CBDT Circular Not Extending Time To File Application For Regular Registration Of New Provisionally Registered Trusts U/S 80G Violative Of Constitution: Madras High Court

The Madras High Court has held that the Circular dated May 24, 2023, issued by the Central Board of Direct Taxes (CBDT) not extending time to file applications for regular registration of new provisionally registered trusts under Section 80G of the Income Tax Act is violative of the Constitution of India.

The bench of Chief Justice Sanjay V. Gangapurwala and Justice D. Bharatha Chakravarthy has observed that the petitioner trusts do not have any vested right to claim an extension of time. When the statute prescribes a time limit, the petitioner trusts are expected to apply within the said date to avail themselves of the benefits. The first respondent board issues circulars enlarging the time limit even beyond the prescribed limit to mitigate the rigors of the statute and the hardship faced by the assessees. The same is in exercise of its powers under Section 119(2)(b) of the Income Tax Act. No discrimination or differentiation was made between the existing trusts and the new trusts at the first instance when Circular No. 8 of 2022 was issued. When the impugned Circular No. 6 of 2023 was issued, the reason stated by the first respondent was to mitigate genuine hardship.

The bench noted that on a combined reading of the earlier Circular No. 8 of 2022 and the impugned Circular No. 6 of 2023, it can be clear that the only reason that is shown for the exercise of the powers is that these trusts faced hardship since they could not apply on time. No reason whatsoever is mentioned to omit "the clause (i) of the first proviso to sub-section (5) of Section 80G of the Act" in respect of the new trusts applying under Form No. 10AB alone.

The petitioner-trust was established on September 9, 2021, and is allotted a permanent account number under the Income-Tax Act, 1961. The trust is formed with charitable and educational goals. The petitioner had to apply for a provisional registration or approval under the Act as per the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, which amended the provisions relating to the application for the registration. As per the first and second proviso to Section 10(23C), Section 12A(1)(ac) and the first and second proviso to Section 80G(5) were amended.

As per the requirement, the petitioner applied for provisional approval in Form No. 10A to the respondent, seeking approval under clause (iv) of the first proviso to sub-section 5 of Section 80G of the Act on September 25, 2021. The petitioner was granted provisional approval on October 6, 2021. In the meantime, the petitioner commenced its activities on September 9, 2021, and therefore had to apply for regular approval or registration in Form No. 10AB within six months from the date of commencement, i.e., within six months from September 9, 2021.

While so, considering the difficulties faced by the assessees in electronically filing Form No.10AB, the first respondent, namely, the Central Board of Direct Taxes, issued Circular No.8 of 2022, dated March 21, 2022, by extending the date for filing applications for regular registration or approval till September 30, 2022. The time extension was granted in respect of the existing trusts and the new trusts for registrations under Sections 10(23C), 12A, and 80G(5).

Even within the extended time, the petitioner did not file Form No. 10AB and applied only on March 22, 2023. While so, considering the representations received from various trusts and institutions whose applications were rejected as beyond the time limit, to mitigate the genuine hardship faced by them, the respondent issued Circular No. 6 of 2023, dated May 24, 2023, once again extending the time limit granted.

While extending further time in respect of the existing trusts, time was extended both in respect of the proviso to clause (23C) of Section 10 or under sub-clause (i) of clause (ac) of sub-section (1) of Section 12A or under clause (i) of the first proviso to sub-section (5) of Section 80G of the Act until September 30, 2023. While the same extension is granted to the new trusts also in respect of the first proviso to clause (23C) of Section 10 or under sub-clause (iii) of clause (ac) of sub-section (1) of Section 12A, the time extension is not granted in respect of the first proviso to sub-section (5) of Section 80G.

The petitioner's application in respect of approval for the benefit under Section 80G(5) will not be considered within the time. Therefore, the petitioners' trust filed the Writ Petitions for declaration declaring clause 5(ii) of Circular No. 6 of 2023, dated May 24, 2023, insofar as it fails to extend the due date for making an application for approval under clause (iii) of the first proviso to sub-section 5 of Section 80G as arbitrary and ultra vires the Constitution of India.

The writ petitioners contended that the circular was discriminatory. Once the respondents decided to grant further time, extending in respect of the existing trusts alone in respect of both limbs and not in respect of the new trusts in respect of Section 80G would be violative of Article 14 of the Constitution of India. In the absence of approval under Section 80G, donors may not come forward, which ultimately would spell doom for the very existence of the petitioner trusts. No reason is given, and the decision is irrational.

The respondent contended that the original date of filing was extended until September 30, 2022, to grant an opportunity. The petitioner trusts ought to have filed their Form No. 10AB well within time, or at least within the extended time. However, considering various hardships, the time was further extended up to September 30, 2023. While granting further extension for the second time in respect of the new trusts, time was extended only in respect of registrations under Sections 10(23C), 12A, and not for approvals under clause (iii) of the first proviso to Section 80G(5). While extending the time, no extension was provided for approval under Section 80G5 for the institutions that are provisionally approved under the section.

The issue raised was whether or not the classification made by the respondents in the matter of grant of extension of time between the existing and new trusts and to apply for approval in respect of clause (i) of the first proviso to sub-section (5) of Section 80G is reasonable.

The court noted that even though the counter-affidavit attempted to furnish reasons for making the above distinction, ultimately, no reason for leaving out clause (i) of the first proviso to Section 80G5 in respect of the new trusts is given. The relevant paragraph No. 12 was extracted above. It only reiterates the eligibility of dedication and the amendments made to Section 115TD of the Finance Act, 2023. Thus, while we agree with the contention of the learned Additional Solicitor General of India that it is well within the powers of the first respondent board to extend time and it would also be well within the power of the first respondent board to make any classification between the trusts, ultimately, the court could not find any reason whatsoever in leaving out the new trusts in respect of approval under Section 80G alone.

“The differential treatment is not based on any substantial distinction that is real and pertinent to the object of the circular. The discrimination is artificial. The respondents are evasive and could not provide any rationale for such a classification. Accordingly, we hold that the impugned clause (ii) of the Circular, dated May 24, 2023, is arbitrary and violative of Article 14 of the Constitution of India and, accordingly, would be ultra vires the Constitution,” the court said.

Counsel For Petitioner: Suhrith Parthasarathy

Counsel For Respondent: AR.L.Sundaresan

Case Title: Sri Nrisimha Priya Charitable Trust versus Central Board of Direct Taxes

Citation: 2024 LiveLaw (Mad) 156

Case No.: W.P.Nos.27030, 27041, 27042, 27034, 27048, 27051 of 2023; 3248 and 3250 of 2024

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