Newly inserted provisions namely section 12AB and clause (ac) in subsection 1 of section 12A in The Income-tax Act, 1961 (Act) have changed the procedure for trusts/ institutions to get themselves registered under the Act. For trusts/institutions which intend to get themselves registered for the first time have to follow the new procedure which is as under –
Step no 1: Getting Provisional Registration
Step no 2: Converting Provisional registration into Final Registration
(there is no such phrase as Final registration used in the Act, it is just used to avoid confusion and general understanding)
Unlike procedure prevailing before 01.04.2021 wherein trusts/institution were required to file application and the registration, if given, was directly a final registration for perpetuity unless cancelled. The Finance Act 2020 had brought this amendment however it was deferred to 01.04.2021 by The Taxation And Other Laws (Relaxation And Amendment Of Certain Provisions) Act, 2020.
Let’s understand different nuances of this new registration procedure
A. TIME LIMIT FOR APPLICATION:
1. For Seeking Provisional registration
As mentioned above, first step is to get a provisional registration, so the time limit for filing application is at least one month prior to the commencement of the previous year relevant to assessment year from which the said registration is sought [Section 12(1)(ac)(vi)].
E.g.: If any trust/ institution seeks to get registration from FY 2022-23 (AY 2023-24) then application has to be made before 01.03.2022.
Now, the question which arises is, what about those trusts/ institutions which intend to seek registration from FY 2021-22 (i.e. AY 2022-23)? Since the corresponding rules and forms were not available before 01.03.2021 such application could not be made.
Considering this situation, an exception is being provided under rule 17A of the Income-tax rules, 1962 (hereinafter referred as ‘the Rules’] [Income-tax (6th amendment) Rules, 2021] amended vide notification dated 26.03.2021, particularly for FY 2021-22 (i.e. AY 2022-23) only and it is prescribed as under,
(7) In case of an application made under sub-clause (vi) of clause (ac) of sub-section (1) of section 12A during previous year beginning on 1st day of April, 2021, the provisional registration shall be effective from the assessment year beginning on 1st day of April, 2022.
Accordingly, an application made during the FY 2021-22 for registration under [Section 12(1)(ac)(vi) i.e. Registration for the first time] then the provisional registration granted will be effective from same Financial year (i.e. relevant assessment year). It be kindly noted this exception is provided for covering the year of transition and not applicable for subsequent Assessment years i.e. from AY 2023-24. For those subsequent period application has to be made a month prior to the start of previous year relevant to that assessment year in which registration is sought.
2. For Converting Provisional registration into Final Registration
As mentioned above the first step for getting registered is seeking provisional registration and thereafter converting it to Final registration. Accordingly, the time frame is as under [as per section 12A(1)(ac)(iii)]
The crucial aspect which needs to be understood is the play between Provisional registration and Final registration. Generally trusts immediately after getting formed start their activities but tend to defer seeking funds till they get registered under Income-tax Act so as to plan their taxes (this is the reason behind the idea of introducing Provisional Registration to be granted on fast track basis). Now, since, the registration will be granted on fast track basis, the trusts/institutions can start their activities immediately, and they must apply for Final registration immediately (max time limit is within 6 months from commencement of activities).
Pending Application: It further be kindly noted that, as per sub-section (2) of section 12AB of the Act, any application pending as on 01.04.2021 on which order as per section 12AA(1)(b) is not passed would be considered as application made under section 12A(1)(ac)(vi) i.e. application for provisional registration.
B. FORMS AND PROCEDURE FOR APPLICATION
As it could be understood from above mentioned application procedure that two applications have to be filed for seeking registration one for getting provisional registration and one for converting Provisional registration into Final registration. Accordingly, two separate forms have been prescribed by the Rules,
For seeking Provisional registration: Form No. 10A
For converting provisional to Final registration: Form No. 10AB
Mode of Furnishing: Said forms to be furnished electronically.
Mode of Verification (Signing): Using digital signature (if the ITR is required to be furnished using Digital signature) otherwise using electronic Verification Code.
Who has to verify: Form Nos. 10A or 10AB, as the case may be, shall be verified by the person who is authorised to verify the return of income under section 140 of the Act, as applicable to the applicant.
