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May 12, 2021

Know all about Section 12AB re registration of Trust under Income Tax Act, 1961

by Mahesh Mara in Income Tax

Know all about Section 12AB re registration of Trust under Income Tax Act, 1961

Finance act 2020 has introduced a new Section 12AB and replaced Section 12A and Section 12AA for Charitable Trust. As per the existing provisions of the Income-tax Act, exemption from income-tax in respect of the income of a charitable trust is available with respect to satisfaction of certain conditions. The foremost condition is to make an application for registration of the charitable trust in the prescribed form and in the prescribed manner to the Commissioner of Income-tax (Exemptions) within the specified time. The Commissioner of Income-tax (Exemptions) further shall call for documents and information and enquire with regards the genuineness of the Charitable trust. Once the Commissioner of Income-tax (Exemptions) is satisfied about nature of the objects and genuineness of the activities of the trust or institution, than he will passes an order granting registration and in case Commissioner is not so satisfied, he will passes an order refusing registration, after providing an opportunity of being heard to the applicant before passing of an order of refusal to grant registration and mention the reasons for refusal of registration in the order. Further, the order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Chief Commissioner or Commissioner and a copy of such order is sent to the applicant. Thus section 12A provides that the grant of registration shall be one of the conditions for availing income-tax exemption u/s 11 and u/s 12.

In order to revamp the registration procedure the Finance act 2021 has made various amendments which will come into force from 1st April 2021. The attempt is to make entire process online. Various changes are made under Section 11, Section 12A, Section 12AB (inserted), and Section 12AA (deleted) with respect to grant of re-registration requiring every approved registered charitable trust to apply for re-registration and subsequently after every five years. This has completely revamped the registration procedure of a charitable trust under the Income Tax Act.

The main feature in this provision is that the registration granted will not be long-lasting and will remain valid only for a period of five years and later needs to be reregistered at the end of every fifth year. This procedure has been introduced for periodic review of the conditions on which registration was granted or approval was given for enjoying the exemption. This has been done to keep a check primarily on the followings-

a) Objects of the Trust on which registration was granted are being adhered to or not,

b) Genuineness of the activity of the Trust

c) Compliances with other laws applicable to the Trust

This procedure of re-registration of existing registered charitable trust has introduced due to administrative problems to deal such charitable trust. Currently, there are many trusts in India which are claiming exemption of its income under Income Tax Act but have lost their registration certificates. The Income tax department itself could not trace the registration certificate of many trusts as the registration of the charitable trust was through the Commissioner of Income Tax widely spread over to whole of India. However, based on earlier assessment records, the exemption was being allowed to such trusts. In order to streamline the registration of all the trusts, it is decided to introduce the concept of re-registration so that all of the trusts are given computer-generated URN.

Many trusts are having dual exemption privilege i.e. they are claiming exemption u/s 11 and u/s 10(23C). Thus it is decided that under new regime the trust must have only one registration either u/s 12 AB or u/s 10(23C). Under section 10(23C) only a few institutions like universities, educational institutions, hospitals and medical institutions can claim exemption whereas under section 11 covers any charitable institutions carrying on any charitable activities and even religious trusts. Now the re-registration will be registered under section 12AB. In case re registration is not done by 30th June 2021, the trust will become deregistered.

What is the Time limit for making application for new registration u/s 12AB?

As per Section 12A(1)(ac)(i)]Trusts or institution which is already registered under Section 12A or u/s 12AA then such a trust or institution is required to be filed an application before the PCIT/CIT within 3 months starting from 1st April 2021 to 30th June 2021 for converting the earlier registration under section 12A or under section 12AA to the new section 12AB. [

What is the Time limit for passing the Order granting the registration u/s 12AB?

As per Section 12A(1)(a)Where an existing trust is applying for migration to new registration scheme under section 12A(1)(ac)(i), then the order for registration under section 12AB shall be passed by the PCIT/CIT within a period of three months from the end of the month in which the application is filed. This registration shall remain valid for a period of 5 years.

What is the applicability of exemption on the income in case of migration and Subsequent registration u/s 12AB?

a. Exemption to Trust:

A trust or an institution which is granted registration under section 12AB (1) (a) can avail the exemption under section 11 and under section 12 from the assessment year in which registration was granted to the trust or institution. It means the exemption will continue and there will be no break in the exemption that the trust or institution is enjoying. It implies that the new registration certificate will be applicable from the Assessment Year from which the registration was issued originally.

b. Subsequent registration of Trust:

When a trust or institution is registered under section 12AB and the period of 5 years of the said registration is due to expire, then the trust or institution shall at least 6 months prior to the expiry of the said period of 5 years apply for renewal of registration.

What are the consequences in case of failure to get registered u/s 12AB?

