2025 (11) TMI 1824 - AT - Income Tax

Trust with provisional 12AB registration can seek final 12A(1)(ac)(iii) despite late application after activities commencement

ITAT AH held that the assessee trust, already granted provisional registration u/s 12AB, is eligible to seek final registration u/s 12A(1)(ac)(iii) ... Application made u/s 12A(1)(ac)(vi)(B) rejection - one of the conditions, as stipulated under section 12A(1)(ac)(vi)-ITEM (B) was not fulfilled as the assessee had claimed exemption under section 11 of the Act in the Asst. Years 2019-20 to 2024-25, however, submitted that the case of the assessee was not covered in any of the other sub-clauses of section 12A(1)(ac) HELD THAT:- Since the assessee has been provisionally registered under section 12AB of the Act, it is eligible to make an application under section 12A(1)(ac)(iii) of the Act. But the application under this sub-clause is required to be made within the period of six months prior to the expiry of period of provisional registration or within six months from the commencement of the activities, whichever is earlier. The contention of the assessee is that the period of six months from the commencement of activities had already expired, which was earlier than grant of provisional registration, and, therefore, it was not eligible for making application under this sub-clause as well. In fact, this sub-clause makes the grant of registration to entities, who have commenced their activities and thereafter apply for provisional registration, very restrictive. An assessee trust might have commenced its activities much prior to the grant of provisional registration. The new trust or institution are required to apply for the provisional registration/approval at least one month prior to the previous year relevant to the assessment year from which the said registration/approval is sought. In the present case the provisional registration was granted to the assessee on 07.04.2022 for the A.Ys. 2022-23 to 2024-24. This was in spite of the fact that the commencement of activities of the trust was much earlier in the A.Y. 2019-20 wherein exemption u/s 11 was claimed for the first time. The intention of the Legislature would not be that a trust will be precluded from applying for final registration, even after the grant of provisional registration, particularly in a case, where the provisional registration was granted after six months from the commencement of its activities. Therefore, the provision of section 12A(1)(ac)(iii) has to be liberally interpreted in order to make such trust or institution eligible for registration, where they have been allowed provisional registration after six months from the commencement of their activities. Matter is set aside to the file of the ld. CIT(E) with a direction to consider the application of the assessee for registration under the provisions of section 12A(1)(ac)(iii) of the Act. If necessary, the assessee may be directed to file a fresh application under this provision. The appeal of the assessee is allowed for statistical purpose. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether rejection of the application for registration under section 12A(1)(ac)(vi)(B) (read with section 12AB) on the ground of non-fulfilment of the specific statutory condition relating to past exemption under section 11 was legally sustainable. 1.2 Whether, in the facts of a trust already holding provisional registration under section 12AB, its case could and should be considered under section 12A(1)(ac)(iii), despite the apparent time-limit linked to commencement of activities. 1.3 Consequentially, whether the application for approval under section 80G(5)(iii) could be adjudicated prior to, or independent of, a proper decision on registration under section 12A/12AB. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Rejection of registration under section 12A(1)(ac)(vi)(B) Legal framework: Section 12A(1)(ac)(vi)(B) permits an application for registration, 'in any other case', where the activities of the trust have commenced and no income has been excluded from total income on account of sections 10(23C)(iv)/(v)/(vi)/(via), 11 or 12 for any previous year ending on or before the date of such application, and the trust is registered under section 12AB. Interpretation and reasoning: The Court noted that the assessee had in fact claimed exemption under section 11 for earlier assessment years, a fact fairly admitted. Consequently, the express condition in section 12A(1)(ac)(vi)(B), that no income should have been so excluded, was not satisfied. The rejection by the Commissioner (Exemptions) on this narrow ground was held to be correct as far as this specific clause is concerned. Conclusions: The assessee was not eligible for registration under section 12A(1)(ac)(vi)(B) because the statutory condition regarding non-claim of exemption under section 11 had been violated. The rejection under this precise sub-clause was therefore legally valid. Issue 2: Eligibility and route for final registration under section 12A(1)(ac)(iii) in case of existing provisional registration Legal framework: Section 12A(1)(ac)(iii) governs cases 'where the trust or institution has been provisionally registered under section 12AB', requiring an application 'at least six months prior to expiry of period of the provisional registration or within six months of commencement of its activities, whichever is earlier'. Proviso to section 12A(1)(ac) empowers condonation of delay in filing beyond the time allowed in sub-clauses (i) to (vi), on reasonable cause. Interpretation and reasoning: The Court observed that the assessee held a provisional registration under section 12AB from 07.04.2022 for assessment years 2022-23 to 2024-25, while its activities and claims under section 11 had commenced earlier (from assessment year 2019-20). On a plain reading, the six-month time-limit from commencement of activities would have expired before grant of provisional registration, creating a situation where such entities, having commenced activities well before provisional registration, could never validly apply for final registration under section 12A(1)(ac)(iii). The Court held that this makes the provision 'very restrictive' and would frustrate the legislative intent, because a trust which has already been granted provisional registration would be effectively precluded from securing final registration solely due to the timing of commencement of activities vis-à-vis grant of provisional registration. The Court emphasised that such an interpretation could not represent the intent of the Legislature; rather, the provision should be construed to enable trusts, already enjoying provisional registration granted after six months from commencement of activities, to transition to final registration. To give effect to this object, the Court held that section 12A(1)(ac)(iii) has to be interpreted liberally so as to make such trusts eligible to apply for and obtain final registration under that clause. Conclusions: While the case did not fit within section 12A(1)(ac)(vi)(B), the assessee, being provisionally registered under section 12AB, is eligible to be considered for registration under section 12A(1)(ac)(iii). The restrictive literal view of the time condition linked to commencement of activities was rejected; a liberal interpretation is to be adopted to preserve eligibility for final registration where provisional registration has been granted after six months from commencement of activities. The matter was remanded to the Commissioner (Exemptions) to consider the assessee's application under section 12A(1)(ac)(iii), with liberty to direct filing of a fresh application, if necessary. Issue 3: Consequential adjudication of application under section 80G(5)(iii) Legal framework: Section 80G(5) prescribes conditions for approval for deduction in respect of donations; a valid registration under section 12A/12AB is a mandatory precondition under section 80G(5)(iii). Interpretation and reasoning: The Court noted that the Commissioner had rejected the section 80G(5) application solely on the ground that there was no valid registration under section 12A/12AB. Since the question of registration under section 12A(1)(ac) was being remanded for fresh consideration under section 12A(1)(ac)(iii), the Court held that the decision on the 80G approval must necessarily await the outcome of the registration issue. Conclusions: The application under section 80G(5) is dependent on and consequential to a proper decision on registration under section 12A/12AB. The matter relating to section 80G(5)(iii) was therefore set aside to be decided afresh after adjudication of the assessee's entitlement to registration under section 12A(1)(ac). Both appeals were allowed for statistical purposes.