ITAT Sets Aside Rejection of Section 12A/80G Registration for Section 8 Company

ITAT Sets Aside Rejection of Section 12A/80G Registration for Section 8 Company

The Issue

The Commissioner of Income Tax (Exemptions), Chandigarh rejected the application of a newly incorporated Section 8 company for regular registration under Section 12A(1)(ac)(iii) and approval under Section 80G.

The CIT(E)’s Reasoning:

• The applicant stated that its charitable activities “commenced in March 2024.”

• Since Provisional Registration is intended only for entities that have not yet commenced activities, the CIT(E) held that the provisional registration granted earlier was “bad in law.”

• Consequently, the CIT(E) rejected the final registration and purported to “supersede” any earlier registration granted.

The Assessee’s Defense

The appellant argued that the rejection was based on a misunderstanding of both fact and law:

• Legal Restriction: Under Section 10A of the Companies Act, 2013, the company could not legally commence business until it filed Form INC-20A, which was done only on 03.05.2024.

• Promoter vs. Entity: Activities mentioned in March 2024 were performed by the promoters in their individual capacity (legacy work). The corporate entity had not yet legally commenced its activities at that time.

• Procedural Timing: The mere fact that activities started before a certain date is not a statutory ground for rejection under the Income Tax Act if the objects are charitable and activities are genuine.

• Neglect of Duty: The CIT(E) focused on a technicality regarding the commencement date rather than fulfilling the statutory mandate to examine the genuineness of the activities.

The ITAT’s Findings & Decision

The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, ruled in favor of the assessee for statistical purposes:

1. Mandatory Review of Genuineness: The Tribunal held that the CIT(E) should have looked into the actual nature of the activities and the charitable objects before arriving at a conclusion, rather than rejecting the application on a purely technical premise.

2. Remand (Set Aside): The Tribunal set aside the CIT(E)’s orders for both Section 12A and Section 80G.

3. Fresh Adjudication: The cases were remanded to the CIT(E) to re-examine the different aspects—specifically the genuineness of the post-incorporation activities—and pass a fresh order.

Key Takeaways for Section 8 Companies and Trusts

• Commencement Awareness: Be extremely careful when defining the “Date of Commencement” in tax applications. Ensure it aligns with your legal capacity to act as a corporate entity (i.e., post-INC-20A filing).

• Provisional vs. Final: The new tax regime requires a two-step process: Provisional Registration (Form 10A) followed by Final/Regular Registration (Form 10AB).

• Substance Over Form: High-level tax authorities are required by law to verify the substance of your charitable work. Procedural lapses can often be explained if the underlying activities are demonstrably genuine and in line with the organization’s objects.

Summary of Final Order

• ITA No. 1655/Chd/2025 (12A): Remanded for fresh decision on merits.

• ITA No. 1656/Chd/2025 (80G): Remanded for fresh decision (Mutatis Mutandis).

• Outcome: Appeals allowed for statistical purposes.