Retrospective Section 12A Registration Denied for Educational Society: Lack of Cogent Reason for Delay and Prior Exemption Knowledge

Issue:

Whether an educational society that initially availed exemption under Section 10(23C)(iiiad) is entitled to retrospective registration under Section 12A of the Income-tax Act, 1961, when it fails to provide cogent and strong reasons for the delay in filing the Section 12A application, especially given its prior awareness of statutory requirements.

Facts:

For the assessment year 2004-05, the assessee, an educational society formed in 1989 and having established three institutions, had already obtained exemption under Section 10(23C)(iiiad) of the Income-tax Act, 1961 (for educational institutions with annual receipts not exceeding a specified limit). However, it applied for registration under Section 12A (which grants exemption under Sections 11 and 12) only on August 30, 2004.

The Director (Exemption) denied retrospective registration, primarily on the ground that the assessee could not satisfactorily explain the reasons for the significant delay in filing the application for registration under Section 12A. It was noted that the assessee had taken a contradictory stand: on one hand, it submitted that the “rush of work on account of frequent expansion of the educational society” prevented timely application; on the other hand, it argued that since it already had an exemption under Section 10(23C)(iiiad), it was not required to seek another registration under Section 12A.

Decision:

Yes, the court held that since the assessee-society had obtained exemption under Section 10(23C)(iiiad) from the beginning, it was aware of the statutory requirements. Despite that, it did not deem it necessary to seek registration under Section 12A and failed to give cogent and strong enough reasons to justify the delay in seeking registration. Therefore, the impugned order denying retrospective registration was upheld. The decision was in favor of the revenue.

Key Takeaways:

Retrospective Registration Under Section 12A (Pre-2017 Amendment): Prior to its amendment by the Finance Act, 2017, Section 12A allowed the Commissioner to grant registration with retrospective effect from an earlier assessment year if satisfied that there was “sufficient cause” for the delay in applying. This discretion has now been limited by Section 12A(2), which primarily grants prospective registration, with very limited exceptions for retrospective application related to pending assessments (as per the second proviso to Section 12A(2), covered in another case analysis).
“Sufficient Cause” for Delay: To obtain retrospective registration, the assessee must demonstrate “sufficient cause” for the delay in filing the application. Vague reasons like “rush of work” or “frequent expansion” are generally not accepted as sufficient cause, especially for a long delay.
Contradictory Stands: The assessee’s contradictory arguments (both “too busy” and “didn’t think it was necessary”) weakened its case and suggested a lack of clear justification for the delay.
Knowledge of Statutory Requirements: The fact that the assessee was already availing exemption under Section 10(23C)(iiiad) implied its awareness of various statutory requirements for educational institutions, making its claim of ignorance about Section 12A or its necessity less credible.
Two Separate Exemption Regimes: Sections 10(23C) and 11/12 (via 12A/12AB) are distinct exemption regimes for charitable/educational institutions. While an institution may choose one or the other, or transition between them, a conscious decision not to apply for 12A registration despite being eligible for another exemption means the delay for 12A must still be justified.
Discretionary Power: Granting retrospective registration is a discretionary power, and courts generally do not interfere unless the rejection of “sufficient cause” by the tax authorities is arbitrary, perverse, or based on no evidence.
In Favor of Revenue: The decision highlights that the burden of proving “sufficient cause” for delay is high, and a lack of compelling reasons can lead to the denial of retrospective benefits.

HIGH COURT OF TELANGANA

Maheswara Educational Society

Director of Income Tax Exemptions

P. Sam Koshy and NARSING RAO NANDIKONDA, JJ.

ITT Appeal No. 90 OF 2008

APRIL 9, 2025

JUDGMENT

P. Sam Koshy, J. – The instant is an appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) preferred by the appellant assailing the order dated 31.10.2007, in ITA. No.270/Hyd/2005, passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’ Hyderabad (for short, ‘the ITAT’) for the assessment year 2004-05.

2. Heard Mr.C.V. Narasimham, learned counsel for the appellant, and Mr. A.Ramakrishna Reddy, learned Standing Counsel for Income Tax Department appearing on behalf of the respondent.

3. vide the said impugned order, the ITAT has dismissed an appeal filed by the appellant against the order of Director of Income Tax (Exemptions), Hyderabad dated 25.01.2005, refusing to grant registration under Section 12A of the Act from inception of the appellant’s institution and grant registration only prospectively.

