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Case Law Details

Case Name : Teddy Trust Vs CIT (Exemption) (ITAT Chennai)
Appeal Number : ITA No.1315/Chny/2023
Date of Judgement/Order : 10/04/2024
Related Assessment Year :

Teddy Trust Vs CIT (Exemption) (ITAT Chennai)

Teddy Trust filed an appeal with the Income Tax Appellate Tribunal (ITAT) Chennai against the denial of registration under Section 80G(5) of the Income Tax Act, 1961 by the Commissioner of Income Tax (Exemption), Chennai (CIT(E)) dated September 25, 2023. The trust sought registration by submitting Form No. 10AB on March 30, 2023.

Key Details

  • Incorporation and Activities: The trust was incorporated on November 4, 1992, and commenced its activities on January 17, 1992.
  • Provisional Approval: The trust received provisional approval in Form No. 10AC under Section 80G(5)(iv) for the period from October 21, 2022, to Assessment Year (AY) 2025-26.
  • Application Timeline: According to Section 80G(5)(iii), the application had to be filed at least six months before the expiry of the provisional approval or within six months of commencing its activities. The trust filed the application after this period, leading to its rejection by CIT(E) for being time-barred.

CIT(E)’s Findings

1. Incorrect Form Usage: The trust, being an old entity, should have sought registration under the new regime in Form No. 10A under Section 80G(5)(i) instead of Form No. 10A under Section 80G(5)(iv), which led to provisional approval for only three years.

2. Timeline Extensions: Multiple Circulars by the Central Board of Direct Taxes (CBDT) extended the timeline for filing Form No. 10A and Form No. 10AB up to September 30, 2022. However, further extensions did not cover Form No. 10AB under Section 80G, making the application time-barred.

Issues Under Consideration

1. Applicability of Timelines: Whether the timeline prescribed for filing Form No. 10AB under Section 80G(5)(iii) should be considered mandatory or directory, especially considering the transitional nature of the amendment and the hardships faced by charitable trusts.

2. Legitimacy of Circulars: Whether the extension of timelines by CBDT Circulars was adequate and consistent with the intent of the law, and whether these Circulars should have included extensions for Form No. 10AB under Section 80G(5)(iii).

Judicial Precedents Considered

1. Coordinate Bench Decision: The ITAT referred to a coordinate bench’s decision in M/s CIT-1982 Charitable Trust & Ors, ITA No. 827/Chny/2023, dated March 8, 2024. In this case, the bench held that the timeline for filing Form No. 10AB for recognition under Section 12A, and similarly for Form No. 10A under Section 80G, was extended to September 30, 2023, recognizing the genuine hardship faced by charitable institutions.

2. High Court Ruling: The Hon’ble High Court of Madras in Sri Nrisimha Priya Charitable Trust, WP Nos. 27030 & others of 2024, dated April 2, 2024, declared clause 5(ii) of Circular No. 6 of 2023 as illegitimate, arbitrary, and ultra vires the Constitution of India. The court directed that applications should be considered on merits without being time-barred, indicating that the intent of the law should prioritize the substance over procedural technicalities.

ITAT’s Observations and Decision

1. Genuine Hardship: The coordinate bench had accepted that the timeline for filing Form No. 10AB for recognition under Section 12A was extended up to September 30, 2023. The same hardship logic should apply to Form No. 10AB under Section 80G(5)(iii).

2. Non-Discriminatory Treatment: The ITAT observed that the CBDT Circulars extended timelines for various forms but did not specifically exclude Form No. 10AB under Section 80G(5)(iii). Given the transitional nature of the amendments and the genuine hardships recognized by CBDT, the exclusion of Form No. 10AB appeared arbitrary.

3. High Court’s Directive: The ITAT took note of the Hon’ble High Court of Madras ruling that declared the exclusion clause in the CBDT Circular as illegitimate and arbitrary, emphasizing that the applications should be considered on merits and within the extended timeline.

