HC strikes down discriminatory circular excluding new trusts from Form 10AB filing extensions under Section 80G(5)

The HC struck down clause 5(ii) of Circular No.6 of 2023 as arbitrary and violative of Article 14. The respondent authority had granted time extensions for existing trusts to file Form 10AB applications under Section 80G(5) but excluded new trusts from similar relief without justification. The court found this classification between existing and new trusts lacked rational basis, as both categories faced identical hardships in digital filing. The authority was directed to reconsider petitioner applications as timely and decide on merits within six months.

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Issues Involved:
1. Legitimacy of the classification made by the respondents in granting an extension of time for approval under Section 80G(5) between existing and new trusts.
2. Whether the impugned clause (ii) of Circular No.6 of 2023 is arbitrary and ultra vires the Constitution of India.

Summary:

A. The Writ Petition:

These writ petitioners are trustees representing their respective charitable trusts. Since the reliefs claimed by them are identical and common, these Writ Petitions were heard together and disposed of by this common order.

B. The Factual Matrix:

The petitioner trust was established on 09.09.2021 and applied for provisional registration/approval u/s 80G of the Income-Tax Act, 1961. The petitioner was granted provisional approval on 06.10.2021 and had to apply for regular approval/registration in Form No.10AB within six months from 09.09.2021. Due to difficulties in electronically filing Form No.10AB, the Central Board of Direct Taxes extended the filing deadline to 30.09.2022 via Circular No.8 of 2022. The petitioner failed to file within this extended period and applied only on 22.03.2023. Responding to representations from various trusts, the Board issued Circular No.6 of 2023, extending the deadline further to 30.09.2023, but this extension did not apply to new trusts seeking approval u/s 80G(5). The petitioners challenged this exclusion as arbitrary and ultra vires the Constitution of India.

C. The Counter:

The respondents argued that the petitioners should have applied within the original or extended deadlines and that the further extension was granted only for existing trusts, not new trusts. They justified the distinction by stating that existing trusts had different filing requirements and that the amendments to Section 115TD of the Finance Act, 2023 did not impact new trusts. The respondents contended that the classification was reasonable and had a rational nexus with the object sought to be achieved.

D. The Submissions:

The petitioners argued that the exclusion of new trusts from the extension under Section 80G(5) was irrational and violated Article 14 of the Constitution. They cited the Supreme Court's judgment in Association of Old Settlers of Sikkim to support their claim of unreasonable classification. The respondents maintained that the extension was a benevolent act and did not create any vested rights for the petitioners. They cited various judgments to argue that the classification was reasonable and that the petitioners had no right to demand further extensions.

E. The Point for Consideration:

Whether or not the classification made by the respondents in the matter of grant of extension of time between the existing and new trusts and to apply for approval in respect of clause (i) of the first proviso to subsection (5) of section 80G of the Act is reasonableRs.

F. The Discussion and Findings:

The court agreed with the respondents that the petitioners had no vested right to claim an extension of time. However, it found that the respondents failed to provide any reason for excluding new trusts from the extension under Section 80G(5). The court noted that the impugned circular did not contain any rationale for the classification, making it arbitrary and violative of Article 14 of the Constitution. The court held that the differential treatment was not based on any substantial distinction that was real and pertinent to the object of the circular.

G. The Result:

The Writ Petitions were 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;

(iii) There shall be no order as to costs. Consequently, W.M.P.Nos.26465, 26492, 26470, 26479, 26481, 26482, 26491, 26467, 26490 of 2023; 3517 and 3518 of 2024 are closed.

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