The Income Tax Act has provided the procedure and time limit for migrating to the new registration scheme u/s 12AB for an existing registered trust. Nowhere in the act it is stated that migration is mandatory. There is no direct express provision in the statute which states that the migration to section 12AB is mandatory. It is further provided in amended section 12A that in order to claim exemption u/s 11 and u/s 12, a trust must be registered u/s 12AB. Thus if a trust is not registered u/s 12AB, it cannot avail exemption u/s 11 and u/s 12. In case a trust does not migrate to section 12AB, it will it be attracted by section 115TD i.e. Exit Tax.

What are the various powers with regards rejection and cancellation of registration application u/s Section 12AB?

1. Rejection of registration

The PCIT or CIT has the power to reject the application for registration of a trust or institution under section 12AB(1)–

In these cases, detailed scrutiny of documents and records will take place since PCIT/CIT has been given powers to call for such documents or information from the trust or institution or make such enquiries as he thinks necessary.

SituationsPower to reject the application for registration
Where the registration has become inoperativeSuch an application can be rejected by the PCIT/CIT if the PCIT/CIT is not satisfied about the-   i) Objects of the trust or institution ii) Genuineness of the activities of the trust or institution iii) Compliances under any other law which are material for the purpose of achieving the objects of the trust or institution.   Before rejecting the application, the trust or institution must be given a reasonable opportunity of being heard.
Where the trust or institution is registered under section 12AB and has modified its objects which do not conform to the conditions of registrationSuch an application can be rejected by the PCIT/CIT if the PCIT/CIT is not satisfied about the-   i) Objects of the trust or institution ii) Genuineness of the activities of the trust or institution iii) Compliances under any other law which are material for the purpose of achieving the objects of the trust or institution.   Before rejecting the application, the trust or institution must be given a reasonable opportunity of being heard.
Where the trust or institution is registered under section 12AB and the trust or institution has applied for renewal of its registration after 5 yearsSuch an application can be rejected by the PCIT/CIT if the PCIT/CIT is not satisfied about the-   i) Objects of the trust or institution ii) Genuineness of the activities of the trust or institution iii) Compliances under any other law which are material for the purpose of achieving the objects of the trust or institution.   Before rejecting the application, the trust or institution must be given a reasonable opportunity of being heard.
Where the trust or institution is provisionally registered under section 12AB and it applies for conversion of provisional registration to normal registrationSuch an application can be rejected by the PCIT/CIT if the PCIT/CIT is not satisfied about the-   i) Objects of the trust or institution ii) Genuineness of the activities of the trust or institution iii) Compliances under any other law which are material for the purpose of achieving the objects of the trust or institution.   Before rejecting the application, the trust or institution must be given a reasonable opportunity of being heard.

2. Cancellation of registration

The registration of a trust or institution can be cancelled only if a trust is registered under section 12AB. Thus, in all the above four cases where the CIT has the power to reject the application has also the power to cancel the registration of the trust or institution. In addition to the above four cases, section 12AB (4) and section 12AB (5) provides for cancellation of the registration of a trust or institution can be cancelled by the PCIT or CIT in the following circumstances-

1. Where the activities of the trust or institution are not genuine, or

2. Where the activities of the trust or institution are not carried out in accordance with the objects of the one which registration was granted.

3. Due to operation of section 13(1),

4. Where the trust or institution has not complied with the requirement of any other law and such non-compliances has attained the finality.

The enabling provision empowering the Principal Commissioner or the Commissioner to cancel the registration of a Trust or institution in the new section 12AB is on the same line of the existing section 12AA.

Compulsory granting of registration u/s 12AB

In the following two cases, the PCIT/CIT shall pass an order to grant registration without calling for much documents and information-

  • Where an application is filed by a trust or institution for migration of existing registration u/s 12A or u/s 12AA to section 12AB. In this case, though no detailed information is released, it appears the new registration will be granted on the basis of existing registration. It is not clear whether the old registration certificate will be required or not.
  • Where an application is filed by a newly established trust for a Provisional Registration, the same shall be granted within the prescribed time limit. In this case, it appears that no detailed scrutiny of documents will be done and the provisional registration will be granted on the basis of the object of the trust or institution.

However, the fourth proviso to section 12A (2) suggests that provisional registration may be refused by the PCIT/CIT under section 12AB.

What is the Procedure of registration of Existing or New Trusts?

The procedure of re-registration seems to be very straightforward. As trust is already registered, the plan is to provide a new registration number and registration certificate which will be computer-generated. Further, there will be no lapse in the exemption period and the same will be continued in this FY 2020-21.

