2025 (5) TMI 1562 - AT - Income Tax

Section 8 Company wins appeal after wrongly selecting 'religious-cum-charitable' instead of 'charitable' option in Form 10AB registration application

ITAT Chennai allowed appeal where CIT(E) rejected registration under Section 12AB, classifying assessee as 'religious-cum-charitable' instead of ... Rejection of registration u/s 12AB - CIT(E) held it to be “religious- cum-charitable” - inadvertent mistake in the nature of activity declared in Column-3 of Form No.10AB (filed electronically) - assessee ‘a Section 8 Company’ which was formed as carrying on charitable activities - HELD THAT:- Classification of assessee as “religious-cum-charitable Trust” happened because of the mistake which crept in Column-3 (Form 10AB) while filling up the electronic online portal, by wrongly choosing the box in Form as “religious-cum-charitable” whereas the nature of activities to be carried out by it as per Memorandum of Association obliges it to be classified as “charitable”. Therefore, the inadvertent mistake while filing up Column-3 can’t be a reasonable ground to grant registration u/s. 12AB of the Act by wrongly classifying it as “religious-cum-charitable institution”. Hence, it is a bona fide mistake and therefore, such mistakes while filling up Form 10AB, can’t change its original character which as per its Memorandum of Association, is Charitable Institution. Therefore, we set aside the impugned order of the CIT(E) and allow assessee to file a physical form of Form 10AB before the Ld.CIT(E) showing the nature of activity as “charitable” and the Ld.CIT(E) to consider the same, and examine the eligibility of it . We take note of decision in the case of United Bank of India v. Naresh Kumar [1996 (9) TMI 622 - SUPREME COURT] wherein, it was observed by their Lordships “as far as possible, a substantive right should not be defeated on account of a procedural irregularity which is curable” Construction of a rule of procedure which promotes justice and prevents its miscarriage by enabling the Court to do justice in myriad situations, all of which cannot be envisaged, acting within the limits of permissible construction, must be preferred to that which is rigid and negatives the cause of justice. Procedure is meant to subserve and not rule the cause of justice. See MV Vali Perov. Fernandeo Lopez [1989 (9) TMI 383 - SUPREME COURT] Thus, we direct the CIT(E) to consider the application as stated and decide on merits granting of registration as Charitable Institution in accordance to law after hearing the assessee. Issues Presented and ConsideredThe core legal questions considered by the Tribunal were:Whether the classification of the appellant as a 'religious-cum-charitable institution' by the Learned Commissioner of Income Tax (Exemptions) (Ld.CIT(E)) was justified, given that the appellant's objects, as per its Memorandum of Association (MoA), were purely charitable and did not include any religious activities.Whether an inadvertent mistake in the nature of activity declared in Column-3 of Form No.10AB (filed electronically) could justify altering the appellant's classification from a charitable institution to a religious-cum-charitable institution for the purposes of registration under section 12AB of the Income Tax Act, 1961 (the Act).Whether the rejection of the appellant's application for approval under section 80G(5)(iii) of the Act on the ground that it was a religious-cum-charitable institution was valid.The procedural and substantive implications of rectifying inadvertent errors in statutory forms and the extent to which such errors can affect substantive rights under the Act.Issue-wise Detailed AnalysisIssue 1: Classification of the Appellant as 'Religious-cum-Charitable' vs. Purely Charitable InstitutionLegal Framework and Precedents: Registration under section 12AB of the Act requires classification of the applicant's nature of activity. The objects of the entity, as set out in its MoA and Articles of Association, are critical in determining its classification. The Tribunal referred to the principle that the original character of an entity cannot be altered without due amendment to its constitutional documents as per the Companies Act, 2013.Court's Interpretation and Reasoning: The Tribunal noted that the appellant, a Section 8 Company incorporated in 2023, had objects exclusively charitable in nature-education for the poor, addressing hunger, and medical relief. The MoA and Articles of Association contained no reference to religious activities. The classification as 'religious-cum-charitable' arose solely due to an inadvertent error in Form 10AB where the appellant mistakenly selected 'religious-cum-charitable' in Column-3.Key Evidence and Findings: The appellant had uploaded the MoA and Articles with the application, clearly demonstrating the absence of religious objectives. The Tribunal found that the Ld.CIT(E) relied primarily on the Form 10AB entry and the appellant's initial replies, which incorrectly described the nature of activities.Application of Law to Facts: The Tribunal held that the classification