Court Upholds Trust Registration from Application Date, Dismisses Revenue’s Appeal

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Case Name

Commissioner of Income Tax vs. Garment Exporters Association of Rajasthan (High Court of Rajasthan)

D.B. Income Tax Appeal No.711/2008

Date: 18th May 2016

Key Takeaways

1. Submission of audited accounts along with a trust registration application is directory, not mandatory.
2. An application without audited accounts is not considered defective.
3. Registration should be effective from the date of application submission if no other defects exist.
4. The court’s decision aligns with previous judgments from other High Courts on this issue.

Issue

Should the effective date of trust registration under Section 12AA (of Income Tax Act, 1961) be the date of initial application submission or the date when alleged defects (specifically, the absence of audited accounts) were rectified?

Facts

1. The assessee-respondent (a trust) applied for registration under Section 12AA(a)(ii) (of Income Tax Act, 1961).
2. The revenue authority pointed out a defect in the application, citing the absence of audited accounts.
3. The assessee later submitted the audited accounts.
4. The ITAT allowed registration from the date of the initial application submission.
5. The revenue appealed this decision, arguing that registration should be effective from the date the defect was cured.

Arguments

Appellant-Revenue:

• Registration should be effective from the date defects are removed, not the initial submission date of a defective application.
• Cited Section 12AA(a)(ii) (of Income Tax Act, 1961) to support their stance.
• Referenced the Gujarat High Court judgment in HeeraLal Bhagwati vs. Commissioner of Income Tax (246 ITR 188).

Assessee-Respondent:

• The application was complete when submitted; the defect was unnecessarily pointed out.
• Submitting audited accounts with the application is not mandatory under Section 12AA (of Income Tax Act, 1961).
• Cited judgments from Madhya Pradesh High Court, Punjab and Haryana High Court, and Calcutta High Court supporting their position.

Key Legal Precedents

1. Commissioner of Income Tax vs. Devradhan Madhavlal Genda Trust (230 ITR 714 MP)
2. CIT vs. Shahzedanand Charity Trust (228 ITR 292 Punjab and Haryana)
3. Commissioner of Income Tax vs. Hardeodas Agarwalla Trust (1992) 198 ITR 511 (Calcutta High Court)
4. CIT vs. Sri Baldeoji Maharaj Trust (1983) 142 ITR 584 (Allahabad High Court)

These precedents established that the requirement to submit audited accounts along with the application is directory in nature, not mandatory.

Judgment

The High Court dismissed the revenue’s appeal, upholding the ITAT’s decision. Key points of the judgment include:

1. The application was filed without any defect.
2. Submission of audited accounts along with the application is not mandatory but directory in nature.
3. The registration should be effective from the date of initial application submission.
4. The court found no error in the ITAT’s order.

FAQs

Q1: Why did the court rule in favor of the assessee?

A: The court determined that submitting audited accounts with the application is not mandatory, and therefore the initial application was not defective. This aligns with precedents set by other High Courts.

Q2: What is the significance of “directory” vs “mandatory” in this context?

A: When a requirement is directory, it’s a guideline rather than a strict rule. In this case, it means that while submitting audited accounts is recommended, failing to do so doesn’t invalidate the application or change its effective date.

Q3: How might this judgment affect future trust registration cases?

A: This judgment reinforces the principle that trust registrations should be effective from the date of initial application, even if audited accounts are submitted later. It may discourage revenue authorities from unnecessarily delaying registrations based on this particular issue.

Q4: What if there were other defects in the application besides the audited accounts?

A: The court noted that neither the Tribunal nor the revenue pointed out any other defects in the application. If there were other substantial defects, the outcome might have been different.

Q5: Does this judgment apply to all types of trusts?

A: While the judgment doesn’t explicitly limit its scope, it’s always best to consult with a legal professional for specific cases, as facts may vary and laws may change over time.