4. The facts of the case in brief are that the appellant is an educational society formed in the year 1989 and running a junior college in the name of Maheshwara Junior College. Down the line, the appellant applied to All India Council for Technical Education (AICTE) seeking permission for starting an engineering college which was accorded and established in the name of Balaji Institute of Technology and Science with effect from the academic year 200102. After having successfully established two educational institutions, the appellant society further thought of starting a B.Ed college and, accordingly applied to National Council for Technical Education, New Delhi. Upon getting the permission, started an institution for B.Ed in the name of Maheshwara College of Education from the year 2003-04. However, in between the operation of these educational institutions, the appellant society claims to have inadvertently forgotten to seek registration under Section 12A of the Act. According to the appellant, this was not either intentional or deliberate but was only due to inadvertence. It was also the contention of the appellant that the gross receipts of the appellant society suddenly went up and crossed Rs.1 crore after successful starting of B.Ed college and this could be noticed only during the audit that was conducted in July, 2004.

5. Immediately, thereafter steps were taken and an application was filed seeking for grant of registration under Section 12A of the Act. The application upon being duly scrutinized by the Director of Income Tax (Exemptions), it was noticed that though the appellant society was formed in the year 1989, the application for registration under Section 12A of the Act was filed only on 30.08.2004. The Director of Income Tax (Exemptions) finally vide order dated 25.01.2005 granted registration only from financial year 01.04.2004 in which the application was made and did not grant any registration for previous years, as according to the Director of Income Tax (Exemptions), the appellant could not satisfactorily explain the reasons for delay in filing of the application for registration under Section 12A of the Act. It was this order which was subjected to challenge before the ITAT where it was registered as ITA. No.270/Hyd/2005. The ITAT also affirming the order passed by the Director of Income Tax (Exemptions) dismissed the appeal of the appellant, leading to filing of the present appeal.

6. Perusal of the records would show that the appellant had initially obtained an exemption under Section 10(23C) (iii ad) of the Act. The said exemption is applicable only in respect of those assessees whose income does not exceed Rs.1 crore in a year. In the instant case, according to the appellant, they crossed the gross income of Rs.1 crore in the year 2003-04 i.e. after the B.Ed college was established and it was then that the necessity for getting registration under Section 12A of the Act was felt and an application was thereafter filed and, which stood allowed from 01.04.2004 only. Whereas, according to the appellant, the exemption ought to have been granted from the date the establishment came into force i.e. 15.05.1989. According to the appellant, the fact that the gross income of the appellant had never crossed Rs.1 crore, it never thought of seeking registration under Section 12A of the Act and, in any case there has been no default as such committed by the appellant since they already had an exemption under Section 10(23C) (iii ad) of the Act and admittedly the income of the appellant also for all these periods was less than Rs.1 crore. This being the bona fide and genuine ground of the appellant, the Director of Income Tax (Exemptions) could not have rejected the claim of the appellant for granting registration with effect from the date the appellant society was established.

7. Though the learned counsel for the appellant raised various grounds to assail the impugned order, the primary challenge was non-consideration of the fact that appellant already was enjoying exemption under Section 10(23C) (iii ad) and that the gross receipts of the appellant had never crossed Rs.1 crore till 2003-04 and that the Department if at all was not inclined to grant exemption for whole 14 years period, but definitely could had granted registration w.e.f. 01.04.2003 i.e. the previous financial year during which the gross income of the appellant for the first time crossed the limit of Rs.1 crore so far as exemption that could be availed under Section 10(23C) (iii ad) of the Act is concerned.

8. Learned counsel for the appellant further contended that the Director of Income Tax (Exemptions) as also the ITAT ought to have allowed the appeal and condoned the delay considering the bona fide and reasonable grounds explained by the appellant. According to the learned counsel for the appellant, the order of the Director of Income Tax (Exemptions) as also the ITAT does not record any sufficient reasons in not conceding to the request of the appellant for registration from a back date and also in not giving proper reasons and justification for rejection of the application for condonation of delay.

9. In support of the aforesaid contentions, the learned counsel for the appellant placed reliance on the following decisions:

(a)

CIT v. Bar Council of Maharashtra)

(b)

Bar Council of Uttar Pradesh v. CIT)

(c)

Seimens Engineering & Manufacturing Co. of India Ltd. v. Union of India (1976) 2 SCC 981

(d)

Woolcombers of India Ltd. v. Woolcombers Union (1974) 3 SCC 318

(e)

CIT v. Village Life Improvement Foundation

(f)

Shrimanta Shankar Academy v. ITO [2007] 292 ITR (AT) 226 (Gauhati)

(g)

CIT v. Shrimanta Shankar Academy

(h)

CIT v. Mahasabha Gurukul Vidyapeet Haryana

10. Per contra, the learned Standing Counsel for Income Tax Department contended that since the application for registration itself for the first time was made on 30.08.2004, the appellant could not had been granted registration with a retrospective effect from 1989 onwards or even from the previous financial year.

