2025 (5) TMI 686 - AT - Income Tax

Denial of application for approval u/s 80G(5) as time-barred due to delayed submission of Form 10AB beyond the prescribed deadline - HELD THAT - 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. As 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. Thus 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. Also assessee had received provisional approval u/s 80G(5) on 02.10.2021 and it was valid upto A.Y.2024- 25. The assessee had applied for registration under section 80G on 13.09.2024 which was before A.Y.2024-25. Thus assessee had applied for permanent registration under section 80G before the expiry of provisional approval. Therefore the application of the assessee was not time barred.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the application for approval under section 80G(5) of the Income Tax Act, 1961, filed by the assessee on 13.09.2024, was time-barred due to delayed submission of Form 10AB beyond the prescribed deadline;

(b) Whether the delay of 74 days in submission of Form 10AB was deliberate or excusable, and if it should have been condoned by the Commissioner of Income Tax (Exemptions);

(c) The correct interpretation of the amended provisions under section 80G(5), particularly the proviso sub-clause (iii) relating to provisional approval and the timeline for filing the regular application for approval;

(d) The applicability and scope of the concept of "provisional approval" introduced by the Finance Act, 2020, especially in relation to trusts/institutions that had commenced activities prior to provisional approval;

(e) Whether the assessee's application for regular approval under section 80G was valid and maintainable given the timelines and facts of the case;

(f) The legal effect of non-compliance with the prescribed timelines for filing applications under section 80G(5) and the extent of discretion available to the Commissioner to condone delays.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (e): Whether the application was time-barred or valid

Relevant legal framework and precedents: Section 80G(5) of the Income Tax Act, 1961, governs the approval process for charitable institutions to enable donors to claim deductions. The proviso to sub-section (5) prescribes timelines for filing applications for approval, including for institutions with provisional approval. The Finance Act, 2020, introduced the concept of provisional approval and amended the procedure for registration and approval, including timelines for filing fresh applications.

The proviso sub-clause (iii) states that where an institution has been provisionally approved, it must apply for regular approval at least six months prior to expiry of the provisional approval or within six months of commencement of activities, whichever is earlier.

The Supreme Court in K P Varghese v. ITO established that statutory provisions must be interpreted to avoid absurdity and injustice, and that legislative intent should guide interpretation.

Court's interpretation and reasoning: The Court noted that the assessee received provisional approval on 02.10.2021 valid till AY 2024-25 and filed the application for regular approval on 13.09.2024, before expiry of the provisional approval period. The Commissioner rejected the application as time-barred, relying on a deadline extended by CBDT to 30.06.2024, which the assessee missed.

The Court analyzed the proviso sub-clause (iii) and concluded that the phrase "within six months of commencement of its activities, whichever is earlier" was intended primarily for newly formed trusts/institutions that had not commenced activities at the time of provisional approval. For trusts already carrying out charitable activities before provisional approval, the relevant timeline is six months prior to expiry of provisional approval.

The Court relied on the Finance Minister's Budget Speech 2020 and the Memorandum to the Finance Bill, 2020, which clarified that provisional registration was introduced to facilitate new institutions yet to start activities, allowing them a three-year provisional registration period before applying for regular registration.

Key evidence and findings: The assessee was registered under section 13(1) of the Companies Act on 28.12.2023 and under section 12A of the Income Tax Act. The activities commenced in FY 2021-22, prior to the provisional approval date. The application for regular approval was submitted within the provisional approval period.

Application of law to facts: Since the assessee had already commenced activities before provisional approval, the timeline "within six months of commencement of activities" was not applicable. The relevant timeline was six months prior to expiry of provisional approval, and the application was filed within this period.

Treatment of competing arguments: The Commissioner argued that the application was time-barred as it was filed after the extended deadline of 30.06.2024. The Court rejected this, holding that the extended deadline was not applicable to trusts already carrying out activities and that the provision must be interpreted harmoniously to avoid absurdity.

Conclusions: The Court held that the application was not time-barred and was valid and maintainable.

Issue (b) & (f): Whether delay of 74 days should be condoned

Relevant legal framework: Section 80G(5) and the rules prescribe timelines for filing Form 10AB and applications for approval. The Commissioner has discretion to condone delays if the delay is not deliberate and sufficient cause is shown.

Court's reasoning: The Court noted that the delay of 74 days was not deliberate and that the procedural amendments were intended to simplify compliance, not to cause prejudice to trusts. The Court emphasized that strict literal interpretation leading to harsh or unjust results should be avoided, citing the Supreme Court's ruling in K P Varghese.

Application of law to facts: The assessee had submitted an affidavit explaining the reasons for delay and sought condonation. The Court found no justification for rejecting the application solely on the ground of delay.

Treatment of competing arguments: The Commissioner's rejection based on delay was set aside in view of the legislative intent and the facts.

Conclusions: The Court held that the delay should have been condoned and the application restored for fresh consideration.

Issue (c) & (d): Interpretation of amended provisions and concept of provisional approval

Relevant legal framework: Finance Act 2020 introduced provisional approval under section 80G(5), allowing new charitable institutions to obtain provisional registration valid for three years without detailed enquiry, after which they must apply for regular approval.

Court's interpretation and reasoning: The Court examined the legislative history, including the Finance Minister's speech, to interpret the purpose of provisional approval. It held that provisional approval was designed to facilitate new institutions yet to start activities, providing them time to commence activities before applying for regular approval.

The Court distinguished between (i) trusts already carrying out charitable activities with existing registration, (ii) trusts already carrying out activities but not previously registered under section 80G(5), and (iii) newly formed trusts yet to commence activities.

Application of law to facts: The assessee fell into the second category, having commenced activities prior to provisional approval and applying for regular approval within the prescribed timeline.

Treatment of competing arguments: The Court rejected the Commissioner's rigid application of deadlines meant for newly formed trusts to the assessee's case.

Conclusions: The Court clarified the correct interpretation of the amended provisions, emphasizing the legislative intent to avoid prejudice and facilitate compliance.

3. SIGNIFICANT HOLDINGS

"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."

"The statutory provision shall be interpreted in such a way to avoid absurdity."

"The application of the assessee was not time barred and is valid and maintainable."

"The delay of 74 days in submission of Form 10AB was not deliberate and should have been condoned by the Commissioner."

"The amendments introduced by the Finance Act, 2020, were to simplify the procedure of registration of charitable trusts/institutions and cannot be interpreted in a manner that causes prejudice to the trusts/institutions."

"The Commissioner of Income Tax (Exemptions) is directed to give the assessee an opportunity of being heard and to decide the application afresh in accordance with law."