Conclusion

ITAT set aside the CIT(E)’s order, instructing to reconsider the application on merits without raising the issue of timeline. The appeal was allowed for statistical purposes, and the order was pronounced on April 10, 2024. The bench concluded that the intention of the CBDT Circulars and the judicial precedent indicated that the timelines should be treated as directory rather than mandatory, especially in light of the transitional nature and the genuine hardship faced by the assessee trust.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

1. Aggrieved by denial of registration u/s. 80G(5) of the Act by learned Commissioner of Income Tax (Exemption), Chennai [CIT(E)] vide impugned order dated 25.09.2023, the assessee is in further appeal before us.

2. From the record, it emerges that the assessee trust filed an application in Form No.10AB on 30.03.2023 seeking registration under clause (iii) of first proviso to sub-section (5) of Sec.80G. It transpired that the assessee trust was incorporated on 04.11.1992 and it commenced its activities on 17.01.1992. The assessee was granted provisional approval in Form No.10AC u/s 80G(5)(iv) for the period commencing from 21.10.2022 to AY 2025-26. The first proviso to Sec. 80G(5), provided timeline for an application to be filed under clause (iii) of first proviso to sub-section (5) of Sec.80G. As per sub-clause (iii) of this proviso, the assessee was required to file this application at least before 6 months prior to expiry of provisional approval or within 6 months from the date of commencement of its activities, whichever is earlier. The said timeline was mandatory in nature. As against this, the assessee filed application on 30.03.2023 which was much after expiry of 6 months from commencement of its activities. Accordingly, it was held by Ld. CIT(E) that the application was time barred and liable to be rejected.

3. It was further noted by Ld. CIT(E) that the assessee trust was an old trust continuing to exist much before commencement of new regime of registration effective from 01.04.2021 and therefore, it could seek registration under new regime in Form No.10A u/s 80G(5)(i) itself under which it would have got registration for five years. Instead, the assessee wrongly made an application in Form No.10A u/s 80G(5)(iv) and received provisional approval for 3 years.

4. The Ld. CIT(E) also noted that under the new regime, CBDT, on multiple occasions, extended time limit for filing the application in Form No.10A and / or 10AB. The latest Circular No.08 of 2022 dated 31.03.2022 extended the time limit to 30.09.2022 beyond which there was no further extension. This was evident from subsequent CBDT Circular No.22/2022 dated 01.11.2022 through which CBDT extended time limit for filing application in Form No.10A under various Sections, up-to 25.11.2022. However no further extension was granted for filing of Form No.10AB. Also, CBDT issued another Circular No.6/2023 on 24.05.2023 extending due date for filing application in Form No.10AB from 30.09.2022 to 30.09.2023 only in respect of trusts / institutions registered u/s 10(23C) and 12AB. The said Circular did not mention any such extension of due date for filing Form No.10AB to get approval u/s 80G. Therefore, the application was treated as time barred and rejected as non-maintainable. Aggrieved, the assessee is in further appeal before us.

5. It is admitted fact that the assessee is an old trust and it has already commenced its activities on 17.01.1992. It could further be noted that the assessee has already received provisional approval u/s 80G(5)(iv) for a period commencing from 21.10.2022 to AY 2025-26. It sought approval u/s 80G(5)(iii) by filing Form No.10AB on 30.03.2023 which has been rejected by Ld. CIT(E) on the ground that the assessee had violated the mandatory time lines as statutorily provided. However, we find that this issue has been decided by co-ordinate bench in bunch of appeals titled as M/s CIT-1982 Charitable Trust & Ors, ITA No.827/Chny/2023 order dated 08.03.2024 as under: –

