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Thursday, 11 September 2014


One of the key preconditions for charitable trusts and institutions seeking to claim exemption under Sections 11 and 12 of the Income Tax Act is registration under the Act. Section 12A enacts that the provisions of Section 11 and Section 12 which provide for exemption of income to such trusts and institutions, will not be applicable unless such trust or institution has made an application in the prescribed form 17 for registration to the Commissioner or Director, and it has been registered by the Commissioner or Director. Under the amended provisions of this Section which have come into effect from 01.06.2007, the earlier requirement of filing such an application within one year of creation of the trust (or establishment of the institution) has been removed. Similarly, the power of the Commissioner or Director to condone the delay in filing such application and to grant the benefit of exemption retrospectively from the date of creation of trust or establishment of the institution
has also been done away with. Under the amended provisions, where an application is filed on or after the 1st day of June, 2007, exemption under Sections 11 and 12 shall be available only on a prospective basis from the assessment year which immediately follows the financial year in which the application is made.

Section 12AA of the Income Tax Act and Rule 17A of the Income Tax Rules prescribe the procedure for registration of a trust where an application for registration under Section 12A has been received by the Commissioner or Director. The application for registration has to be made in Form No. 10A. It should be accompanied by the following documents:-
(i) Copy of the instrument by way of which the trust or institution etc. is created;
(ii) If it has been in existence in the years prior to the year in
which application is made, accounts of the prior years (not exceeding three years).

On receipt of the application, the CIT/DIT (E) has to pass an order either registering the trust or institution or rejecting the application. The registration may be rejected on the ground that the trust or its activities are not genuine. Under sub-Section (2) of Section 12A such an order registering or refusing registration has to be passed within a period of six months from the end of the month in which the application is made.

The conditions required for registration have been stated briefly and in simple language. It mandates that the Commissioner or Director should satisfy himself about:-
(i) the objects of the trust or institution, and
(ii) the genuineness of its activities.

It follows that the Commissioner or Director will enquire whether the object(s) of the trust or institution constitute religious or charitable purpose(s) within the meaning of Section 2(15).

Section 12A(b) prescribes another important condition for claiming exemption under Sections 11 and 12. It requires a trust or an institution whose income for the previous year before claiming the deduction contemplated under Sections 11 and 12 falls within the tax bracket (i.e., its income exceeds the maximum amount which is not chargeable to income-tax without giving effect to the provisions of Section 11 and Section 12), to get its accounts audited by an Accountant. The Accountant’s report in Form No.10B  has to be filed along with the return of income. A Chartered Accountant or other person mentioned in the Explanation to Section 288(2) of the Act is authorised to carry out such an audit.

The following points should ordinarily be kept in mind at the
time of making an application for registration:-
(i) there should be a legally existent entity which can be registered;
(ii) it should have a written instrument of creation or written document evidencing its creation;
(iii) all its objects should be charitable or religious in nature;
(iv) its income and assets should be made applicable exclusively towards the objects Mentioned in the object clauses, and the rules and by-laws;
(v) no part of its income should be distributable or distributed, directly or indirectly, to its members, directors or founders, related persons or relatives etc. claiming through them;

(vi) in case of dissolution, its net assets after meeting all its liabilities, should not be revertible or reverted to its founder, members, directors or donors etc., but used for the objects.