Introduction
There is sea change in provisions relating to registration of trusts. Finance Act 2020 has set out norms for registration of Trusts. This article discusses these new norms in context of:
1. Trusts registered under old regime
2. Provisional registration of new trusts
3. Final registration of provisionally registered trusts
4. Renewal of registration of finally registered trusts
5. Revival of registration of trust in lieu of exemption u/s 10(23C) and 10(46)
6. Fresh registration on modification/adoption of objects not conforming to conditions of registration
7. Pending application pending for registration.
Further this new regime has brought with it number of issues for which we need to find answers with in the ambit of law, which have been discussed here under:
Type of registration | Time for applying registration | Period of regist-ration | Effective Date of registration | Inquiries to be made | Whether regist-ration can be rejected | Type of regist-ration | Period available for granting regist-ration | Subse-quent Withd-rawal Can be done |
Existing Trust registered u/s 12A/ 12AA | 3 months from Ist October 2020 i.e. till 31-12-2020[S. 12A(1)(ac)(i) + Press release dated 24-06-2020] | 5 years[S. 12AB (1)(a)] | From the assessment year from which such trust or institution was earlier granted registration[S. 12A(2) Proviso clause (a)] | None | No. [S. 12AB (1)(a)] | Final but subject to renewal after 5 years | 3 months from the end of month in which appli-cation is received | Yes[S. 12AB (4)] |
Fresh Application for registration | At least one month prior to commence-ment of previous year [i.e. 28th Feb.] or date of new source of income[S.12A(1)(ac)(vi)] | 3 years[S. 12AB(1)(c) | From commence-ment of previous year or date of new source of income | None | No[S. 12AB (1)(c)] | Provis-ional subject to final regist-ration after 3 years | 1 month from the end of month in which appli-cation is received | No[S. 12AB (4)] |
Final Registration of provisionally registered trust | At least 6 months prior to commence-ment of previous year [i.e. Till 30th Sep]or With in 6 months from the commence-ment of activities of the trust, which ever is earlier[S.12A(1)(ac)(iii)] | 5 years[S. 12AB(1)(b)(ii)(A)] | From the first of the assessment years for which it was provision-ally registered[S. 12A(2) Proviso clause(a)] | Satis-faction about genuine-ness of activities+ Compliance of material legal require-ments[S. 12AB(1)(b)(i)] | Yes[S. 12AB(1)(b)(ii)(B)] | Final but subject to renewal after 5 years | 6 months from the end of month in which appli-cation is received | Yes[S. 12AB (4)] |
Renewed Registration of already registered trust | At least 6 months prior to expiry of period of registration [i.e. Till 30th September][S.12A(1)(ac)(ii)] | 5 years[S. 12AB(1)(b)(ii)(A)] | From the expiry of previous registration | Satis-faction about genuine-ness of activities + Compliance of material legal require-ments[S. 12AB(1)(b)(i)] | Yes[S. 12AB(1)(b)(ii)(B)] | Final but subject to renewal after 5 years | 6 months from the end of month in which appli-cation is received | Yes[S. 12AB (4) ] |
Revival of inoperative registration due to approval u/s 10(23C) | At least six months prior to the commence-ment of the assessment year from which the said registration is sought to be made operative[S. 12A(1)(ac)(iv)] | 5 years[S. 12AB(1)(b)(ii)(A)] | From the assessment year from which registration sought to be made operative | Satis-faction about genuine-ness of activities+ Comp-liance of material legal require-ments[S. 12AB(1)(b)(i)] | Yes[S. 12AB(1)(b)(ii)(B)] | Final but subject to renewal after 5 years | 6 months from the end of month in which appli-cation is received | Yes[S. 12AB (4)] |
Modi-fication or adoption of objects not confirming conditions of registration | Within a period of thirty days from the date of the said adoption or modi-fication; [S.12A(1)(ac)(v)] | 5 years[S. 12AB(1)(b)(ii)(A)] | From the date of modifi-cation/ adoption | Satis-faction about genuine-ness of activities+ Compliance of material legal require-ments[S. 12AB(1)(b)(i)] | Yes[S. 12AB(1)(b)(ii)(B)] | Final but subject to renewal after 5 years | 6 months from the end of month in which appli-cation is received | Yes[S. 12AB (4)] |
All pending application not decided before 01-10-2020 | Deemed application u/s 12A(1)(ac)(vi)[S. 12AB (2)] | 3 years[S. 12AB(1)(c) | See Note | None | Yes[S. 12AB(1)(b)(ii)(B)] | Provis-ional subject to final regist-ration after 3 years | No[S. 12AB (4) + 12AB (2) ] |
