2025 (7) TMI 242 - AT - Income Tax

Rejection of final registration u/s 12AA - Application filled filed under item (B) of sub-clause (vi) instead of under the correct provision section 12A(1)(ac)(iii) - Bonafide Intention and Inadvertent Non-Compliance of Changing Regulatory Framework - genuine hardship caused by procedural lapses. HELD THAT - As undisputed that the assessee filed Form No. 10AB on 11.06.2024 which falls well within the extended due date of 30.06.2024. The only technical defect in the application was that it was filed under item (B) of sub-clause (vi) instead of under the correct provision section 12A(1)(ac)(iii). This falls squarely within the remedial framework contemplated by the Circular. Accordingly the basis of rejection being purely procedural in nature stands neutralised by the operation of the Circular which is binding on the revenue authorities. It is also pertinent to note that the genuineness of the trust s activities was never questioned by the CIT(Exemption). The assessee had earlier been granted provisional registration and there is no adverse observation in the order impugned as to the charitable character or the authenticity of the trust s operations. The spirit and intent of CBDT Circular No. 7/2024 is to mitigate genuine hardship caused by procedural lapses in an evolving compliance environment and to ensure that trusts and institutions acting bona fide are not deprived of their legitimate right to registration. The Circular must be construed liberally and purposively so as to advance the cause of substantive justice rather than defeat it by technical interpretation. It is a well-settled principle of law that procedural lapses should not defeat substantive entitlements particularly in matters involving public charitable trusts. The doctrine of substance over form consistently upheld by Courts enjoins that the real character and conduct of the assessee must prevail over mere form or coding errors in applications. Rejection of the assessee s application for registration in Form No. 10AB is unsustainable in law having been rendered infructuous in light of the express relief granted under CBDT Circular No. 7/2024 and the assessee s undisputed compliance with its terms. We set aside the impugned order passed by the CIT(Exemption) Ahmedabad rejecting the application for registration under section 12AB and restore the matter to his file for fresh consideration. Appeal filed by the assessee is allowed for statistical purposes.

The core legal questions considered by the Appellate Tribunal (AT) in this matter include:

1. Whether the rejection of the application for final registration in Form No. 10AB under section 12A(1)(ac)(vi) of the Income-tax Act, 1961, on grounds of procedural non-compliance, is sustainable where the assessee had already obtained provisional registration and had filed the final registration application within the extended time prescribed by CBDT Circular No. 7/2024.

2. Whether the claim of exemption under section 11 prior to obtaining final registration under section 12A(1) precludes the assessee from obtaining final registration under the said section.

3. The applicability and effect of CBDT Circular No. 7/2024 dated 25.04.2024, which extended the due date for filing Form No. 10AB and provided relief for procedural lapses in filing.

4. The relevance of the doctrine of substance over form and principles of equity and justice in deciding the validity of procedural lapses in trust registration and exemption claims.

5. Whether procedural delays or technical defects in filing final registration applications can justify denial of exemption where the genuineness of charitable activities is not in dispute.

Issue-wise Detailed Analysis:

1. Validity of Rejection of Final Registration Application on Procedural Grounds

Legal Framework and Precedents: Section 12A(1)(ac)(vi) of the Income-tax Act governs the registration of charitable trusts and institutions, with Form No. 10AB being the prescribed application for final registration. The proviso under item (B) of sub-clause (vi) mandates that no income should have been excluded under section 11 in preceding years for eligibility. CBDT Circular No. 7/2024 extended the due date for filing Form 10AB to 30.06.2024 and provided that applications rejected solely on delayed filing or incorrect section codes prior to the Circular may be refiled and treated as valid.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee had been granted provisional registration and had commenced charitable activities in May 2022. The final registration application was filed on 11.06.2024, within the extended deadline under the Circular. The rejection by the CIT(E) was based on the ground that the assessee had claimed exemption under section 11 in prior years and filed under an incorrect item (B) of sub-clause (vi) instead of the correct provision. The Tribunal held that this rejection was purely procedural and neutralized by the Circular's remedial provisions.

Key Evidence and Findings: The assessee's submission of the final registration application within the extended deadline and the absence of any adverse findings regarding the genuineness of activities were critical. The CIT(E) did not dispute the trust's charitable character or compliance with substantive conditions.

Application of Law to Facts: The Tribunal applied the Circular liberally, emphasizing that procedural lapses should not defeat substantive rights, especially where the trust acted bona fide and complied with substantive requirements.

Treatment of Competing Arguments: The Revenue relied on the statutory bar in item (B) of sub-clause (vi) and the fact that exemption under section 11 was claimed prior to final registration. The Tribunal rejected this, highlighting the overriding effect of the Circular and the absence of malafide intent.

Conclusion: The rejection of the application on procedural grounds was unsustainable and set aside. The matter was remanded for fresh consideration treating the application as valid.

