Tax Officer can't reject exemption claim of a charitable institution

Tax Officer can't reject exemption claim of a charitable institution
Income Tax , by Kanishka and Associates  on : Oct. 10, 2018

Income Tax

Has tax officer rejected exemption claim of your charitable institution? Has he rejected because you didn't file the audit report (form 10B) along with your Income Tax return? If yes, then please don't worry and read this ripple. In this ripple, I have sited some case-decisions where courts have allowed the exemption claim, although the assessee couldn't file (or filed later) the audit report.

12A registration is not enough

Did you know that mere registration under section 12A isn't enough to claim your charity's income as exempt?

Registration under section 12A only entitles your charity to claim the exemption.

If your charity wants to claim income tax exemption then it has to follow some specific rules.

Not following those rule would disable your charity's tax exemption.

Some conditions:

One of such condition is placed under section 12A(1)(b).

Section 12A(1)(b) demands that the charity should get its accounts audited. And submit the audit report before (or along with) income tax return of the charity.

In short, if your charity doesn't submit the audit report then it can't claim exemption.

So, before you file your charity's return, you should always file the audit report. This audit report is electronically filed at the income tax departments efiling website (www.incometaxindiaefiling.gov.in)

In case, if you can't file audit report along with your charity's tax return and get notice from your income tax department then please do respond.

A judgement to help you:

You may use the judgement of the High Court of Madhya Pradesh in the case of CIT vs Shri Devradhan Madhavlal Genda Trust (MCC No. 138 of 1990) on Feb 26, 1996 to prove your point.

It was decided in that case that

  • If audit report is filed but after filing the return then exemption should be allowed.
  • If audit report is not filed then exemption may not be allowed.


The judgement is -

"It is clear that where law permits the filing of the return at a stage beyond the prescribed date, it is natural to assume that any report required by law to be appended to the return can be furnished at any time during which it is permissible to file the return beyond the due date, subject to the other provisions of the Act and the Rules such as the provisions of sub-s. (8) of s. 139. Under these circumstances, if the audit report is not at all filed, there would be justification to reject the claim for exemption under s. 11 but if the same has been filed, even after the return has been filed but within the period permitted by law, it would be against the spirit of the Act to deny exemption. The requirement is, thus, directory and the Tribunal was justified in holding that filing of the audit report in Form No. 10B with the return of income was not mandatory and it was sufficient compliance with s. 12A(b), if the same was filed during the course of the assessment proceedings."

You can use these words:

While drafting your response you may mention that

  • provisions of section 12A(1)(b) are directory in nature. They aren't mandatory.
  • whether a provision is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed. (This was held by HC of Punjab and Haryana in the case of CIT vs Punjab Financial Corporation, IT appeals # 189 of 1999 & 83 of 2001)


Improper advice:

And if you haven't filed audit report, then try to revise your charity's return and submit the tax audit report along-with. Perhaps this may save you.


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