the learned Counsel would rely upon the judgment of the Hon’ble Supreme Court of India in Association of Old Settlers of Sikkim and Ors. Vs. Union of India1, more specifically relying upon paragraphs Nos.32, 39 and 40 of the judgment to contend that the classification made by the respondents is not reasonable and there is no nexus with the object sought to be achieved and by excluding the new trusts in the matter of grant of approval under Section 80G of the Act, the respondents have discriminated among similarly placed persons.
4.3. Mr. AR.L. Sundaresan, learned Additional Solicitor General of India for the respondents would submit that the petitioner trusts should have applied in time or within the first extension which was granted. It is their fault for not applying within the time. The grant of very extension itself is an act of benevolence shown by the first respondent and that will not in any manner create any right on the part of the petitioner trusts. The distinction is made between the two classes of trusts namely, the existing trusts (old trusts) and the new trusts. Such differentiation can be made between the two classes of trusts and such a classification would be permissible.
4.4. The learned Additional Solicitor General of India would rely upon the following judgments in support of his proposition that the classification made by the respondents is a reasonable classification and hence, it is legal:-