cannot be changed based on an inadvertent mistake in the electronic form, especially when the MoA clearly establishes the appellant's purely charitable character. The appellant's failure to amend the Form 10AB correctly was a bona fide error and should not override the substantive nature of the entity.Treatment of Competing Arguments: The Revenue contended that registration must be granted strictly as per the nature of activity declared in Form 10AB, since the ITBA portal does not allow modification of this classification post-filing. The Tribunal rejected this rigid approach, emphasizing the overriding principle of substantive justice and the need to avoid procedural technicalities defeating substantive rights.Conclusion: The Tribunal set aside the Ld.CIT(E)'s order granting registration as 'religious-cum-charitable' and directed the appellant to file a physical Form 10AB correctly showing 'charitable' as the nature of activity. The Ld.CIT(E) was directed to reconsider the registration application afresh in accordance with law.Issue 2: Effect of Inadvertent Mistakes in Form 10AB on Registration and Approval under Sections 12AB and 80GLegal Framework and Precedents: The Tribunal invoked the Supreme Court precedents emphasizing that procedural irregularities should not defeat substantive rights. The decisions in United Bank of India v. Naresh Kumar and Associated Journals Ltd. v. Mysore Paper Mills Ltd. were cited to highlight that rules of procedure are meant to facilitate justice and are curable where technical defects arise. Similarly, Owners & Parties interested in MV Vali Perov. Fernandeo Lopez was cited to underscore that procedural rules are tools to achieve justice, not hurdles.Court's Interpretation and Reasoning: The Tribunal held that the inadvertent mistake in the online form was a procedural irregularity that should be cured rather than a substantive bar to correct classification. The appellant's right to be recognized as a charitable institution could not be defeated by a mere procedural slip, especially when the substantive facts (MoA) supported this classification.Key Evidence and Findings: The appellant's explanation and clarification letter dated 25.10.2024 acknowledged the inadvertent error and requested condonation. The Tribunal found this to be a bona fide mistake caused by complexities in the online portal.Application of Law to Facts: The Tribunal directed the Ld.CIT(E) to accept a physical Form 10AB with the correct classification and to examine the appellant's eligibility for registration and approval under sections 12AB and 80G respectively on merits, after hearing the appellant.Treatment of Competing Arguments: The Revenue's argument that the ITBA portal's technical limitations prevented correction was rejected as it would lead to injustice. The Tribunal emphasized that procedural rules cannot be used to circumvent justice.Conclusion: The Tribunal set aside the rejection of the 80G approval application and remanded the matter for de novo consideration after correct classification of the appellant as a charitable institution.Significant Holdings'We don't countenance the impugned action of the Ld.CIT(E) because the classification of assessee as 'religious-cum-charitable Trust' happened because of the mistake which crept in Column-3 (Form 10AB) while filling up the electronic online portal, by wrongly choosing the box in Form as 'religious-cum-charitable' whereas the nature of activities to be carried out by it as per Memorandum of Association obliges it to be classified as 'charitable'.''Therefore, the inadvertent mistake while filing up Column-3 can't be a reasonable ground to grant registration u/s. 12AB of the Act by wrongly classifying it as 'religious-cum-charitable institution'.''As far as possible, a substantive right should not be defeated on account of a procedural irregularity which is curable.' (United Bank of India v. Naresh Kumar)'Rules of procedure cannot be a tool to circumvent the justice. In fact, the Rules are laid to help for speedy justice ... Technical defects in petition are curable.' (Associated Journals Ltd. v. Mysore Paper Mills Ltd.)'Rules of procedure are not by themselves an end but means to achieve the ends of justice. Rules of procedure are tools forged to achieve justice and are not hurdles to obstruct the pathway to justice.' (Owners & Parties interested in MV Vali Perov. Fernandeo Lopez)Core principles established include that the substantive nature of an entity as per its constitutional documents prevails over inadvertent procedural errors in statutory forms, and procedural irregularities that do not affect substantive rights are curable and should be remedied to prevent miscarriage of justice.The Tribunal's final determinations were to set aside the Ld.CIT(E)'s orders granting registration as 'religious-cum-charitable' and rejecting approval under section 80G, to permit the appellant to correct the classification to 'charitable' by filing a physical Form 10AB, and to direct the Ld.CIT(E) to reconsider both registration and approval applications on merits after hearing the appellant.