2021 (1) TMI 214 - HC - Income Tax

Exemption u/s 12 denied - Condonation of delay in filing the Form no.10B by public charitable trust rejected - non e-filing of the audit report in the Form no.10B - HELD THAT - The approach in the cases of the present type should be equitious, balancing and judicious. Technically, strictly and liberally speaking, the respondent no.2 might be justified in denying the exemption under Section 12 of the Act by rejecting such condonation application, but an assessee, a public charitable trust past 30 years who substantially satisfies the condition for availing such exemption, should not be denied the same merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay on the authorities concerned. We may also refer to the decision of this Court in CIT v. Gujarat Oil and Allied Industries Limited 1992 (9) TMI 67 - GUJARAT HIGH COURT wherein it is held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment. This Court took the view that the benefit of exemption should not be denied merely on account of delay in furnishing the same and it is permissible for the assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by assigning sufficient cause. This writ-application succeeds and is hereby allowed. The impugned order passed by the respondent no.2 dated 19th August 2019 (Annexure-A to this writ-application) is hereby quashed and set-aside. The impugned rectification order at page-13 of the paper-book dated 12th February 2020 is also hereby quashed and set-aside. The delay condonation application filed by the writ-applicant before the respondent no.2 is hereby allowed. Writ-applicant is entitled to seek exemption under Section 12 of the Act.

Summary

Issues Involved:
1. Condonation of delay in filing Form No.10B.
2. Rejection of exemption under Section 12 of the Income Tax Act, 1961.
3. Application of Circular No.10/2019 by the Central Board of Direct Taxes (CBDT).
4. Procedural compliance and substantial justice in tax matters.

Detailed Analysis:

Condonation of Delay in Filing Form No.10B:
The writ-applicant, a public charitable trust, sought condonation of delay in filing Form No.10B for the Assessment Year 2016-17. The delay was attributed to the trustees' mistaken belief that the auditor was responsible for uploading the required documents. The trust only realized the oversight upon receiving a demand notice from the tax authorities. Despite filing the audit report immediately after the notice, the respondent no.2 rejected the application for condonation of delay, citing lack of reasonable cause and failure to meet the criteria outlined in CBDT's Circular No.10/2019.

Rejection of Exemption under Section 12 of the Income Tax Act, 1961:
The respondent no.2 denied the exemption under Section 12 of the Act due to the non-filing of Form No.10B within the stipulated time. The trust argued that the delay was a bona fide mistake and that substantial compliance with procedural requirements should suffice. The respondent no.2, however, maintained that the trustees failed to demonstrate genuine hardship or reasonable cause for the delay, emphasizing the importance of adhering to statutory deadlines.

Application of Circular No.10/2019 by the CBDT:
The respondent no.2 relied on Circular No.10/2019, which mandates that the Commissioner must be satisfied that the assessee was prevented by reasonable cause from timely filing Form No.10B. The trust's explanation that the trustees assumed the auditor had filed the form was deemed insufficient. The respondent no.2 emphasized that the trust's activities and financial magnitude warranted greater diligence in ensuring compliance with statutory requirements.

Procedural Compliance and Substantial Justice in Tax Matters:
The court highlighted the need for a liberal and equitable approach in matters of procedural compliance, especially for public charitable trusts. Citing various precedents, the court underscored that genuine hardship should be construed liberally and that substantial justice should prevail over technicalities. The court noted that the trust had consistently complied with tax requirements in previous years and that the delay in filing Form No.10B was an isolated incident.

Judgment:
The court quashed the impugned orders dated 19th August 2019 and 12th February 2020, allowing the delay condonation application. The court declared that the trust is entitled to seek exemption under Section 12 of the Act, subject to compliance with Sections 143(2) and 142(1) of the Act. The authorities were directed to give effect to the exemption and pass necessary consequential orders.

The court emphasized that the approach in such cases should be equitable and justice-oriented, balancing the need for procedural compliance with the principles of substantial justice. The judgment reflects a nuanced understanding of the interplay between statutory requirements and the broader objectives of tax law, particularly in the context of public charitable trusts.