Registration of Trust under Income Tax - Analysis of New Provisions

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Analysis of new provisions of registration of trust under Income Tax as per section 12A and 12AB of Income Tax Act

1. Introduction

The Finance Act, 2020 introduced various amendment related to the registration of Charitable trust and Religious trust for availing the exemption u/s 11 and 12 of the Income Tax Act, 1961 (“the Act”). Thereby, the legislature introduced section 12AB in the Act and made erstwhile provision of registration (i.e. section 12AA) inoperative.
The provisions of section 12AB was proposed to become operative w.e.f 01/04/2020. However, due to COVID-19 pandemic, the date was extended and later on the provisions of said section were substituted by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 which are now applicable from 01/04/2021.

Registration of Trust under Income Tax - Analysis of New Provisions

2. Purpose

The main aim of these amendments is to ensure that conditions precedent to the registration is adhered to. Further, it was stated in the Memorandum to the Finance Bill, 2020 that;

“the present process of registration of trusts, institutions, funds, university, hospital etc under section 12AA or under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, and approval of association, university, college, institution or company etc need improvement with the advent of technology and keeping in mind the practical issue of difficulty in obtaining registration/ approval/ notification before actually starting the activities.”

Earlier, the registration u/s 12AA was valid for life long unless the registration is cancelled under sub-section (3) or (4) of section 12AA of the Act. However, under the new regime, the period of registration is limited (i.e. 5 years or 3 years, as discussed in this article) which require compulsory re-reregistration / renewal of registration after expiry of period of 5 years or 3 years for availing the exemption u/s 11 & 12 of the Act.

3. Procedure of Registration

For ease of understanding, the forthcoming portion of article is divided into following three parts:

Trust already registered u/s 12AA as on 01/04/2021
Application for registration u/s 12AA is pending as on 01/04/2021
Trust is not registered u/s 12AA as on 01/04/2021 and willing to get registration

The procedure of each part is explained as under;

1. Trust already registered u/s 12AA as on 01/04/2021

Description	Remarks
Relevant Provision of the Act	Within three months from the 1st day of April, 2021. Therefore, the trust which is already registered u/s 12AA as on 01/04/2021 are required to file an application for registration on or before 30/06/2021 - Section 12A(1)(ac)(i)
Relevant Rule	Rule 17A(1)(I) as amended by Income-tax (6th Amendment) Rules, 2021
Relevant Form and Manner of Filing	Form 10A through online income tax portal. It is relevant here to state that Form 10A is common form for making various applications as stated in section 12A(1)(ac) or 10(23) or 80G(5). Therefore, at the beginning of said form the relevant section code is required to be mentioned carefully, else, application may be treated as non est.
Who can sign and how to sign	The said Form 10A shall be verified by the person who is authorized to verify the return of income u/s 140. The Form shall be verified using- a. Digital Signature (if the return of income is required to be furnished under digital signature) b. Electronic Verification Code (EVC) in other cases.
Document Required	a. Self-Certified copy of Instrument creating or establishing such trust (generally, Memorandum of Trust is required to furnish) b. If document not available as stated in (a) above, then document evidencing the creation or establishment of the Trust c. self-certified copy of registration with Registrar of Public Trusts d. self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010, if the trust is registered under such Act e. self-certified copy of existing order granting registration under section 12A or section 12AA f. self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA (if applicable) g. self-certified copies of the annual accounts along with audit reports (not more than preceding three years). h. where a business undertaking is held by the applicant as per the provisions of sub-section (4) of section 11, then accounts of such business and Tax Audit Report of Such business (not more than preceding three years). i. self-certified copy of the documents evidencing adoption or modification of the objects / resolution passed for adoption of such modification. j. note on the activities of the applicant k. Copy of PAN or AADHAAR of all trustees, founder, author or settlor. In case neither PAN nor AADHAAR is available then, any of following documents are required to be furnished i. Taxpayer Identification Number of the country where the person resides; ii. Passport number; iii. Elector's photo identity number iv. Driving License number v. Ration card number
Whether Commissioner can call further information to satisfy himself about the genuineness of activities of the trust or compliance with applicable law?	The trust which are already registered u/s 12AA as on 01/04/2021 shall have to simply file an application u/s 12AB by submitting requisite documents. The Principal Commissioner or Commissioner have not given discretionary power under this section to call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects.
Time limit for making an application	As discussed hereinabove, the trusts which are already registered u/s 12AA as on 01/04/2021 are required to file an application for registration on or before 30/06/2021
Time limit for passing an order	Within three months calculated from the end of the month in which the application was received. [Sec. 12AB(3)]. Here it is very crucial to understand that the time limit for passing an order this section is three months calculated from the end of the month in which the application was received and the time limit for making an application is three months i.e. on or before 30/06/2021. There is tendency in the department that they pass all time barring matters on due date, therefore, the applicant should ensure that the application is correct in all respect and all the required documents are attached otherwise timeline provided in the Act for making fresh application will be lapsed.
Validity of Registration	The registration granted u/s 12AB(1)(a) shall be valid for the Five Years (subject to section 12AB(4) or 12AB(5) which provide cancellation of registration by the commissioner)
Consequences	- If the Trust, fails to Furnish the application within the stipulated time as discussed above or - furnish incorrect information or select wrong form or does not attached required documents (which may lead to rejection of application) and the time limit for making fresh application is expired as per provisions of the section 12A(1)(ac)(i) then the trust has required to make an application u/s 12A(1)(ac)(vi) to get provisional registration and then immediately (within the six months; as the activities are going on) the trust has required to make an application u/s 12A(1)(ac)(vi) by following the procedure u/s 12AB(1)(b) to get regular registration