Rule 17A Application for registration of charitable or religious trusts etc. (1). An application under sub- clause (i) or sub-clause(ii) or sub-clause(iii) or sub-clause(iv) or sub-clause(v) or sub-clause(vi) of clause (ac)of sub-section (1) of section 12A for registration of a charitable or religious trust or institution (hereinafter referred to as ‘the applicant’)

ParticularPeriod for filing application for registrationForm for registrationEffective  date of ApprovalTime limit for passing an order
Non-profit organisations who are provisionally approvedAt least 6 months prior to expiry of the period of approvalForm 10ABFrom the financial years for which provisional approval was receivedBefore expiry of the period of 6 months from the end of the month in which the application was received
Non-profit organisations already approved under existing rulesWithin 3 months from 1st  April, 2021Form 10AFrom the financial year in which approval was originally grantedBefore expiry of the period of 3 months from the end of the month in which the application was received
Non-profit organisations approved under newly inserted Rules through notification 19/2021 dated 26st March 2021At least 6 months prior to expiry of the period of approvalForm 10ABFrom the financial year in which registration application is madeBefore expiry of the period of 6 months from the end of the month in which the application was received
In any other case (including new registration)At least one month prior to the commencement of the Financial year for which approval is soughtForm 10AFrom the financial year in which registration application is madeBefore expiry of the period of 1 months from the end of the month in which the application was received

What are the documents to be accompanied along with the Application?

The application under sub-rule (1) shall be accompanied by the following documents, as required by Form Nos.10A or 10AB, as the case may be, namely:—

(a) Where the applicant is created, or established, under an instrument, self-certified copy of such instrument creating or establishing the applicant;

(b) Where the applicant is created, or established, otherwise than under an instrument, self-certified copy of the document evidencing the creation or establishment of the applicant;

(c) Self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be;

(d) Self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010(42 of 2010), if the applicant is registered under such Act;

(e) Self-certified copy of existing order granting registration under section 12A or section 12AA or section 12AB, as the case may be;

(f) self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA or section 12AB, as the case may be, if any;

(g) where the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the applicant relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up;

(h) where a business undertaking is held by the applicant as per the provisions of sub-section (4) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business undertaking relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB for such period;

(i)where the income of the applicant includes profits and gains of business as per the provisions of sub-section (4A) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB for such period;

(j) self-certified copy of the documents evidencing adoption or modification of the objects;

(k) Note on the activities of the applicant.

What is the mode of Furnishing of form and who is required to verify the form?

Form Nos. 10A or 10AB, as the case may be, shall be furnished electronically, —

(i) Under digital signature, if the return of income is required to be furnished under digital signature;

(ii) Through electronic verification code in a case not covered under clause (i).

Form Nos. 10A or 10AB, as the case may be, shall be verified by the person who is authorised to verify the return of income under section 140, as applicable to the applicant.

What is the Timeline for registration under section 12 AB?

On receipt of an application in Form No. 10A, the Principal Commissioner or Commissioner, authorised by the Board shall pass an order in writing granting registration under section 12AB(1)(a) or 12AB(1)(c) read with sub-section (3) of the said section in Form No.10AC and issue a sixteen digit alphanumeric Unique Registration Number (URN) to the applicants making application as per clause (i) of the sub-rule (1).

​If, at any point of time, it is noticed that Form No. 10A has not been duly filled in by not providing, fully or partly, or by providing false or incorrect information or documents required to be provided or by not complying with the requirement, the Principal Commissioner or Commissioner, after giving an opportunity of being heard, may cancel the registration in Form No. 10AC and Unique Registration Number (URN), issued shall be deemed to have never been granted or issued.

In case of an application made under Section 12(1)(ac)(vi) during previous year beginning on 1st  April, 2021, the provisional registration shall be effective from the assessment year beginning on 1st day of April, 2022.

In case of an application made in Form No. 10AB the order of registration or rejection or cancellation of registration shall be in Form No.10AD and in case if the registration is granted, sixteen digit alphanumeric number Unique Registration Number (URN) shall be issued by the Principal Commissioner or Commissioner referred to in of sub-section (1) of section 12AB.

Circumstances.Timeline for filing of application
Where Trusts has adopted or modified the objectsWithin 30 days from the date of such adoption / modification of objects
Trust obtained subsequent registration u/s 12ABAt least 6 months prior to date of expiry
Where registration of Trust has become inoperative due to Section 11(7) of the Act6 months prior to commencement of the AY from which said registration is sought to be made operative
Existing Trusts registered u/s 12A or Section 12AA of the ActOn or before 30th  June 2021
Trusts provisionally registered u/s 12AB of the ActEarlier of the Following 6 months prior to the date of expiry; or Within 6 months of commencement of activities.
Any other case (including new registration)At least 1 month prior to the commencement of FY, thereby a provisional registration shall be granted for a period of three years.

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