2024 (6) TMI 798 - AT - Income Tax

Denial of registration u/s. 80G(5)(iii) - timeline for an application to be filed under clause (iii) of first proviso to sub-section (5) of Sec.80G - cancellation of provisional registration - whether the application of the assessee was time barred or not? - HELD THAT - When we read the Budget Speech of the Hon ble Finance Minister 2020 and the Memorandum of Finance Bill 2020 together it becomes clear that the concept of Provisional registration was mainly to facilitate the registration of newly formed Trust/Institutions which have not yet begun the activities. The parliament in its wisdom has decided to differentiate between the Trust which were newly formed and the trust which were already doing charitable activities. In the second category of cases there are again two possibilities one trust was already doing charitable activities and was already having Registration u/s 12AA or 80G(5) of the Act such trust were directed to reapply for registration under new procedure on or before 30th August 2020 but due to Covid-19 this date was subsequently extended. There is Second category of trust/institutions which were already doing Charitable Activities but had never applied for registration u/s.80G(5) of the Act. It is not mandatory that every charitable trust/institution has to apply for registration u/s.80G(5) of the Act. However there is no bar in the Act that such trust or institutions cannot apply for registration u/s.80G in the new procedure. In these kinds of cases the Trust/Institute though doing charitable activity may apply first for the Provisional Registration under the Act. After getting the Provisional Registration the Trust/Institution have to apply for Regular Registration. These kind of Trust/Institutes will fall under sub clause (iii) of the Proviso to Section 80G(5) of the Act since they have obtained Provisional registration. The sub-clause says that the Institution which have provisional registration have to apply at-least six months prior to expiry of the provisional registration or within Six months of commencement of activities whichever is earlier. In continuation of this when we read the sub clause iii of Proviso of section 80G(5) which we have already reproduced above it is clear that the intention of parliament in putting the word or within six months of commencement of its activities whichever is earlier is in the context of the newly formed Trust/institutions. For the existing Trust/Institution the time limit for applying for Regular Registration is within six months of expiry of Provisional registration if they are applying under sub clause (iii) of the Proviso to Section 80G(5) of the Act. This will be the harmonious interpretation. If we agree with the interpretation of the ld.CIT(E) then say a trust which was formed in the year 2000 performed charitable activities since 2000 but did not applied for registration u/s.80G the said trust will never be able to apply for registration now. This in our opinion is not the intention of the legislation. This interpretation leads to absurd situation. As observed in K P Varghase 1981 (9) TMI 1 - SUPREME COURT the statutory provision shall be interpreted in such a way to avoid absurdity. In this case to avoid the absurdity as discussed by us in earlier paragraph we are of the opinion that the words within six months of commencement of its activities has to be interpreted that it applies for those trusts/institutions which have not started charitable activities at the time of obtaining Provisional registration and not for those trust/institutions which have already started charitable activities before obtaining Provisional Registration. We derive the strength from the Speech of the Hon ble Finance Minister and the Memorandum of Finance Bill 2020. Therefore in these facts and circumstances of the case we hold that the Assessee Trust had applied for registration within the time allowed under the Act. Hence the application of the assessee is valid and maintainable. Even otherwise the Provisional Approval is uptoA.Y.2025-26 and it can be cancelled by the ld.CIT(E) only on the specific violations by the assessee. However in this case the ld.CIT(E) has not mentioned about any violation by the Assessee.Therefore even on this ground the rejection is not sustainable. CIT(E) has not discussed whether the Assessee fulfils all other conditions mentioned in the section as he rejected it on technical ground. Therefore in these facts and circumstances we hold that the Assessee had made the application in form 10AB within the prescribed time limit and hence it is valid application. Therefore we direct the ld.CIT(E) to treat the application has filed within statutory time and verify assessee s eligibility as per the Act.

Summary

Issues Involved:

1. Whether the application u/s 80G was time-barred.
2. Whether the cancellation of provisional registration was valid without following due process and opportunity of hearing.
3. Whether the cancellation was justified in the absence of any dissatisfaction about the genuineness of activities or violation of conditions prescribed in Section 80G(5).

Summary:

1. Whether the application u/s 80G was time-barred:

The ld. Commissioner of Income Tax (Exemption) rejected the application filed in Form 10AB for approval u/s 80G of the Act on the ground that it was filed beyond six months of commencement of activities, thus holding it as time-barred. The Tribunal noted that the application was filed beyond the statutory period specified in clause (iii) of the first proviso to section 80G(5) of the Income Tax Act, 1961. However, it interpreted that the words "within six months of commencement of its activities" apply to newly formed trusts/institutions and not to those already performing charitable activities before obtaining provisional registration.

2. Whether the cancellation of provisional registration was valid without following due process and opportunity of hearing:

The Tribunal observed that the provisional approval granted on 09/07/2021 was canceled without following the due process of law and without affording an opportunity of hearing to the appellant. The Tribunal emphasized that the provisional approval is valid up to A.Y. 2025-26 and can only be canceled on specific violations, which were not mentioned by the ld. CIT (E) in this case.

3. Whether the cancellation was justified in the absence of any dissatisfaction about the genuineness of activities or violation of conditions prescribed in Section 80G(5):

The Tribunal noted that the ld. CIT (E) did not discuss the merits of the case or whether the assessee fulfilled all other conditions mentioned in the section. It held that the application made by the assessee in Form 10AB was within the prescribed time limit and thus valid. The Tribunal directed the ld. CIT (E) to treat the application as filed within the statutory time and verify the assessee's eligibility as per the Act, granting the assessee an opportunity to file all necessary documents.

Conclusion:

The appeal of the assessee was allowed for statistical purposes, and the case was set aside to the ld. CIT (E) for reconsideration. The Tribunal did not adjudicate each ground separately as the matter was remanded back for verification of the assessee's eligibility. The order was pronounced in the open Court on 5th Jan, 2024.