Kerala High Court Sends 12A Registration Issue Back for Fresh Evaluation in Light of CBDT Circular No. 7/2024

Background of the Dispute

The case of Atma Bodhodaya Sangham Vs CIT (Exemptions) came before the Kerala High Court as an appeal arising from a dispute over the assessee’s charitable registration status and consequential eligibility for exemption under Sections 11 and 12 of the Income Tax Act 1961.

The assessee is a charitable trust, engaged exclusively in charitable objects, which had secured registration under Section 12A on 23.03.1988. This historical registration formed the foundation of the assessee’s main contention that it ought to continue to be treated as a Section 12A registered entity and that subsequent errors in code selection should not deprive it of exemption.

According to the assessee, while it attempted to obtain provisional registration for Assessment Year (AY) 2020-21 using the new system, an inadvertent error occurred: instead of opting for Section 12A, the electronic application reflected Section 10(23). On the strength of this mistaken code selection, the Department granted:

  • Provisional registration under Section 10(23); and
  • Thereafter, final registration under Section 10(23) on 22.09.2021, valid up to March 2024.

The assessee later claimed that this was never its real intention, and that its activities and objects all along were those of a trust eligible for registration under Section 12A.

Surrender of Wrong Registration and Fresh Application

Once the assessee realised that the registration stood under Section 10(23) instead of Section 12A, it approached the tax authorities seeking correction. The authorities allegedly advised the assessee to:

  1. Surrender the registration obtained under Section 10(23); and
  2. File a fresh application seeking registration under Section 12A from the relevant period.

Acting on this advice, the assessee surrendered its registration under Section 10(23) and then submitted a new application under Section 12A, seeking registration effective from 01.04.2021.

While doing so, the assessee placed reliance on CBDT Circular No. 7/2024 dated 25.04.2024, which extended the timeline to 30.06.2024 for making fresh or rectified applications in certain cases where earlier applications had suffered from specific defects, including filing under the wrong statutory provision.

However, the competent authority processed this fresh application only for the current period and ended up granting:

  • Provisional registration under Section 12A only for AY 2023-24 (with effect from 18.03.2023),
  • Leaving a gap where, according to the assessee, there was effectively no valid registration for AY 2022-23 and part of the preceding period.

This gap led directly to the denial of exemption under Sections 11 and 12 for AY 2022-23.

Proceedings Before the Authorities and the ITAT

Feeling aggrieved, the assessee approached the higher authorities in the departmental hierarchy and eventually carried the matter to the Income Tax Appellate Tribunal (ITAT), Kochi.

The assessee essentially sought that:

  • Its registration under Section 12A be recognised from an earlier date,
  • And that it be granted the benefit of Sections 11 and 12 for AY 2022-23.

The ITAT, however, rejected the plea. It proceeded on the footing that registration under Section 12A cannot be granted retrospectively in the manner requested. The Tribunal did not address in detail the impact of CBDT Circular No. 7/2024, particularly because this specific argument, on the High Court’s reading, had not been distinctly pressed before it.

The ITAT thus confined itself to the question of whether retrospective registration from 2021 onward could be allowed, and answered this in the negative.

Contentions Before the Kerala High Court

Assessee’s Arguments

Counsel for the assessee submitted that the case had been misunderstood at all levels. According to him:

  • The assessee was not simply asking for a new, de novo registration for AY 2022-23.
  • Instead, it was invoking CBDT Circular No. 7/2024, which had extended the last date till 30.06.2024 for curing defects by submitting fresh applications, particularly where:
    • Earlier applications were filed under an incorrect section code; or
    • Were filed late.

The assessee stressed that: