2025 (4) TMI 1212 - AT - Income Tax

Trust Registration Extended: Valid Application Ensures Tax Exemption Under Section 11 for Applicant's 2021-22 Assessment Year

The SC/Tribunal ruled that a trust's registration application filed on 26/03/2022 was valid under the CBDT Circular extending the deadline to 31/03/2022. ... Denying exemption u/s 11 - assessee has not filed details of registration obtained u/s 12AB - The registration application in Form 10A was filed on 26/03/2022, whereas as per the provisions of Section 12A(1)(ac)(i) of the Act, the assessee was supposed to apply within three months from the 1st day of April, 2024. Since the application was not made in time, the approval was given only from 05/04/2022 HELD THAT:- We find that the CBDT, vide Circular No. 16/2021 has extended the date for filing Form 10A to 31/03/2022 and as the application was filed on 26/03/2022, the same was within time as per Circular of the CBDT. In our considered view, by not considering the extended date, the order processing the return of income had a rectifiable error which was denied u/s 154 of the Act and the NFAC also fell into the same error in not considering the Circular of the CBDT extracted elsewhere. Since the assessee has filed the application on or before the extended date as per the CBDT Circular, the AO is directed to allow the exemption for AY 2021-22 also. Appeal of the assessee is allowed. The primary issue presented and considered in this appeal is whether the assessee's claim for exemption under section 11 of the Income-tax Act, 1961 (hereinafter 'the Act') for the Assessment Year (AY) 2021-22 was rightly denied on the ground of non-filing of registration under section 12AB of the Act within the prescribed time limit.Specifically, the core legal questions examined are:Whether the assessee's application for registration under section 12AB filed on 26/03/2022 was within the prescribed time limit as mandated by section 12A(1)(ac)(i) of the Act;Whether the Central Board of Direct Taxes (CBDT) Circular No. 16/2021, which extended the due date for filing Form 10A, could be relied upon to validate the timeliness of the registration application;Whether the failure to consider the extended timeline under the CBDT Circular by the Central Processing Centre (CPC) and the National Faceless Appeal Centre (NFAC) constituted an error apparent on record warranting rectification under section 154 of the Act;Whether the exemption under section 11 of the Act should be allowed for AY 2021-22 despite the initial rejection based on the timing of registration application.The Tribunal's detailed analysis of these issues is as follows:Relevant Legal Framework and Precedents:Section 11 of the Act provides exemption to income derived from property held under trust or other legal obligations wholly for charitable or religious purposes. Section 12AB mandates that a trust or institution must obtain registration to claim exemption under section 11. Section 12A(1)(ac)(i) requires that the application for registration be made within three months from the commencement of the financial year, i.e., by 30th June of the relevant year (here, interpreted as within three months from 1st April 2021, thus by 30th June 2021 for AY 2021-22).However, the CBDT, exercising powers under section 119 of the Act, issued Circular No. 16/2021 dated 29-08-2021, which extended the due date for electronic filing of Form 10A (application for registration under section 12AB) to 31/03/2022. This extension was granted in light of difficulties faced by taxpayers in electronic filing during the pandemic period.Court's Interpretation and Reasoning:The Tribunal observed that the CPC, while processing the return of income, rejected the exemption claim because the assessee had not filed the registration within the original statutory timeline as per section 12A(1)(ac)(i). The NFAC upheld this decision, noting that the application was filed on 26/03/2022, which is after the statutory deadline but before the approval date of 05/04/2022, and that the registration was granted only prospectively from AY 2022-23 onwards.However, the Tribunal held that the CBDT Circular No. 16/2021 expressly extended the due date for filing Form 10A to 31/03/2022, which was prior to the date on which the assessee filed its application (26/03/2022). Therefore, the application was within the extended time limit allowed by the CBDT.The Tribunal further reasoned that the CPC and NFAC erred in not considering this Circular, thereby committing an error apparent on record. Such an error could be rectified under section 154 of the Act, which permits correction of mistakes apparent from the record.Key Evidence and Findings:The critical evidence was the date of filing of the Form 10A application (26/03/2022) and the CBDT Circular No. 16/2021 extending the filing deadline to 31/03/2022. The Tribunal relied heavily on the Circular's explicit extension of timelines to conclude that the assessee's application was timely.Application of Law to Facts:Applying the extended timeline as per the CBDT Circular, the Tribunal found that the assessee's application for registration was valid and timely. Consequently, the rejection of exemption under section 11 for AY 2021-22 on the ground of late registration was incorrect.The Tribunal directed the Assessing Officer (AO) to allow the exemption for AY 2021-22, thereby recognizing the validity of the registration application filed within the extended timeline.Treatment of Competing Arguments:The Revenue's argument was based on strict adherence to the statutory timeline under section 12A(1)(ac)(i) without considering the CBDT Circular. The Tribunal rejected this approach, emphasizing the binding nature of the Circular and the necessity to interpret timelines in light of such extensions, especially given the difficulties faced by taxpayers during the relevant period.The NFAC's stance that no mistake apparent on record existed was also overruled, with the Tribunal clarifying that ignoring the CBDT Circular constituted a clear error.Conclusions:The Tribunal concluded that the exemption under section 11 of the Act for AY 2021-22 should be granted as the assessee's registration application was filed within the extended time frame prescribed by the CBDT Circular. The orders of the CPC and NFAC were set aside to this extent.Significant Holdings:The Tribunal held:'By not considering the extended date, the order processing the return of income had a rectifiable error which was denied u/s 154 of the Act and the NFAC also fell into the same error in not considering the Circular of the CBDT extracted elsewhere. Since the assessee has filed the application on or before the extended date as per the CBDT Circular, the AO is directed to allow the exemption for AY 2021-22 also.'The core principle established is that timelines prescribed under the Income-tax Act for filing applications for registration under section 12AB can be extended by the CBDT through Circulars under section 119, and such extensions must be taken into account by the authorities when deciding claims for exemption under section 11. Failure to do so amounts to an error apparent on record, justifying rectification.Final determinations on the issues are:The application for registration filed on 26/03/2022 was within the extended timeline as per CBDT Circular No. 16/2021;The rejection of exemption under section 11 for AY 2021-22 on the ground of late registration was erroneous;The CPC and NFAC erred in not considering the CBDT Circular, constituting an error apparent on record;The exemption under section 11 is to be allowed for AY 2021-22 accordingly.