Trust wins appeal after selecting wrong sub-clause in section 12AB registration renewal application

The ITAT Chennai allowed the appeal filed by a trust against rejection of registration under section 12AB. The trust had inadvertently selected incorrect sub-clause (iii) instead of sub-clause (i) during online application for renewal of registration. The ITAT held that denying registration due to this technical error would violate Article 14 of the Constitution, as the trust was legally entitled to five-year registration under section 12AB(1)(a) being an old trust established before TOLA-2020. The matter was restored to CIT(E) to process the application as if filed under correct sub-clause (i).

---

---

ISSUES PRESENTED and CONSIDERED

The core legal issue in this case revolves around the rejection of the assessee-Trust's application for registration under Section 12AB of the Income Tax Act, 1961. The Tribunal considered whether the rejection by the Commissioner of Income Tax (Exemption) [CIT(E)] was justified, given the circumstances surrounding the application, including the inadvertent error in selecting the incorrect sub-clause during the online application process.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework primarily involves the provisions of Sections 12A and 12AB of the Income Tax Act, which govern the registration of charitable trusts and institutions for tax exemptions. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA, 2020) introduced amendments requiring trusts to reapply for registration under the new regime. The Central Board of Direct Taxes (CBDT) issued circulars extending the deadline for such applications due to the COVID-19 pandemic.

Court's Interpretation and Reasoning

The Tribunal noted that the assessee-Trust had been enjoying registration under Section 12AA since 2005 and was granted registration again from AY 2020-21. However, due to the amendments introduced by TOLA, 2020, the Trust was required to apply for re-registration. The Tribunal acknowledged the inadvertent error made by the Trust in selecting the wrong sub-clause during the online application process and considered the genuine hardships faced by trusts during the transition to the new regime.

Key Evidence and Findings

The Tribunal found that the Trust had been granted registration under Section 12AA by the CIT(E) with retrospective effect from AY 2020-21. The application for registration under Section 12AB was filed within the extended deadline set by the CBDT, but the Trust mistakenly applied under sub-clause (iii) instead of sub-clause (i) of Section 12A(1)(ac).

Application of Law to Facts

The Tribunal applied the principles of fairness and non-discrimination, emphasizing that the inadvertent mistake should not deprive the Trust of its rightful registration under the new regime. The Tribunal highlighted that the Trust was entitled to registration under Section 12AB(1)(a) for five years, and the error in the application process should not lead to a denial of this right.

Treatment of Competing Arguments

The Tribunal considered the arguments of the Department Representative (DR), who opposed the Trust's plea, citing the incorrect application process. However, the Tribunal prioritized the principles of equity and the intent behind the CBDT's circulars to mitigate hardships during the transition to the new regime.

Conclusions

The Tribunal concluded that the Trust's application should be treated as if it had been correctly filed under sub-clause (i) of Section 12A(1)(ac). It set aside the CIT(E)'s order rejecting the application and directed the CIT(E) to process the application accordingly, granting registration under Section 12AB for five years from AY 2022-23.

SIGNIFICANT HOLDINGS

The Tribunal emphasized the principle that inadvertent mistakes in the application process, particularly during the transition to a new legal regime, should not result in the denial of rights that the applicant is otherwise entitled to. The Tribunal's decision underscores the importance of fair treatment and the avoidance of discrimination, aligning with Article 14 of the Constitution of India.

The Tribunal directed the CIT(E) to process the application as if filed correctly under the appropriate sub-clause, ensuring the Trust's registration under Section 12AB for the specified period. This decision reflects the Tribunal's commitment to upholding the intent of legislative amendments and the remedial measures provided by the CBDT to address transitional challenges.

---