7.8 After hearing the arguments of ld. counsel for the assessee and ld. CIT-DR as noted above, we find from the facts that the timeline prescribed for filing Form No.10AB for registration u/s.12A of the Act in the case of assessee trust has been extended up-to 30.09.2023 after considering the genuine hardship faced by charitable institutions vide various CBDT circulars and finally, vide Circular No.6/2023 dated 24.05.2023. Similarly, the timeline prescribed for filing Form No.10A for recognition u/s.80G of the Act was also extended up-to 30.09.2023 by the same circular for trusts filing registration under clause (i) to first proviso to section 80G(5) of the Act. But the above extension was not extended beyond 30.09.2022, unlike other forms which were extended up to 30.09.2023 to the disputed forms namely Form No.10AB for renewal of recognition u/s.80G(5) of the Act under clause (iii) of the first proviso to section 80G(5) of the Act. Once, the CBDT has extended the timeline for filing Form No.10AB for recognition u/s.12A of the Act and also for filing Form No.10A for recognition u/s.80G of the Act extended up to 30.09.2023 for trusts filing registration under clause (i) of first proviso to section 80G(5) of the Act, we find no difference in continuing hardship as recognized by CBDT even in filing Form No.10AB for renewal of recognition u/s.80G of the Act under clause (iii) of first proviso to section 80G(5) of the Act. In our view, this being a genuine hardship case, which is recognized by Revenue or CBDT by issuing a general circular, we are of the view that this specific provision of clause (iii) to first proviso to section 80G(5) cannot be excluded and or it has not been the intention of the CBDT while issuing the circular. There cannot be a distinction within the same provision without bringing out any exception and even this provision is for the benefit of the donors who are donating money to the charitable trusts for claiming exemption in their returns of income. In our view, we agree with the argument of ld. counsel for the assessee that the timeline prescribed under clause (iii) of first proviso to section 80G(5) of the Act should be treated as directory and not mandatory especially considering the transitional nature of the amendment as brought out by the taxation of other laws (relaxation and amendment of certain provisions) act 2020 for bringing new regime. Hence, in our view, the CIT(Exemptions) should not have rejected the assessee’s application in Form No.10AB only for this technical reason. We are of the view that the intention of CBDT in its circular clearly reflects their mind that once the timeline prescribed for filing Form No.10AB for recognition u/s.12A of the Act has been extended up to 30.09.2023, the same may be treated as extended for forms namely Form No.10AB for renewal of approval/recognition/registration under clause (iii) of first proviso to section 80G of the Act also. Hence, we accept the plea of assessee and agree with the arguments of ld. counsel for the assessee and remand the matter back to the file of the CIT(Exemption) to decide the issue on merits. Hence, the order of CIT(Exemption) on this issue is set aside and matter is remanded back to the file of the CIT(Exemption) for re-deciding the issue on merits as per law. The appeal of the assessee is allowed for statistical purposes.

The bench thus held that the extended time limit of 30.09.2023 as per CBDT Circular would apply to Form No.10AB as well.

6. The bench also takes note of the latest decision of Hon’ble High Court of Madras in the case of Sri Nrisimha Priya Charitable Trust in WP Nos.27030 & ors. of 2024 order dated 02.04.2024 wherein Hon’ble Court has held that clause 5(ii) of Circular No.6 of 2023 dated 24.05.2023 is illegitimate, arbitrary and ultra vires the constitution of India. It has been held as under: –

7. In the result, these Writ Petitions are allowed on the following terms: –

(i) The clause 5(ii) of Circular No.6 of 2023 bearing F.No.370133/06/2023-TPL, dated 24.05.2023 of the first respondent is declared as illegitimate, arbitrary, and ultra vires the Constitution of India;

(ii) The respondents are directed to consider the applications submitted by the petitioners as to the recognition/approval in respect of clause (i) of the first proviso to sub-section (5) of section 80G of the Act as within time and consider the same and pass orders thereon on merits, in accordance with law within six months from the date of receipt of a copy of this order;

Respectfully following the same, we set aside the impugned order and direct Ld. CIT(E) to consider the application on merits without raising the issue of timeline.

7. The appeal stand allowed for statistical purposes in terms of our above order.

Order pronounced on 10th April, 2024.

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