By this appeal, a challenge is made to the order of Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (in short “the Tribunal”) dated 29.02.2008.

Learned counsel for the appellant-revenue submits that as per Section 12AA(a)(ii) (of Income Tax Act, 1961), the registration of the Trust can be taken from the date of the application, if it is complete in all respect. If an application for registration of the Trust is submitted with defects and are cured later on, the registration would be treated on the date, the defect are removed. It cannot relate back to the date of submission of the defective application.

The Tribunal has allowed registration under Section 12AA(a)(ii) (of Income Tax Act, 1961) from the date of submission of the application with condonation of delay. The audited accounts were not submitted along with application and the defect aforesaid was cured later on. Learned Tribunal thus committed grave illegality while ignoring mandate of Section 12AA(a)(ii) (of Income Tax Act, 1961). In the light of the aforesaid, the order of the learned Tribunal may be set aside. A reference of the judgment of Gujrat High Court in the case of HeeraLal Bhagwati Vs. Commissioner of Income Tax, reported in 246 ITR 188 has been given.

Learned counsel appearing for the assessee- respondent has contested the case and submits that application for registration was submitted complete in all respect. The defect was yet pointed out showing absence of audited account which was not a condition precedent for submission of application for registration under Section 12AA (of Income Tax Act, 1961).

Learned Tribunal found that the defect was unnecessarily pointed out as filing of the audited accounts along with the application was not mandatory in nature and in absence of mandate to submit audited account along with the application, the registration is to be taken from the date of application. The application was wrongly considered to be defective. The order of the Tribunal is supported by the judgments of Madhya Pradesh High Court as well as of Punjab and Haryana High Court. A reference of the judgment of Allahabad High Court in the case of CIT Vs. Sri Baldeoji Maharaj Trust (1983) 142 ITR 584 has also been given. The similar issue was decided in favour of the assessee.

We have considered rival submissions of the parties and perused the record.

The facts available on record reveal that an application was submitted by the assessee for registration under Section 12AA(a)(ii) (of Income Tax Act, 1961). The issue for our consideration is as to what should be the effective date for acceptance of the application for registration.

According to learned counsel for the appellant-revenue, effective date of application for registration would be when the defects were cured. As against the aforesaid, assessee submitted that the application was submitted having no defect. The defect was unnecessarily pointed out by the revenue. The audited accounts were not required to be submitted along with application. The requirement of audited accounts along with the application was not mandatory but directory in nature. The issue aforesaid has already been decided by Madhya Pradesh High Court in the case of Commissioner of Income Tax Vs. Devradhan Madhavlal Genda Trust 230 ITR 714 MP and also by Punjab and Haryana High Court in the case of CIT Vs. Shahzedanand Charity Trust 228 ITR 292 Punjab and Haryana. A further reference of the judgment of Calcutta High Court in the case of Commissioner of Income Tax Vs. Hardeodas Agarwalla Trust reported in (1992) 198 ITR 511 has been given. The view expressed by different High Courts is about the requirement to submit audited accounts along with the application. The requirement is held to be directory in nature and not mandatory. If filing of the the audited accounts is not mandatory, the application submitted by the non-appellant cannot be said to be defective. The registration should have been allowed from the date the application was submitted and not from the date when alleged defects in the application were cured. The Tribunal and the revenue have not pointed out any other defect in the application than for filing of the audited accounts. The issue raised herein is covered by the judgments supra.

In the light of the aforesaid, we do not find it to be a case of relating back of the date of registration from the date of its filing. The application was filed without any defect and the audited accounts were submitted later on because submission of audited accounts along with the application was not mandatory.

In the light of aforesaid discussion, we find no error in the order passed by the Tribunal. Accordingly, appeal is dismissed.

(J.K. RANKA),J (M.N.BHANDARI),J

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All corrections made in the judgment/order have been incorporated in the judgment/order being e-mailed.

Sunita Kanwar

Jr.P.A.