11. According to the learned Standing Counsel for Income Tax Department, no justifiable reasons have been assigned by the appellant to show the reasons which prevented them from seeking registration earlier. According to him, the stand that the appellant has taken before the Director of Income Tax (Exemptions) and before the ITAT are in itself in self-contradiction inasmuch as at one stage they contend that because of the rush of work and ignorance of the provisions and also not getting proper advice from the Accountant they could not seek for registration early. On the contrary, they have now taken a stand that they did not apply earlier for the reason that their income itself was below Rs.1 crore and, until and unless the income had crossed Rs.1 crore, they were not required to seek registration before gross income crossed Rs.1 crore because that itself would disentitle them from claiming for registration for the previous period and that the authorities on due consideration have granted the registration from beginning of the financial year in which the application was made w.e.f. 01.04.2004.

12. According to the learned Standing Counsel for Income Tax Department, the two orders i.e. one passed by the Director of Income Tax (Exemptions) and the other passed by the ITAT are strictly in accordance with the provisions of law and does not warrant any interference and the present appeal deserves to be dismissed.

13. Having heard the contentions put forth on either side and on perusal of records, some of the admitted factual matrix as is reflected from the proceedings, are that:

(a)

The appellant’s society got its registration under the Public Societies Registration Act w.e.f. 15.05.1989;

(b)

Initially the appellant had started with a junior college and, subsequently, expanded and started an engineering college and later also started B.Ed college;

(c)

The appellant from the beginning had sought for an exemption under Section 10(23C) (iii ad) of the Act;

(d)

The appellant had applied for exemption under Section 12A of the Act on 30.08.2004; and

(e)

The gross income of the appellant crossed the Rs.1 crore limit as is prescribed under Section 10(23C) (iii ad) of the Act in the financial year 2003-04 and the application for registration was filed by the appellant only in the financial year 2004-05.

14. From perusal of the pleadings there seems to be only two grounds that the appellant have raised seeking for condonation of delay and for grant of registration w.e.f. 15.05.1989. One being, because of inadvertence of the appellant society’s Accountant and, second being that the gross income of the appellant having crossed Rs.1 crore limit only w.e.f. 2003-04, therefore they did not thought it fit for moving a registration application earlier.

15. Both these grounds are self-contradictory in itself. If there would have been an ignorant and bona fide lapse on the part of the appellant in applying, the second ground would not be available to them. At the same time, if the second ground is to be accepted, then the first ground would become an afterthought and the fact that they had applied only for after their income crossed Rs.1 crore goes to show that they had deliberately not sought for registration earlier because their income was less than Rs.1 crore. This would also amount to having deliberately not applied for registration because their income was less than Rs.1 crore. In that event the first ground of ignorance or inadvertence would not be acceptable or tenable.

16. Another fact which is glaringly visible is that the appellant had obtained exemption under Section 10(23C) (iii ad) of the Act from the beginning which goes to show that they were aware of the statutory requirement, and in spite of that, they did not thought it necessary for seeking registration under Section 12A of the Act. This again would amount to an intentional act in not filing of an application considering the fact that there income was less than Rs.1 crore. Thus, we are of the considered opinion that the findings given by the Director of Income Tax (Exemptions) as also by the ITAT does not seem to be in any manner erroneous or contrary to law.

17. Upon perusal of the factual matrix of the each of the judgments relied upon by the learned counsel for the appellant, and the principles laid down all those cases, one can easily reach to the conclusion that the assessees therein had made application seeking registration under Section 12A of the Act belatedly giving cogent and justifiable reasons in the delay that took place in applying for registration. However, when we look into the facts of the present case, what can be visualized is that in the present case though the appellant has tried to give certain explanation, but what is required to be considered is whether the grounds raised were cogent and strong enough to justify the delay in seeking for registration. As would be seen from the order passed by the Director of Income Tax (Exemptions) so also the order passed by the ITAT, it clearly reflects that the appellant has taken contradictory stand justifying the delay. The appellant, on the one hand, submits that because of the rush of work on account of frequent expansion of the educational society they were not able to apply for registration under Section 12A of the Act. At the same time, they also try to take a stand that since they had an exemption under Section 10(23C) (iii ad) of the Act, therefore they were not required to seek another registration under Section 12A of the Act and, once when they crossed the limit that was prescribed under Section 10(23C) (iii ad) of the Act, they had immediately moved an application. This again is not-sustainable and acceptable as compared to the first ground giving explanation for the delay; as the two do not match each other and are selfcontradictory in itself. Further, the aforesaid judgments have all been decided under an entirely different contextual backdrop and the principles laid down in those judgments can be distinguished on its factual basis itself.

18. The instant appeal therefore fails and is accordingly dismissed.

19. As a sequel, miscellaneous applications pending if any, shall stand closed. However, there shall be no order as to costs.