2. Application for registration u/s 12AA is pending as on 01/04/2021

Description	Remarks
Relevant Provision of the Act	Section 12AB(2) and 12A(1)(ac)(vi) (refer the section 12AB(2) which provides that All applications, pending before the Principal Commissioner or Commissioner on which no order has been passed under clause (b) of sub-section (1) of section 12AA before the date on which this section has come into force, shall be deemed to be applications made under sub-clause (vi) of clause (ac) of sub-section (1) of section 12A on that date.)
Relevant Rule	Rule 17A(1)(I) as amended by Income-tax (6th Amendment) Rules, 2021
Relevant Form and Manner of Filing	Not applicable as form has been already submitted
Who can sign and how to sign	Not applicable as form has been already submitted
Document Required	No additional documents required to be submitted unless called.
Time limit for making an application	Not Applicable as the application has been already submitted.
Time limit for passing an order	Within one month calculated from the end of the month in which the application was received. [Sec. 12AB(3)].
Validity of Registration	The trust would get provisional registration which would be valid for the 3 years – Section 12AB(1)(c) However, where the trust or institution has been provisionally registered under section 12AB, then such trust has required to get fresh registration at least six months prior to expiry of period of the provisional registration (or) within six months of commencement of its activities, whichever is earlier – Section 12A(1)(ac)(iii)
Consequences	Not Applicable as the application has been already submitted.

3. Trust is not registered u/s 12AA as on 01/04/21 and willing to get registration

Description	Remarks
Relevant Provision of the Act	Section 12A(1)(ac)(vi)
Relevant Rule	Rule 17A(1)(I) as amended by Income-tax (6th Amendment) Rules, 2021
Relevant Form and Manner of Filing	*same as discussed above in part 1*
Who can sign and how to sign	*same as discussed above in part 1*
Document Required	*same as discussed above in part 1*
Time limit for making an application	The application can be furnished at least one month prior to the commencement of the previous year relevant to the assessment year from which the said registration is sought. Further, Rule 17(7) provides that in case of an application made under sub-clause (vi) of clause (ac) of sub-section (1) of section 12A during previous year beginning on 1st day of April, 2021, the provisional registration shall be effective from the assessment year beginning on 1st day of April, 2022.
Time limit for passing an order	Within one month calculated from the end of the month in which the application was received. [Sec. 12AB(3)].
Validity of Registration	The trust would get provisional registration which would be valid for the 3 years – Section 12AB(1)(c). Further, the provisional registration is not covered under the rigor of provision of section 12AB(4) & 12AB(5) i.e. the provisional registration cannot be cancelled under those provisions. However, where the trust or institution has been provisionally registered under section 12AB, then such trust has required to get fresh registration at least six months prior to expiry of period of the provisional registration (or) within six months of commencement of its activities, whichever is earlier – Section 12A(1)(ac)(iii)
Consequences	Section 12A(1)(ac)(vi) is residuary provision and provides that in any other case the application shall be made at least one month prior to the commencement of the previous year relevant to the assessment year from which the said registration is sought. Further, Rule 17(7) provide relaxation on for the PY 2021-22, therefore, the trust has required to make prior planning in order to obtain registration u/s 12AB. However, we can expect suitable amendment in due course.

4. Cancellation of Registration and Other Issues

The registration provided under clause (a) and (b) of section 12AB(1) are subject to section 12AB(4) and 12AB(5) i.e. the registration provided under those clauses can be cancelled by the Commissioner if he is satisfied that the

activities of such trust or institution are not genuine or
are not being carried out in accordance with the objects of the trust or institution or
the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13; or
the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality
- However, the commissioner should afford a reasonable opportunity of being heard, before cancelling the registration of the trust.
- Further, it is advisable that the provisional registered trust should get regular registration before accepting any substantial donation. Section 12A(1)(ac)(iii) provides that the provisional registered trust should get regular registration within six months of commencement activity. However, if during such buffer period, the trust accepts substantial donations and could not get registration due to any reason, then such donation would attract the provisions of section 56(2)(x).

5.Conclusion

Undoubtedly, these new provisions have imposed additional compliance burden on the Charitable and Religious Trusts. Further, these new compliances, as discussed above, are time bound compliances which are required to be done within the given time frame.
Further, upon every renewal of registration / fresh registration, the legislature has provided the discretionary power to the Commissioner to call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about to check the genuineness of activities of the trust or institution and the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects. So, this could be assumed as compulsory scrutiny of trust in every five years.
Therefore, in the upcoming time, we may see many litigations on these new provisions.

6. Disclaimer

The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor the publisher or its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

The author can also be reached at harchandanimanish@gmail.com

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