The Karnataka State Chartered Accountants Association (R) (KSCAA) presents a representation to Shri. Nitin Gupta, Chairperson of the Central Board of Direct Taxes, concerning challenges with application submissions under Section 12A(1)(ac) of the Income Tax Act, 1961.
KARANATAKA STATE
CHARTERED ACCOUNTANTS ASSOCIATION (R)
Date: 6th April 2024
To,
Shri. Nitin Gupta,
Chairperson of the Central Board of Direct Taxes
SUBJECT: REPRESENTATION REGARDING INCORRECT/DELAY IN SUBMITTING APPLICATION U/S 12A(1)(ac).
The Karnataka State Chartered Accountants Association (R) (in short ‘KSCAA’) is an association of Chartered Accountants, registered under the Karnataka Societies Registration Act, in the year 1957. KSCAA is primarily formed for the welfare of Chartered Accountants and represents before various regulatory authorities to resolve the professional problems faced by Chartered Accountants and the business community.
In the past, we have written to your good selves many times populating various issues, challenges and hardships being faced by taxpayers and Chartered Accountants and suggesting possible solutions on the same. Herein, we are presenting before your good selves, for your kind consideration, an issue regarding denial of renewal/registration due to delay in submitting the application or submitting/selecting wrong field in the application under Section 12A(1) (ac) of the Income-tax Act, 1961 (“the Act”).
Introduction –
The Finance Act, 2020 introduced several amendments relating to the registration of Charitable Trusts and Institutions (also Known as “Assesses” or “Organizations”) claiming exemption u/s 11 and 12 of the Income Tax Act, 1961. Owing to this, Section 12A, which hitherto provided framework for registration of such Charitable Trusts and Institutions became redundant, paving way for newly introduced Section 12AB. Thereafter, it became mandatory for such Trusts and Institutions availing benefits under Section 12A and 80G, to revalidate their registrations under these two sections to continue to enjoy the benefits of exemption. However due to COVID-19 pandemic, the date was extended and the provisions of said section were substituted by the
Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 which became applicable from 01/04/2021, thereby replacing Section 12AA by 12AB for registration of Trusts. Due to this, the concept of perpetual registration was removed and obtaining compulsory re-registration / renewal of registration by Charitable Trusts and Institutions after expiry of a period of 5 years or 3 years became mandatory, for availing exemption u/s 11 & 12 of the Act depending on each case.
Issue –
In this back drop and vide Notification No. 19/2021 dated 26th March 2021, it became mandatory for all the trusts/ societies/institutions registered under Section 12A and 80G to obtain fresh registration as mandated by the amended provisions of Section 12A(1)(ac). Many Trusts and Institutions, whose application for registration was pending as on 01.04.2021, received provisional registration certificate, which was valid for 3 years. A Trust or Institution, which was in receipt of provisional registration had to obtain final registration within 6 months from the date of commencement of activities or before 6 months from the end of the period for which the provisional registration has been granted. Similar provisions are contained in Section 80G/10(23C) of the Act. Applicants had to apply for renewal/registration from Income Tax Portal using Form No 10A/ 10AB as the case may be, by submitting the required documents along with the application.
Our Association has received several requests from Trusts and Institutions to collate issues faced and represent before your goodself especially regarding renewal applications and its time limits. The applications filed belatedly have been rejected on technical grounds rendering the Assessees remediless and being exposed to various implications for non-registration. Similarly, various Assessees have inadvertently erred in selecting the appropriate clause under which the application for registration/recognition has to be made under Section 12A/80G/10(23C) of the Act.
The effects of Resection of Application for Registration/Renewal –
New regulatory changes can have a profound impact on the Assesses, who have found themselves in a condition to navigate and find ways to adapt to new rules, policies and laws which have continued to emerge. The above requirement of obtaining provisional registration followed by immediately obtaining final registration by filing almost the same form is cumbersome and leading to unwarranted compliances. The same has resulted in the rejection of registration/recognition on technical grounds and the Charitable Trusts and Institutions are left to bear the brunt of the following consequences:
1. Exemption under Section 11 and 12 shall not be available and the Trust may end up paying tax at Maximum Marginal Rates.
2. Section 115TD will become applicable, owing to which accredited income will be taxable.
3. Inter-charity donations will not be considered as application of income while calculating accumulation of income u/s 11(1) and 11(2) if the donee trust has failed to renew its registration within time.
4. Exemption u/s 80 G will not be available to donors of the Trust.
Conclusion –
A Charitable Trust and Institution is an Organization whose primary objectives are philanthropy and social well-being in various spheres like educational, religious and other activities of public interest or common good. These Charitable Organization’s depend on donations from various individuals and businesses, and often struggle for survival. They focus more on charitable services and spend least time on administrative matters. Seldom do they have administrative staff of high caliber who can assist them with compliance-related provisions. Too many procedures will only limit the ability of the Organization’s to serve to their optimum level and snatch away their sheen.
It is well accepted that when technical considerations are pitted against substantial justice, substantial justice should be preferred to avoid the defeat for the ends of justice. The CBDT Circular’, has given directions to the Officers to not exploit the ignorance of the taxpayers, and have issued instructions from time to time to the Officers of the Department, in dealing with assessees in matters affecting their interest and convenience. It is one of the duties of the Officers to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some relief is due to him.
Relief sought –
As a one-time measure or otherwise, the approving authority, on the application being made by the Assessee, may be allowed to file the application under the correct section and also condone delay in filing such applications. The introduction of transitional measures or grace periods stands out as a pragmatic recommendation to alleviate the immediate impact on businesses/assessees adjusting to the new requirements. These measures can serve as a channel, offering such Charitable Trusts and Institutions, a breathing space to realign their processes and adapt to the evolving compliance landscape, especially when the lapse is unintentional.
We appreciate your good selves attention to these critical considerations and anticipate collaborative efforts in shaping a regulatory framework that balances the imperatives of compliance with the practical realities faced by the assessees. Your intervention is pivotal not only to alleviate the financial difficulties faced by assessees but also to bolster confidence in the tax system, reaffirming the governments commitment to safeguarding taxpayers’ rights. We trust in your commitment to upholding the principles of fairness, justice, and efficient tax administration.
Taking into consideration the hardships caused, we the members of Karnataka State Chartered Accountants Association, on behalf of the entire Chartered Accountants community and also on
Notes
1CBDT Circular No 14 XL-35 dated 11.04.1955
Author Bio
Dear Sir
Could chairman of CBDT solve our problem of delay in filing renewal application of trust.
Thanks
CA pankaj kumar