Court Sets Aside ITAT's Decision, Orders Commissioner of Income Tax to Re-evaluate Application Citing Circular No. 7/2024
In a significant ruling, the Kerala High Court has set aside the decision of the Income Tax Appellate Tribunal (ITAT), Kochi, and directed the Commissioner of Income Tax (Exemptions) to reconsider an application for registration under Section 12A of the Income Tax Act, 1961, filed by Atma Bodhodaya Sangham Sree Subhananda Trust. The Trust, which has been engaged in charitable activities since its original registration in 1988, found itself embroiled in a registration conundrum due to an alleged system error that resulted in a provisional registration under Section 10(23) for the year 2020-21 instead of the intended Section 12A.
The Trust's counsel argued that the error was an inadvertent system glitch and sought retrospective registration under Section 12A, leaning on Circular No. 7/2024 issued by the Central Board of Direct Taxes (CBDT). This circular permits rectification applications in cases where registration was rejected due to filing under the wrong section code.
The ITAT, however, had previously dismissed the Trust's appeal, stating that Section 12A does not allow for retrospective registration. The High Court, comprising Justices Devan Ramachandran and Basant Balaji, noted the importance of assessing the impact of Circular No. 7/2024, which was not adequately considered by the Tribunal.
The court recognized that had the Trust's application for 2020-21 been rejected due to the wrong section code, the circular would have allowed a fresh application. Since the registration was initially granted under the wrong section, this created a unique situation which the court deemed necessary to be reassessed by the competent authority.
The High Court's judgment emphasized the need for the Commissioner of Income Tax (Exemptions) to re-evaluate the Trust's application from 01.04.2021, taking into account the circular and the specific circumstances of the case. The court has set a three-month deadline for the authority to complete this exercise, ensuring due consideration is given to the Trust's submissions and the circular's applicability.
Bottom line:-
Income Tax Act, 1961 - Registration under Section 12A - Charitable Trust seeking retrospective registration - Error in system leading to wrong registration under Section 10(23) - Circular No. 7/2024 permits rectification application till 30.06.2024 in specific cases - Competent Authority directed to reconsider the application for registration from 01.04.2021.
Statutory provision(s): Income Tax Act, 1961 Section 12A, Section 10(23), Circular No. 7/2024.
