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

1. The Core Dispute

The Commissioner of Income Tax (Exemptions), Chandigarh rejected the application of a Section 8 company (incorporated in January 2024) 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.”

• Under the law, Provisional Registration is intended only for entities that have not yet commenced activities.

• Therefore, the CIT(E) held the initial provisional registration was “bad in law” and rejected the regular registration, effectively cancelling the entity’s tax-exempt status.

2. The Assessee’s Defense

The appellant (Saryan Vigyan) argued that the CIT(E) misconstrued the facts and the law:

• Legal Inability to Commence: Under Section 10A of the Companies Act, 2013, a company limited by shares cannot commence business until it files Form INC-20A. This was filed only on May 3, 2024.

• Promoter vs. Company: Activities in March 2024 were performed by the promoters in their individual capacity as a continuation of their previous work in Kinnaur, H.P. The Section 8 company, as a corporate entity, could not legally have carried out those activities at that time.

• Procedural vs. Substantive: Even if activities had commenced, it is merely a procedural timing issue and not a statutory ground to deny registration if the objects are charitable and activities are genuine.

• Failure of Duty: The CIT(E) rejected the case on a legal technicality without examining the genuineness of activities or compliance with objects as required under Section 12AB.

3. The ITAT Findings & Decision

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

1. Requirement of Scrutiny: The Tribunal held that the CIT(E) was wrong to reject the application solely on the “commencement date” premise without looking into the actual nature and genuineness of the charitable activities.

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

3. Fresh Adjudication: The case was remanded to the file of the CIT(E) with a direction to re-examine the facts, including the legal constraints of the Companies Act and the actual charitable work performed post-incorporation.

4. Key Takeaways for Charitable Institutions

• Timing of Application: Ensure the “Date of Commencement” mentioned in tax forms aligns with your legal capacity to act (e.g., date of filing INC-20A for companies).

• Provisional vs. Regular Registration: The 2020/2021 tax amendments created a two-tier system. New entities must first get provisional registration and then apply for regular registration within six months of commencing activities or six months before the provisional expiry.

• The “Genuineness” Test: Tax authorities are legally bound to verify the substance of your charity (objects and activities) rather than relying solely on procedural technicalities.