Registration u/s 12A essential for tax exemption

Income Tax
Appellate Tribunal (ITAT) in the case of ‘Bulandshahr Development Authority Vs
Addl. Commissioner of Income tax’ (Appeal No. 2686/Del/2016) has held in a
recent order dated 4th December 2017 that exemption under sections
11 to 13 cannot be claimed by the Assessee in absence of Registration u/s 12AA.
In other words,
unless a public charitable trust, a society registered under the Act of 1860 or
a company registered u/s 8 (formerly u/s 25) of the Indian companies Act has
registration with the Income tax u/s 12A, it cannot claim tax exemption and in
the absence of such registration it would be assessed as an Association of
Persons (AoP) at the Maximum Marginal Rate (MMR) of tax.
Section 12A of the
Income tax Act 1961 deals with registration while section 12AA deals with the
procedure for registration. 
Once registration is granted, it would hold good
till such time that it may be either suspended or cancelled. In other words
Registration u/s 12A does not require periodic renewal.

Procedure for applying for registration
The application
for registration should be filed with the jurisdictional commissioner of Income
tax (exemptions) as prescribed under Rule 17A of Income Tax Rules 1962, in Form
10A together with documents evidencing creation of trust or the establishment
(copy of the trust deed or Memorandum of Association & Rules, registration
certificate issued by charity commissioner or registrar of societies or
registrar of companies).
Copy of the NGO’s PAN should also be submitted along
with the audited financial statements accounts, if any.

Procedure for granting registration
Upon the receipt
of application for registration u/s 12A of the Income Tax Act, the income tax commissioner
has to be satisfied about the genuineness of the activities of trust and may call
for various documents and information as he may consider necessary to satisfy himself
about the genuineness of the activities of trust.
After satisfying
himself about the objects of the trust or institution, the commissioner may pass an order granting registration u/s 12A. If he is not satisfied, he is
required to issue an order in writing refusing to register the trust. Applicant
would, however, be given an opportunity to be heard before passing the order of

Deemed Registration
As per Section
12AA(2), every order granting or refusing registration shall be passed before
the expiry of six months from the end of the month in which the application was
The Supreme Court
on February 16, 2016 held in the case of CIT vs. Society for the Promotion of
Education, Adventure Sport & Conservation of Environment that non-disposal
of an application for registration before the expiry of six months as provided
u/s 12AA (2) results in deemed grant of registration.

CBDT’s Instruction regarding speedy disposal of applications
The Central Board
of Direct Taxes (CBDT) too has issued Instruction (No. 16 of 2015 dated
06.11.2015) in which it has taken a stern view of the fact that the time limit
of six months specified in section 12AA(2) of the Income-tax Act 1961 for
passing an order granting or refusing registration u/s 12AA are not being
adhered to by the Commissioners of Income Tax (Exemptions). 
The CBDT has
directed the Chief Commissioners to monitor that the Commissioners adhere to
the time limit and to take suitable administrative action in case of laxity.

Cancellation of Registration granted u/s 12A
granted u/s 12A can be cancelled under the following circumstances:
  • The activities of
    such trust or institution are not genuine.
  • The activities
    are not being carried out in accordance with the objects of the trust or
  • The trust’s
    income does not enure for the benefit of the general public.
  • It is for the
    benefit of any particular religious community or caste.
  • Any income or
    property of the trust is applied for the benefit of specified persons like
    author of trust, trustees etc.
  • Its funds are
    invested in prohibited modes.

It is however
provided that registration will not be cancelled if the trust or institution
proves that there was reasonable cause for carrying out activities in said

Amendment under Finance Act 2017
Clause (ab) has
be inserted after clause (aa) of sub-section (1) of section 12A vide Finance
Act 2017, to the effect that where a trust or an institution has been granted
registration and subsequently it has adopted or undertaken modifications of the
objects which do not conform to the conditions of registration, the trust or
institution shall be required to obtain fresh registration by making an
application within a period of thirty days from the date of such adoption or
modifications of the objects in the prescribed form and manner.

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