Certified Uncertainty

Tax exemption of incomes of religious and charitable trusts/ institutions is governed by Sections 10 (23C) (iv) and (v) and Sections 11 to 13 of the Income Tax Act 1961. One of the requirements in this context is registration of the organisation claiming exemption with the income tax department. It is this procedural requirement which has caused lot of confusion in matters of tax exemption.

Section 10 (23C) (iv) provides that income of any fund or institution established for charitable purposes would be exempt from tax, keeping in view the objects of the institution. Similar exemption has been conferred under Clause (v) where the trust or institution is notified, having regard to the manner in which its affairs are administered and supervised, for ensuring that the income accruing thereto is properly applied for the objects thereof.

Sections 10 (23C) (iv) and (v) of the IT Act do not prescribe that for such a notification to be issued, registration is necessary. All that is required is that an application be made to the central government in the prescribed form (Form No.56), alongwith the requisite documents. If the central government is satisfied that the institution qualifies for tax exemption notification, it issues such a certificate. There is no procedure for registration in such cases.

Registration in regard to the religious and charitable trusts is necessary in cases where exemption is sought for under Section 11 of the Income Tax Act. Section 12A of the IT Act provides that all types of trusts are required to be registered with the commissioner of income tax within one year from the date of creation of the trust in terms of section 12AA of the IT Act.

Section 12AA provides that where the commissioner is satisfied that there was sufficient cause of delay in making the application, the registration would be retrospective from the date of creation of the trust, while in belated registration cases, the registration would be granted from the first day of the financial year in which the application is made. The Finance (No.2) Act 1996 amended the last words of Section 12AA by substituting whichever is later by the words whichever is later and such trust or institution is registered under Section 12AA.

Thus, registration now is a pre-condition for availing of the benefit under Section 11 of the IT Act 1961.

Section 12AA, introduced in the IT Act 1961 by the Finance (No.2) Act 1996 with effect from 1.4.97, provides that the commissioner shall call for documents and information and hold an enquiry regarding the authenticity of the institution. After he is satisfied about the charitable or religious nature of the objects and activities of the institution, he will pass an order for registration. Otherwise, he will pass an order refusing registration within six months, subject to the condition that an opportunity of being heard shall be provided to the applicant before an order of refusal to grant registration is passed and the reasons for refusal of registration shall be mentioned in such an order.

The heading of Section 12AA is procedure for registration, and hence it would apply to all pending applications on the date of its coming into force. It implies that all applications that were pending on the said date should have been disposed off within six months, and if no orders have been passed within such time limit, the presumption would be that registration has been granted if no query was received, or was received but not complied with during this six-month period.

Therefore, no adverse view can be taken against an institution merely on the ground that it does not possess a certificate of registration under Section 12A from the income tax department, if the application in this regard has already been filed in the past. The tax department, obviously, cannot take advantage of its own inaction in adopting a view prejudicial to the institution and denying it the benefit of exemption.

No adverse view can be taken against a trust merely on the ground that it does not possess a certificate of registration, if the application in this regard has already been filed in the past.