CA Hasmukh Jobanputra
The registration process under Section 12AB of the Income Tax Act holds significant importance for organizations engaged in General Public Utility (GPU) activities. This article delves into the nuances of Section 12AB registration, shedding light on application procedures, conditions, and potential challenges faced by GPU organizations seeking registration.
1. The Section 12AB deals with the procedure of Registration of Trust on or after 01.04.2021.
The registration or cancellation of registration to organization carrying on object of General Public Utility is a question of concern particularly to the sec 8 Company or other trade organization which are generally carrying out the objects of General Public Utility and also involves in carrying of any activity in nature of trade, commerce or business and rendering any services relating to same.
The provision for registration of trust who are applying for first time is amended by The Finance Act 2023.
(i) The section 12 A (1) (ac) (vi) A contains the provisions for filling the registration application by the Trusts or Institutions that have not commenced the activities.
(ii) The Section 12A (1) (ac) (vi) B deals with registration of Charitable Organizations which has commenced the activities.
2. The section 12AB (1) reads as under:
“12 AB (1)
The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall, –
(a) where the application is made under sub-clause (i) of the said clause, pass an order in writing registering the trust or institution for a period of five years;
(b) where the application is made under sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) [or item (B) of sub-clause (vi)] of the said clause, –
(i) call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about- (A) the genuineness of activities of the trust or institution; and
(B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects;
(ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A) and compliance of the requirements under item (B), of sub-clause (i),-
(A) pass an order in writing registering the trust or institution for a period of five years; or
(B) if he is not so satisfied, pass an order in writing, –
(I) in a case referred to in sub-clause (ii) or sub-clause (iii) or sub-clause (v) of clause (ac) of sub-section (1) of section 12A rejecting such application and also cancelling its registration;
(II) in a case referred to in sub-clause (iv) or in item (B) of sub-clause (vi) of sub-section (1) of section 12A, rejecting such application, after affording a reasonable opportunity of being heard;]
[(c) where the application is made under item (A) of sub-clause (vi) of the said clause or the application is made under sub-clause (vi) of the said clause, as it stood immediately before its amendment vide the Finance Act, 2023, pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought,] and send a copy of such order to the trust or institution.
It is therefore clear that after receiving the application as mentioned in Sec. 12AB the PCIT will enquire about
i. Geniuness of activities and
ii. Compliance with other Laws which is material for the purpose of achieving the object of the organization.
iii. Objects of the Trust or institution.
3. The geniuness of activity and objects of the Trust should be for charitable purpose as per sec. 2(15) of the Act.
Sec. 2(15) reads as under
“Charitable purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless-
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year; “
After verifying above aspects registration may or may not be granted.
The proviso applies only to last limb of any other object of general public utility.
The grant of registration will allow exemption u/s. 11 & 12 of Income tax Act, 1961.
4. After 01.10.2023 there is procedure
(a) for provisional registration where activities are not commenced
(b) Direct regular registration where activities are commenced.
There can be no much problems for provisional registration to Trust if it satisfies the criteria of genuineness of objects and compliance with other laws.
5. The organization who have commenced the activities can have some concerns on getting registration if they involve in carrying on any activity in nature of trade etc or rendering any services in relation to any trade / promotion / business activities.
6. If we carefully observe there are two requirements for such GPU organization referred in part 5 above to fulfil for purpose of falling in definition of “Charitable Purpose” u/s. 2(15) of Income Tax Act 1961.
(i) The trust business or trading activity or rendering services in relation to that for cess fees or any consideration should be for such activities undertaken in course of “ACTUAL CARRYING OUT” of such advancement of and other object of GPU.
AND
(ii) Important aspect is that the receipt from these activities should not exceed 20% of total receipts.
So, first condition stated in 6(i) above is to be strictly adhered to more particularly after the judgment of S.C. in case of “Ahmedabad Urban Development Authority”. But the question is whether PCIT can refuse registration if condition in 6(ii) above is violated? The proviso (ii) to Sec. 2(15) reads as under:
(iii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;”
So as per proviso this condition is applicable on year to year basis as word used is ‘Previous Year’ so it will be fair enough to argue that for violation of condition as above registration should not be denied. At the most exemption u/s. 11 and 12 will not be available for that particular previous year.
In view of the above discussion, the GPU organization like Sec. 8 Company should strategically plan their activities so that organization can obtain registration and may legitimately claim tax exemption and can enjoy significant tax benefits. It is also suggested that Trade promotions and business activities should be strongly supported by objects of the organizations.
7. Cancellation of registration
The utmost care is also be taken after registration in conducting the activities on year on year basis in view of amendment to sec. 12AB by Finance Act, 2022. The said act has substituted sub section (4) and (5) which has given powers to PCIT to review and cancel the registration granted earlier for specified violation u/s. 12AB (4) of the Act.
The specified violations are as under:
“Explanation. For the purposes of this sub-section, the following shall mean “specified violation”,-
(a) where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or
(b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or
(c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public; or
(d) the trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or
(e) any activity being carried out by the trust or institution,-
(i) is not genuine; or
(ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or
(f) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality [; or]
(g) the application referred to in clause (ac) of sub-section (1) of section 12A is not complete or it contains false or incorrect information.]”
So every Trust or Organization has to see that there is no occurrence of one or more specified violation during any previous year
However here also the registration cannot be cancelled for the reason that aggregate receipt form business activity during the previous year exceed 20% of the total receipt as same has not been included in specific violation. Further the said condition is applicable on year-to-year basis as its applicable for particular previous year in which such receipt exceeds 20% of total receipts. The matter has been duly clarified by CBDT circular no. 21/2016 dated 27th May, 2016.
Conclusion: Section 12AB registration is a crucial step for GPU organizations to avail tax benefits under Sections 11 and 12 of the Income Tax Act. By adhering to the prescribed conditions and aligning activities with charitable objectives, organizations can secure registration and enjoy tax exemptions.
However, maintaining compliance with legal requirements and ensuring the genuineness of activities are paramount to retaining registration status. GPU organizations must exercise caution to avoid violations that could lead to cancellation of registration by the PCIT.
In conclusion, a thorough understanding of Section 12AB provisions, coupled with strategic planning and adherence to legal requirements, is essential for GPU organizations to navigate the registration process successfully and leverage tax benefits for charitable endeavors.
