Trust Dissolution Clause Resolution: ITAT Directs CIT(E) to Accept Board Resolution for Section 80G Final Approval
Overview of the Tribunal Decision
The Income Tax Appellate Tribunal bench at Indore has delivered a significant ruling concerning the approval process under Section 80G of the Income Tax Act. The bench concluded that when a charitable trust adopts a board resolution addressing dissolution procedures and asset utilization upon winding up, such resolution must be duly acknowledged by the Commissioner of Income Tax (Exemption) while evaluating applications for permanent approval under the donation exemption provisions. The matter was sent back to the CIT(E) for fresh consideration.
Background and Factual Matrix
Trust Formation and Initial Registrations
The appellant represents a public charitable trust that came into existence in 1993 through a formal trust deed executed on 26.09.1993. Subsequently, the organization secured registration under the Madhya Pradesh Public Trust Act, 1951, which became effective from 29.09.2003.
The Income Tax Department initially granted registration under Section 12A with effect from 18.07.1994, and approval under Section 80G was obtained effective from 31.03.1995. The Department periodically renewed this approval under the earlier regulatory framework.
Transition to New Registration Framework
Following the introduction of revised provisions governing registration and approval mechanisms under Section 12A and Section 80G of the Income Tax Act, 1961, effective from 01.04.2021, the appellant submitted fresh applications to the Income Tax authorities for obtaining registration and approval under the modified regime.
The tax authorities responded by granting:
- Provisional registration under
Section 12Athrough an order dated 24.09.2021, valid for assessment years 2022-23 through 2026-27 - Provisional approval under
Section 80Gvia order dated 20.01.2023, covering the period from 20.01.2023 to assessment year 2025-26
Application for Final Approval
On 25.09.2024, the appellant filed Form No. 10AB pursuant to clause (iii) of the first proviso to sub-section (5) of Section 80G, seeking conversion of the provisional approval into permanent approval status. However, the CIT(E) rejected this application through an order dated 28.03.2025, which became the subject of the current appeal.
Grounds for Rejection by CIT(E)
First Objection: Absence of Dissolution Provisions
The CIT(E) identified a critical deficiency in the trust documentation. The examining authority noted that the trust deed lacked any provision addressing:
- Circumstances under which dissolution would occur
- Procedures for winding up operations
- Distribution or utilization of remaining assets upon dissolution
This absence of a dissolution clause raised concerns about the trust's compliance with regulatory requirements for obtaining final approval under the donation exemption framework.
Second Objection: Time Limitation Issues
The CIT(E) raised procedural concerns regarding the timing of the application submission. According to the authority's interpretation:
The provisional approval granted on 20.01.2023 triggered specific time limits under clause (iii) of the first proviso to Section 80G(5). The provision requires institutions to submit applications for final approval either:
- Six months before the expiry of provisional approval, or
- Within six months from commencing activities, whichever occurs first
Since the appellant's charitable activities had been operational for an extended period, the CIT(E) concluded that the application should have been filed within six months of activity commencement.
The authority acknowledged that the Central Board of Direct Taxes (CBDT) had issued circulars extending filing deadlines to 30.06.2024. However, the appellant submitted Form No. 10AB on 25.09.2024, beyond the extended deadline. Consequently, the CIT(E) deemed the application time-barred and invalid.
Appellant's Response and Additional Developments
Resolution Addressing Dissolution Concerns
The appellant's representative informed the Tribunal that trustees had convened a meeting on 27.03.2025 and passed a comprehensive resolution dealing with dissolution scenarios and asset distribution mechanisms.
However, due to time constraints, this resolution could not be submitted to the CIT(E) before the impugned order was issued on 28.03.2025.
Subsequent Fresh Application
Following the rejection, the appellant filed a new application dated 29.03.2025 in Form No. 10AB, this time seeking final approval under clause (iv)(B) of the first proviso to sub-section (5) of Section 80G.
During examination of this subsequent application, the CIT(E) specifically queried the appellant regarding dissolution provisions. The appellant responded on 29.07.2025, submitting the resolution dated 27.03.2025 that addressed the dissolution concerns.