Issues:
- Press Release dated 24-06-2020: Deferment of the implementation of new procedure for approval/registration/notification of certain entities u/s 10(23C), 12AA, 35 and 80G of the IT Act has already been announcedvidePress Release dated 8th May, 2020 from 1st June, 2020 to 1st October, 2020. It is clarified that the old procedurei.e.pre-amended procedure shall continue to apply during the period from 1st June, 2020 to 30th September, 2020. Necessary legislative amendments in this regard shall be moved in due course of time.
- In case of modification/adoption of objects of the trust which does not confirm the conditions of registration during the currency of registration, fresh application for modification is required to be made with in 30 days. If no such application is made with in 30 days, then exit tax u/s 115TD might not immediately be invited, because exit tax under 115TD on account of adoption/modification of trust is invited only when fresh application is not made in the previous year in which adoption/modification is made,
- Trusts whose application are pending before Commissioner and Chief Commissioner in first round or second round after case is set aside by ITAT and deemed registration has been granted after expiry of 6 months shall whether be granted provisional registration for 3 years or need to apply for registration as existing registered trusts is not clear.
- Fresh registration of trust whose source of income comes into existence with in the year may need to apply one month before the date of new source of income coming into existence but if the trust fails to apply registration in such period, then registration might become effective from next financial year. In such cases it may be advisable to apply for provisional registration as soon as trust comes into existence and then apply for final registration with in 6 months from date of commencement of activity.
- Where the trust fails to get registered with in given time lines, there is no clarity on consequences there of. In author’s opinion accereted tax should not be invited because expiry of time lines does not operate as cancellation of registration
- Pending applications for registration of trust may be disposed of till 01-10-2020 but then trust may have to again apply for registration from 01-10-2020 for 5 years. Further in such cases no clarity has been provided regarding date from which the registration shall become effective. As per section 12A(1)(a) registration is effective from Ist day of financial year in which application for registration is made. Section 12A(1)(ac) newly introduced overrides section 12A(1)(a) but doesn not lay down any guidelines in this regard. In the opinion of author it should still be applicable from the Ist day of financial year in which application for registration is made.
- Similar provisions are applicable to educational and medical institutions u/s 10(23C) requiring approval. However approval is required only for institutions whose gross receipts are more than one crore and not substantially financed by government i.e. government grants are less than 50% of total receipts. In case of other institutions existing solely for educational or medical purposes and whose gross receipts are lesser than 1 crore or government grants are more than 50% of total receipts, there is automatic exemption and new registration/approval norms shall not apply.
- Further as per amendment brought in section 11(7), the institutions having parallel exemptions under section 11/12 and section 10(23C), shall have to fore go exemption u/s 11/12 automatically, subject to extensions being granted by government. If these institutions want to be encompassed by section 11/12 exemption they need to re apply to make their exemption operative. But on making application for registration under 12AB, the exemption under 10(23C) shall lapse. This new application shall result in grant of provisional registration for 3 years which needs to be supplemented by final registration. Suppose, in final registration proceedings the application is rejected, it shall might result in loss of both 11/12 and 10(23C) exemption. However no specific provisions have been laid down to contemplate the fate of 10(23C) exemption in case of rejection of 12AB application.
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