Inside Madras HC verdict declaring CBDT Circular giving differential treatment to new trust having provisional approval u/s. 80G as unconstitutional

Madras High Court: In a writ petition filed seeking issuance of writ of declaration to declare Clause 5(ii) of the Circular¹ by Central Board of Direct Taxes (‘CBDT’), not extending time to file application for regular registration of new provisionally registered trusts under Section 80-G of the Income Tax, 1961 Act, as violative of the Constitution of India, the Division Bench of Sanjay V. Gangapurwala, C.J., and D.Bharatha Chakravarthy.J.*, has held that the clause 5(ii) of Circular No.6 of 2023 of CBDT is illegitimate, arbitrary, and ultra vires the Constitution of India. Further, the Court directed CBDT and Commissioner of Income Tax to consider the applications submitted by the petitioners as to the recognition/approval in respect of clause (i) of the first proviso to sub-section (5) of section 80G of the Act within time, and consider the same and pass orders thereon on merits, in accordance with law within six months from the date of receipt of a copy of this order.

Background:

On 09-09-2021, the petitioner established its trust and had to apply for the provisional registration under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (‘Act’). As per the said Act, registration can be granted under Section 10(23C), Section 12A(1) (ac) and under Section 80G (5) of the Act. The petitioner applied for provisional approval in Form No.10A under Section 80G (5) of the Act on 25-09-2021. Provisional approval was granted to petitioner on 06-10-2021. In the meanwhile, the petitioner commenced its activities from 09-09-2021 and therefore, had to apply for regular approval/registration within six months from the date of commencement i.e., within six months from 09-09-2021.

CBDT issued Circular no. 8 of 2022 on 21-03-2022, extending the date of applications for regular registration/approval till 30-09-2022. The time extension was granted in respect of the existing trusts and the new trusts for registrations under Sections 10(23C), 12A and 80G (5) of the Act.

Thereafter, the petitioner filed Form No. 10AB for regular approval on 22-03-2023. While considering the representation received from various trust and institutions, to mitigate the genuine hardship faced by trusts, the CBDT issued the Circular No.6 of 2023, once again extending the time limit granted for both existing and new trust to fill Form No. 10A under Section 10(23C), Section 12A(1)(ac) and clause (i) of the first proviso toSection 80G(5)of the Act, and to fill Form No. 10AB under Sections 10(23C) and 12(1)(ac) of the Act, till 30-09-2023.

The time extension is not granted in respect of first proviso to Section 80G (5) of the Act, for filling Form No. 10AB,due to which petitioner’s application in respect of approval for the benefit under clause (i) of the first proviso to subsection (5) of section 80G of the Act disqualified.

Issue:

Whether or not the classification made by the respondents in the matter of grant of extension of time between the existing and new trusts and to apply for approval in respect of clause (i) of the first proviso to subsection (5) of Section 80G of the Act is reasonable?

Analysis:

The Court said that the petitioner trusts do not have any vested right to claim an extension of time. When the statute prescribes a time limit, the petitioner trusts are expected to apply within the said date to avail the benefits.

Further, it noted that the CBDT issued circulars enlarging the time limit even beyond the prescribed limit to mitigate the rigours of the statute and the hardship faced by the assessees, and said that this is in exercise of its powers under Section 119(2)(b) of the Act.

The Court said that no discrimination or differentiation was made between the existing trusts and the new trusts at the first instance when Circular No.8 of 2022 was issued. When the impugned Circular No.6 of 2023 was issued, the reason stated by CBDT was to mitigate genuine hardship. Thus, on a combined reading of both the Circulars, it is clear that the only reason which is shown for the exercise of the powers is that these trusts faced hardship since they could not apply on time. No reason whatsoever is mentioned to omit “the clause (i) of the first proviso to sub-section (5) of Section 80G of the Act” in respect of the new trusts applying under Form No.10AB alone.The Court noted that even though the counter-affidavit attempted to furnish reasons for making the classification between newly registered trust or existing trusts, ultimately, no reason for leaving out clause (i) of the first proviso to Section 80G5 in respect of the new trusts is given. Thus, the Court while agreeing with the contention of CBDT that it is well within its powers to extend time, and it would also be well within its power to make any classification between the trusts, said that there is no reason in leaving out the new trusts in respect of approval under Section 80G alone.

The Court said that even though the new trusts as well as the existing trusts have no right to demand for extension of time as a matter of right, when CBDT have thought it fit to extend the time, considering the hardship, there is no material which is placed before this Court nor any reasoning is contained in the impugned order that the new trusts did not face the hardship in respect of filing of the application under Section 80G5 of the Act alone. Therefore, leaving out the clause in respect of Section 80G5 of the Act alone, in respect of the new trusts does not in any manner relate to the object sought to be achieved by the impugned circular nor does it provide any basis for the discrimination/classification.

The Court further said that, in the present case the differential treatment is not based on any substantial distinction that is real and pertinent to the object of the circular. The discrimination is artificial. CBDT and Commissioner of Income Tax are evasive and could not provide any rationale for such a classification. Thus, the Court held that the impugned clause (ii) of the Circular, dated 24-05-2023 is arbitrary and violative of Article 14 of the Constitution of India and accordingly, would be ultra vires the Constitution.

Further, the Court directed the CBDT to consider the applications of the petitioners as to the recognition/approval in respect of clause (i) of the first proviso to of Section 80G (5) of the Act as within time and consider the same and pass orders thereon on merits as per law.

[Sri Nrisimha Priya Charitable Trust v. Central Board of Direct taxes, 2024 SCC OnLine Mad 729, decided on 02-04-2024]

*Judgement Authored by: Justice D. Bharatha Chakravarthy

Advocates who appeared in this case :

For Petitioner: Suhrith Parthasarathy, Advocate.

For Respondents: AR. L. Sundaresan, ASG; V. Mahalingam, Advocates.

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