Registration u/s 12A: New Procedure under Income Tax Act

, Last updated: 24 April 2021
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In India, Trusts are set up for the social causes and are approved by the Income Tax Department. The legal framework in India recognizes activities including "relief of the poor, education, medical relief, preserving monuments and environment, and the advancement of any other object of general public utility" as charitable purposes. They are eligible not only for exemption but the donors to such trusts can also claim deduction of the amount of donation to such recognised trusts from their taxable income. However, there have been cases when the benefits provided to such organisations have been misused and in order to curb this, Government have been trying to bring in changes/ amendments to the way such trusts are subjected to tax.

Against this backdrop, a new registration regime is brought in by Finance Act, 2020 by replacing Sec. 12AA with new Sec. 12AB. The new provisions have removed the concept of perpetuity and have provided that the registration of even existing organizations registered u/s 12A and 12AA would be renewable after 5 years. The important amendments in the manner and time limit of registration of charitable trusts, its validity u/s 12AB, online procedure etc.

It also clarifies about the verification procedure of Form No. 10A/ 10AB and the documents which are required for registration along with it. It clarifies that on non-registration under the new provision would not amount to cancellation of registration but the registration earlier granted would merely become inoperative on the expiry of the time period.

'Gone of the days for bogus entities trying to make personal profits through bogus entities under the guise of charitable organizations' .

'Registration u/s 12A - New Procedure under Income Tax Act' Introduction

Charity or philanthropy has always been virtue of the mankind. In the Indian tax jurisprudence, the entities engaged in charitable activities have always enjoyed benefits in the form of exemptions and deductions in one form or the other.

Under the Provisions of Sec 12A/12AA of Income Tax Act, Charitable & Religious Trusts and Institutions are required to obtain registration under section 12A/12AA of the Income Tax Act, 1961 (hereinafter called 'Act'), In order to claim the benefit u/s 11 of the Income tax Act that the income of the said organization be excluded from total income as defined u/s 2(45) of the Income Tax Act. Prior to section 12AA coming into force, such trusts were required to obtain registration under section 12A. The registration so obtained under the above sections is a one-time registration and is valid for perpetuity unless and until revoked by the issuing authority.

The process as laid down by the above sections has been in vogue from many years and a large number of charitable and religious organizations have obtained registration under the act and have been enjoying the benefits under the act for quite some time and at times the benefits so provided have also been misused by some organizations. To curb the misuse, Government has been bringing about many changes to the way the organizations are subject to tax and in the process has brought out amendment to the way such charitable/religious organizations are registered with Income Tax authorities by making changes to Sec 11(7) and by introducing a new Sec 12AB in Finance Act 2020.

Also, the Government has no comprehensive data of all entities registered under the IT Act claiming exemptions under various sections of Income tax Act, 1961 and therefore to have a complete and authenticated data brought various amendments into the statute regarding registrations and approvals to such institutions/trusts. Similar amendments are also brought in for sections 10(23C) (vi), 80G & 35AC for grant of registration/approval under the said sections. Also, to claim deductions by the donors under section 80G and 35AC certain statutory obligations also imposed on such recognized institutions/trusts.

The Amendments so brought out have changed the procedure with respect to registration/re-registration in substantial manner which are briefly discussed below.

Analysis of New Registration regime

Previously, Registrations granted under section 12AA or section 12A were perpetual in nature unless cancelled by the Principal CIT or CIT ('Competent authority') under the provisions of sub section (3) & (4) of section 12AA. New provisions introduced by the Finance Act, 2020 have removed the concept of perpetuity and have provided that the registration of even existing organizations registered u/s 12A and 12AA of the Income Tax Act would be renewable after 5 years.

Important amendments in the matter of registration of charitable trusts etc. are discussed hereunder

S.No	Type		Details
1	Already registered Trusts etc.- section 12A(1)(ac)(i)	(a)	It has been provided under section 12A (1)(ac)(i) read with section 12AB of the Act that the trusts etc. registered under section 12A or 12AA, have to apply for fresh registration by filing such form online within a period of three months from the date of coming into force of Sec 12AB. Compliance date starts on & from 1.04.2021 as described above. It means that hither-to-fore registered charitable trusts etc. which were registered under section 12A or 12AA would have to apply for fresh registration under section 12AB within three months from 1.04.2021 viz. on or before 30.06.2021 failing which the registration granted earlier would cease to operate. The form prescribed for the above is Form 10A
		(b)	The process of re-registration provided under section 12A(1)(ac)(i) read with section 12AB(1)(a) would not involve any enquiry to be undertaken on the part of the competent authority and fresh registration would be granted in an automatic manner within a period of 3 months from the end of the month in which such application of the registration is received by the competent authority. Such fresh registration would be effective for every 5 years. Clause (a) of first proviso to Section 12A(2) says that the provisions of section 11 & 12 would apply from the assessment year from which such trust was earlier granted registration which means the five assessment years would begin from A.Y. 2022-23. At the time of renewal after 5 years, applications would have to be made for registration in future at least 6 months prior to the expiry of such period as per under section 12A(1)(ac)(ii).
		(c)	The amended provision speaks for renewal or re- registration in those cases where such trusts etc. are registered under section 12A or section 12AA. It does not seem to cover such trusts etc. which are deemed to be registered in view of the decision of Hon'ble Supreme Court in the case of CIT vs. Society for the Promotion of Education Adventure Sports & Conservation of Environment due to non-disposal of registration application within the prescribed time period. This position is further clear from the language of sub section (2) of section 12AB according to which all applications pending on which no order under section 12AA(1)(b) was passed, would be treated as applications under the residuary clause viz. section 12A(1)(ac)(vi).
		(d)	There may be cases where registration applications filed earlier under section 12AA was rejected but on first appeal preferred by such trusts etc., and Tribunal might have remitted the matter of registration back to the file of the competent authority to decide afresh but no fresh order has been passed in this regard by the competent authority. All applications pending on which no order under section 12AA(1)(b) was passed after the set-aside order of the Tribunal, would be treated as applications under the residuary clause viz. section 12A(1)(ac)(vi) read with section 12AB(2). In any case such applications should be deemed to be pending under section 12AB(2) and would be granted provisional registration for 3 years within one month from the said date 01.04.2021. Since, these trusts may already be undertaking charitable activities, such trusts may have to apply for final registration under section 12A(1)(ac)(iii) within 6 months from 01.04.2021 by taking that date as the date of commencement of charitable activities. In such cases, enquiry would be conducted by the competent authority as detailed in subsequent paragraphs. However, if considerable time, say more than six months since the order of the Tribunal, has elapsed, such trusts etc. may treat themselves as deemed registered due to non-disposal of the application in view of the decision of Hon'ble Supreme Court (supra) and may instead apply for registration under section 12A(1)(ac)(i).