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) despite expiry of six months from commencement of activities prior to grant of provisional registration. The Tribunal held that the provision must be interpreted liberally so that a trust is not denied final registration merely because its activities began more than six months before provisional registration, particularly when exemption u/s 11 had been claimed from AY 2019-20. The order rejecting the application was set aside and the matter remanded to CIT(E) to reconsider registration, permitting a fresh application if required.

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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.

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