2. Claim of Exemption Under Section 11 Prior to Final Registration

Legal Framework: Section 11 provides exemption for income applied to charitable purposes by registered trusts. Section 12A(1) requires registration for such exemption. Item (B) of sub-clause (vi) of section 12A(1)(ac) disallows final registration if exemption under section 11 was claimed before registration.

Court's Interpretation: The Tribunal acknowledged the statutory provision but observed that the Circular specifically mitigated hardships arising from procedural delays and technical errors. The assessee's bona fide filing within the extended timeline and the absence of substantive non-compliance justified a liberal interpretation.

Key Findings: No adverse findings on genuineness or misuse of exemption were recorded. The assessee's actions were consistent with compliance and good faith.

Application of Law to Facts: The Tribunal held that the strict application of item (B) should yield to the remedial Circular and principles of equity, preventing penalization for procedural lapses.

Treatment of Arguments: The Revenue's strict reliance on statutory bar was overridden by the Circular's binding effect and the facts of the case.

Conclusion: The claim of exemption prior to final registration did not preclude registration in light of the Circular and bona fide compliance.

3. Applicability and Effect of CBDT Circular No. 7/2024

Legal Framework: Section 119 empowers the CBDT to issue directions for proper administration of the Act. Circular No. 7/2024 extended the deadline for filing Form 10AB and allowed re-filing of rejected applications due to delayed filing or incorrect section codes.

Court's Interpretation: The Tribunal emphasized the Circular's remedial purpose to avoid hardship to genuine charitable trusts. It held that the Circular is binding on revenue authorities and must be construed liberally to advance substantive justice.

Key Findings: The assessee filed the application within the extended deadline and under an incorrect item, a defect covered by the Circular's relief.

Application of Law to Facts: The Tribunal applied the Circular to neutralize the procedural defect and directed the CIT(E) to consider the application on merits.

Treatment of Arguments: The Revenue's contention that the statutory bar was absolute was rejected in favor of the Circular's mitigating provisions.

Conclusion: The Circular's relief applied, rendering the rejection unsustainable.

4. Doctrine of Substance Over Form and Principles of Equity

Legal Framework: The doctrine mandates that the real substance and conduct of a party should prevail over mere procedural or formal defects. Equity demands fair treatment of bona fide actors.

Court's Interpretation: The Tribunal reiterated that the assessee had demonstrated bona fide compliance and genuine charitable activities. Procedural lapses should not defeat substantive rights, especially in the charitable sector.

Key Findings: The genuineness of the trust's activities was undisputed and no malafide intent was found.

Application of Law to Facts: The Tribunal applied the doctrine to uphold the assessee's entitlement to registration and exemption.

Treatment of Arguments: The Revenue's strict procedural stance was balanced against equitable considerations favoring the assessee.

Conclusion: Equity and substance over form principles warranted acceptance of the application despite procedural defects.

5. Procedural Delays and Technical Defects as Grounds for Denial

Legal Framework: Procedural requirements are important but should not override substantive compliance, especially where the law or administrative instructions provide remedial measures.

Court's Interpretation: The Tribunal held that procedural delay in filing final registration application was inadvertent and rectified within the extended timeline. The technical defect in filing under the wrong item was covered by the Circular.

Key Findings: The trust had provisional registration, commenced charitable activities, and filed the final application timely under the Circular.

Application of Law to Facts: The Tribunal found no justification for denial of registration on procedural grounds alone.

Treatment of Arguments: The Revenue's insistence on strict compliance was rejected in favor of a purposive and liberal approach.

Conclusion: Procedural lapses should not result in denial of exemption where substantive conditions are met and remedial provisions apply.

Significant Holdings:

"The rejection of the assessee's application for registration in Form No. 10AB is unsustainable in law, having been rendered infructuous in light of the express relief granted under CBDT Circular No. 7/2024 and the assessee's undisputed compliance with its terms."

"The spirit and intent of CBDT Circular No. 7/2024 is to mitigate genuine hardship caused by procedural lapses in an evolving compliance environment and to ensure that trusts and institutions acting bona fide are not deprived of their legitimate right to registration."

"It is a well-settled principle of law that procedural lapses should not defeat substantive entitlements, particularly in matters involving public charitable trusts. The doctrine of substance over form, consistently upheld by Courts, enjoins that the real character and conduct of the assessee must prevail over mere form or coding errors in applications."

"The CIT(Exemption) is directed to treat the Form No. 10AB filed by the assessee on 11.06.2024 as a valid application under section 12A(1)(ac)(iii) of the Act, in light of the relief granted under CBDT Circular No. 7/2024 dated 25.04.2024."

"The CIT(Exemption) shall dispose of the said application on merits and in accordance with law, after affording reasonable opportunity of being heard to the assessee."

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