ITAT Ruling on Trust Registration under Section 12AB
Trust registration under Section 12AB of the Income Tax Act is crucial for claiming exemption under Sections 11 and 12. But what happens if the application lacks a few documents? Can it be outright rejected? A recent ITAT Chennai Bench ruling brings clarity to this compliance dilemma.
Case Snapshot: ITAT Chennai Allows Fresh Adjudication
In the case of Hindustan Malayalee Samajam vs. CIT (Exemption), Chennai (ITA No. 160/CHNY/2023, decided on 30.06.2023), the Income Tax Appellate Tribunal ruled that:
“The Commissioner (Exemptions) cannot reject a trust’s application under Section 12AB merely due to non-filing of certain documents. Instead, a reasonable opportunity must be provided to furnish the documents or rectify deficiencies.”
What is Section 12AB?
Section 12AB, introduced via Finance Act, 2020, governs fresh registration or revalidation of charitable and religious trusts seeking tax exemption. It replaces the earlier Section 12AA.
Key Points about Section 12AB:
- Applicable to both new and existing trusts.
- Mandates application in Form 10A or Form 10AB (as per Rule 17A).
- Once approved, registration is typically valid for 5 years.
- Trusts must comply with annual return filing (ITR-7) and activity declarations.
What Documents Are Required with Form 10AB?
While filing Form 10AB, trusts must typically attach:
- Copy of PAN
- Trust deed or registration certificate
- FCRA certificate (if applicable)
- Financial statements of last 3 years
- Activity reports
- Details of trustees and beneficiaries
However, ITAT has clarified that minor omissions should not be grounds for denial without giving a fair chance to comply.
ITAT Verdict: Practical Implications
Why this Ruling Matters:
- Prevents arbitrary rejections: Officers cannot summarily reject without reasonable cause.
- Upholds natural justice: Opportunity to respond is mandatory under law.
- Helps genuine trusts: Especially newer or smaller NGOs that may lack immediate documentation.
Legal Reference:
- Section 12AB(1)(a)(ii): Allows Principal Commissioner or Commissioner to call for documents before granting approval.
- CBDT Circular No. 11/2022: Clarifies procedural aspects for re-registration under 12AB.
- Rule 17A of Income-tax Rules, 1962: Governs forms and details required.
Expert Tip: Avoid Common Pitfalls While Applying
Chartered Accountant Shweta Rao explains:
“Many trusts forget to attach activity reports or furnish old audited accounts. While these may seem minor, they can delay approval. But this ruling helps — as long as intent is genuine, procedural lapses can be rectified.”
Step-by-Step: How to Respond to 12AB Rejection
If your application under Section 12AB has been rejected:
- Review the rejection order – Identify which documents were missing.
- File an appeal – To ITAT within 60 days under Section 253(1).
- Alternatively, request the Commissioner for reconsideration with full documents.
- Keep communication records – Email trails or acknowledgements help defend your case.
- Seek expert help – A CA or tax advisor can streamline the resubmission.
Summary
The ITAT ruled that trust registration under Section 12AB cannot be rejected solely due to non-submission of certain documents. Authorities must provide the trust a reasonable opportunity to comply before denial.
FAQs
Q1. Can a trust reapply under Section 12AB after rejection?
Yes. With proper documentation and if no fraud is involved, you can reapply or appeal to ITAT.
Q2. Is Form 10AB mandatory for re-registration of existing trusts?
Yes, especially if your initial 5-year period is ending or if you’re seeking regular registration post provisional approval.
Q3. What’s the difference between 12AA and 12AB?
12AA is no longer operational. Section 12AB governs all fresh or renewed trust registrations post-April 1, 2021.
Final Thoughts
This ITAT judgment reinforces the importance of procedural fairness in trust registration under Section 12AB. It’s a win for genuine charitable organisations that may falter on minor paperwork but operate in good faith. If your trust faces rejection, don’t panic — you have the legal right to correct and reapply.