The Hindu Business Line : Trust dilemma

Budget 2007 has changed the norms for registration of trust or institution. At present, the Commissioner of Income-Tax may condone the delay in seeking registration by charitable trusts and institutions. Retrospective registration can be granted to a trust or institution from the date of its creation or establishment. The law is now proposed to be changed, whereby the power for condoning the delay would be revoked.

The amendment would result in charitable trusts and institutions which file application for registration belatedly, that is, after June 1, 2007, not being eligible for getting retrospective registration and, thereby, losing the benefit of exemption under Sections 11 and 12 of the Act. These exemption provisions, however, would apply from the assessment year following the financial year in which the application is made.

Effect of amendment

The impact of the amendment would be as follows:

The application made on or after June 1 must be in the prescribed form and manner that satisfy the Commissioner. The person in receipt of income must make the application for registration of the trust or institution.

The Commissioner cannot condone the delay and grant registration retrospectively from the date of creation of the trust. Hence, the exemption under Section 11 and conditions of Section 12 shall not apply for the earlier assessment years.

Sections 11 and 12 would apply only in relation to the trust or institution for the assessment year immediately following the financial year in which the application is made.

This amendment would mean that all existing trusts and institutions which have not registered so far under Section 12A have to make application at the earliest, at least before June 1 and get the benefit of exemption. If the application is made by the existing trust or institution after June 1 in view of the removal of power to the Commissioner for condoning the delay and for granting retrospective registration, the exemption for the earlier years would not be available.

If the Commissioner does not grant registration within the time prescribed in Section 12AA (2), that is, six months from the end of the month in which the application was made, the trust would get automatic registration (Karnataka Golf Association vs Director of Income-tax — 2004 91 ITD 1 Bom-Trib). However, because of the change in law, the benefit of exemption will apply only from the succeeding assessment year and the functus officio will not help in getting retrospective registration and benefit of exemption for the earlier years.

The controversy, that the Commissioner should give reason for not condoning the delay in submission of application, was settled forever (Society of Divine Province vs Union of India — 1999 235 ITR 339 MP). Since that power is removed, the retrospective benefit of exemption will be denied for charitable trusts and institutions.

(The author is an Erode-based chartered accountant.)

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