2010 (1) TMI 656 - AT - Income Tax

Condonation of delay Registration u/s 12AA - rejected the condonation petition and granted its registration only with effect from 1.4.2007 initially - During financial year 2006-07, it had given help and aid to the needy and also maintained and helped in construction of a public place of worship - In relation to applications made before 1st day of June, 2007, the Commissioner of Income Tax if he is satisfied that the person in receipt of income was prevented from filing the application, within the time allowed under section 12A(1)(a) for sufficient reason, condone the delay and grant the registration from an earlier date - Reason given by the assessee is ignorance of law, not having any worthwhile receipts in the initial years, and a belief that corpus donations were not taxable - In any case, knowledge of all statute laws cannot be presumed as held by Hon ble Apex Court in the case of Motilal Padampet Sugar Mills Co. Ltd. v. State of UP. reported in 118 ITR 326 Accordingly the delay ought to have been condoned and assessee granted registration from the date of inception - Appeal is allowed

Summary

Issues:
Delay in filing application for registration under section 12AA of the Income-tax Act, 1961.

Analysis:
The appellant, a Trust, sought registration under section 12AA from the inception in September 2001 but was granted registration only from 1.4.2006 by the CIT. The Trust filed a revised application in September 2006, seeking condonation of delay due to various reasons such as lack of awareness about tax laws, belief that corpus donations were not taxable, and consultation with a Chartered Accountant in March 2006, which led to the revised application. The CIT initially granted registration from 1.4.2007 but later rectified it to 1.4.2006 in a section 154 proceeding. The Trust appealed against the CIT's refusal to condone the delay, citing denial of natural justice and lack of opportunity to present its case.

In the subsequent proceedings, the CIT refused to condone the delay based on reasons like ignorance of law, corpus donations reflected in bank balances, lack of charitable activities in certain years, and citing court decisions regarding charitable activities. The appellant argued that all its activities were charitable, trustees did honorary work without benefits, and denial of registration from inception led to significant tax demands, halting its activities. The appellant contended that the delay should have been condoned considering the noble nature of its objects and charitable activities from 2006-07 onwards.

The tribunal found the Trust eligible for registration under section 12AA with noble objectives and vigorous pursuit of charitable activities. The reasons given by the Trust for delay, such as ignorance of law and building up corpus donations before charitable activities, were deemed valid. The tribunal disagreed with the CIT's reasoning that trustees should have been aware of tax laws, emphasizing that trustees' belief in non-taxability of donations was reasonable. The tribunal highlighted the importance of considering the wider impact on beneficiaries and avoiding miscarriage of justice when deciding on condonation of delay. The tribunal quashed the CIT's order, directing the grant of registration from the Trust's inception date.

The tribunal distinguished the court decisions cited by the CIT, noting differences in facts and circumstances. The tribunal emphasized that the Trust's case was distinct, with no collection from employees or income generation for trustees, unlike the cases referenced. Ultimately, the tribunal allowed the appeal, directing the CIT to grant registration from the Trust's inception date, emphasizing the Trust's charitable nature and the need to prevent injustice and benefit society at large.