Judicial Relaxation on Form 10 Filing for Charitable Trusts: Uttrakhand Shiksha Bharti Society v. ITO (Exemptions), Dehradun

Introduction

The case of Uttrakhand Shiksha Bharti Society v. The Income Tax Officer (Exemptions), Dehradun scrutinizes the procedural compliance requirements for charitable trusts under the Indian Income Tax Act, 1961. The appellant, Uttrakhand Shiksha Bharti Society, a registered charitable organization, sought exemption under sections 11, 12A/12AA, and 13 of the Act for the Assessment Year (AY) 2016-17. The core dispute revolved around the non-timely filing of Form 10, a mandatory requirement for trusts seeking tax exemptions related to income accumulation and utilization.

The primary parties involved were:

• Appellant: Uttrakhand Shiksha Bharti Society, Nanital, PAN: AAATU2461K
• Respondent: The Income Tax Officer, Dehradun

The critical issue was whether the failure to file Form 10 electronically by the stipulated deadline justified the disallowance of the claimed exemption, considering the subsequent corrected filing during the assessment proceedings.

Summary of the Judgment

The Income Tax Appellate Tribunal (ITAT) Bench in Dehradun, comprising Shri Anil Chaturvedi, Accountant Member, and Shri N.K. Choudhry, Judicial Member, delivered its judgment on June 30, 2022. The Tribunal overturned the decision of the Commissioner of Income Tax (Appeals), Haldwani, which had denied the exemption sought by the Uttrakhand Shiksha Bharti Society due to the non-filing of Form 10 within the prescribed timeframe.

The ITAT found merit in the appellant's submissions that the non-timely filing was inadvertent, stemming from a lack of awareness regarding the newly introduced electronic filing requirement of Form 10 post the amendment in the Finance Act, 2015. Furthermore, the Tribunal acknowledged the provisions of circulars issued by the Central Board of Direct Taxes (CBDT) allowing for the condonation of delays under reasonable causes. Consequently, the Tribunal set aside the previous orders and remanded the case for reassessment, considering the late filing of Form 10 along with the revised income tax return.

Analysis

Precedents Cited

The judgment extensively referenced several landmark cases that guided the Tribunal's reasoning:

• CIT v. Nagpur Hotel Owners Association (2001) 247 ITR 201 (SC): This Supreme Court judgment permitted the filing of Form 10 up to the completion of the assessment process under section 143(3) of the Act, emphasizing that procedural lapses should not rigidly negate substantive compliance.
• CIT v. G.M. Knitting Industries Pvt. Ltd. (2015) 376 ITR 456 (SC): The Supreme Court held that filing the audit report during assessment proceedings satisfies the substantial compliance requirement, even if it wasn't submitted with the original return.
• Nimittaben and Bhatt v. CIT (Exemption) Ahmedabad { R/Special Civil Application No. 8977 of 2022 decided on 22.12.2020}: The Gujarat High Court ruled that procedural requirements like the furnishing of an audit report are directory in nature. It recognized that substantial compliance, especially when accompanied by sufficient cause, should be deemed adequate for granting exemptions.

These precedents collectively underscore the judiciary's inclination towards substantial compliance over strict procedural adherence, especially when genuine hardships or inadvertent lapses are evident.

Legal Reasoning

The Tribunal's legal reasoning revolved around several pivotal points:

1. Amendment and New Obligations: The Finance Act, 2015 introduced amendments to sections 11 and 13, effective from AY 2016-17, mandating the electronic filing of Form 10 for trusts claiming exemption on income accumulation. The Tribunal acknowledged that this was the first-year implementation of this requirement, potentially leading to unintentional non-compliance by organizations unfamiliar with the new procedural mandates.
2. CBDT Circulars and Condonation of Delay: Recognizing CBDT Circular No. 7/2018, the Tribunal noted that the CBDT had authorized Commissioners of Income Tax to admit belated filings of Form 10 and Form 9A, provided reasonable cause was demonstrated. The Tribunal inferred that the non-filing in the instant case fell under the ambit of such reasonable causes.
3. Substantial vs. Procedural Compliance: Aligning with the cited precedents, the Tribunal emphasized that while procedural requisites like Form 10 filing are directory, substantial compliance—evidenced by the late but correct filing—should suffice to uphold the claimed exemption.
4. Absence of Malintent: The Tribunal observed the appellant's proactive steps in rectifying the omission by filing Form 10 during the revised return submission, indicating bona fide intent and due diligence.

Based on these considerations, the Tribunal concluded that penalizing the appellant for an inadvertent procedural lapse, especially after it was rectified promptly, was unjustified.

Impact

This judgment holds significant implications for charitable trusts and organizations seeking tax exemptions under sections 11, 12A/12AA, and 13 of the Income Tax Act:

• Procedural Flexibility: Trusts are likely to benefit from a more flexible interpretation of procedural compliance, especially when delays or omissions are rectified within the assessment process.
• Encouragement for Due Diligence: Organizations may be encouraged to proactively rectify procedural lapses without the fear of automatic denial of exemptions, fostering a more cooperative compliance environment.
• Judicial Emphasis on Substantial Compliance: The judgment reinforces the judiciary's preference for substantial compliance over rigid procedural adherence, aligning with broader principles of fairness and reasonableness in tax administration.
• Guidance on Future Cases: The reliance on precedents underscores the importance of existing judicial interpretations, providing a clear pathway for future litigations involving procedural non-compliance.

In essence, the judgment harmonizes procedural requirements with practical attainability, ensuring that genuine charitable activities are not unduly hampered by technicalities.

Complex Concepts Simplified

Form 10 and Its Significance

Form 10 is a mandatory declaration form that charitable trusts or organizations must submit to the Income Tax Department to claim exemptions under sections 11, 12A/12AA, and 13. This form outlines the manner in which the trust has utilized its income, ensuring that the funds are applied towards the specified charitable purposes.

Sections 11, 12A/12AA, and 13 of the Income Tax Act

• Section 11: Pertains to the exemption of income derived from property held under trust wholly for charitable or religious purposes, provided that the income is applied towards these objectives.
• Section 12A/12AA: Deals with the registration of trusts and institutions, making them eligible for tax exemptions provided they fulfill certain conditions and comply with minimum expenditure norms.
• Section 13: Relates to the accumulation/application of income by trusts and the specified timeframes and purposes for such accumulation.

Assessment Year (AY)

The Assessment Year refers to the period following a financial year during which income earned in that financial year is assessed and taxed. For instance, AY 2016-17 pertains to income earned from April 1, 2016, to March 31, 2017.

Sections 139(1) and 139(4) of the Income Tax Act

• Section 139(1): Mandates the filing of an income tax return by the due date for individuals and entities, specifying the income earned during the AY.
• Section 139(4): Allows taxpayers to file a revised return if they discover any omission or wrong statement in the original return, provided it is filed before the completion of the assessment.

Central Board of Direct Taxes (CBDT) Circulars

CBDT Circulars are official communications issued by the CBDT to provide clarifications, instructions, or relaxations on various provisions of the Income Tax Act. In this case, Circular No. 7/2018 authorized Commissioners of Income Tax to admit belated filings of Form 10 under reasonable causes.

Conclusion