Examination of documents by CIT or PCIT:
12AB. (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,—
(c) where the application is made under sub-clause (vi) of the said clause, 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,
Thus, it is very apparent that upon filing application in form 10A (for Provisional registration) the concerned income-tax authority (CIT or PCIT) has to issue provisional registration certificate (in form 10AC with 16 digit unique registration number) without any further verification or examination.
However, it be noted that according to rule 17A(6), of the Rules, if at any point of time it is noticed that Form No. 10A is not furnished properly or correctly, the CIT or PCIT after granting an opportunity of being heard may cancel the registration under form 10AC.
Once the CIT or PCIT satisfies himself on above aspects then they shall grant registration under Form 10AD or reject the application & cancel the registration (provisional) after granting an opportunity of being heard [as per section 12AB(1)(b)(ii) of the Act] Further according to the provisions of Sub-section 4 and 5 of section 12AB, CIT or PCIT may cancel the registration (after providing reasonable opportunity of being heard) if he finds that activities are not genuine or are not carried out in accordance with the objects of trust/institution or not in manner as provided in section 11 and 12 of the Act.
C. DOCUMENTS AND INFORMATION REQUIRED FOR APPLICATION
Rule No. 17A has prescribed the documents required to be attached along with the application.
The list of documents are as under,
(a) where the applicant is created or established, under an instrument, self-certified copy of such instrument creating or establishing the applicant;
(b) where the applicant is created or established, otherwise than under an instrument, self-certified copy of the document evidencing the creation or establishment of the applicant;
(c) self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be;
(d) self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010 (42 of 2010), if the applicant is registered under such Act;
(e) self-certified copy of existing order granting registration under section 12A or section 12AA or section 12AB, as the case may be;
(f) self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA or section 12AB, as the case may be;
(g) where the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the applicant relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up;
(h) where a business undertaking is held by the applicant as per the provisions of sub-section (4) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business undertaking relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB for such period;
(i) where the income of the applicant includes profits and gains of business as per the provisions of sub-section (4A) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB for such period;
(j) self-certified copy of the documents evidencing adoption or modification of the objects;
(k) note on the activities of the applicant.
(As per the rule, above is the list of documents required for furnishing both the forms)
D. TIME LIMIT FOR RECEIPT OF NEW REGISTRATION CERTIFICATE
The new procedure of granting provisional registration is with an intention and the intention is to simplify and facilitate the registration process for new and existing charitable trusts/institutions, the extract of Hon’ble Finance Minister’s budget speech is as under,
‘In order to simplify the compliance for the new and existing charity institutions, I propose to make the process of registration completely electronic under which a unique registration number (URN) shall be issued to all new and existing charity institutions. Further, to facilitate the registration of the new charity institution which is yet to start their charitable activities, I propose to allow them provisional registration for three years.’
Considering the intention, the time frame under which the registration is to be granted has to be speedy. Accordingly, the time limit to grant registration are as under
E. VALIDITY OF NEW REGISTRATION CERTIFICATE
The Provisional registration will be valid for 3 years from the assessment year from which the registration is sought
Final registration will be valid for the period of 5 years. (According to the first proviso to sub-section (2) of section 12A the Act, where the application is made under 12A(a)(ac)(iii) the provisions of section 11 and 12 shall apply from the first assessment year for which it was provisionally registered)
F. CERTAIN QUESTIONS WHICH CBDT NEEDS TO CLARIFY.
1. What about those cases where ITAT has set aside the registration matter back to the file of CIT(E) and the matter is yet pending with CIT(E) as on 31.03.2021? Would these cases be considered as pending application and be given provisional registration?
2. What about those cases where ITAT has directed the CIT(E) to grant registration and the matter is yet pending with CIT(E) as on 31.03.2021. Whether the concerned trust will be getting provisional registration or the Final registration?
3. When would it be considered that trust has ‘commenced its activities’? Upon receipt of funds or upon payment of funds or upon start of on field activities?
4. In case a trust having final registration, (which was converted from provisional registration), from which year the expiry period of 5 years be counted. Would it be from first AY in which provisional registration was granted or from the date of granting final registration?
(Article by Bhuvanesh Kankani (CA, LLB), the Author is member of Expert Help Desk for 12A & 80G issues/Guidance.)