The Hindu Business Line : Where delay is not condoned

The Government has been empowered, for the purpose of grant of exemption, to notify any fund or institution, established for charitable purpose, having regard to its objects and importance throughout India or in any one or more States and being administered and supervised in a manner to ensure that its income is properly applied for its objects.

The fund or institution, for getting exemption, must satisfy the following conditions:

It should make an application in Form No. 56 to the prescribed authority [Director-General of Income Tax (Exemption)] for grant of exemption. After June 1, 2006, such application for grant of exemption shall have to be filed during the financial year immediately preceding the assessment year (AY) from which such exemption is to be sought.

The institution should apply its income or accumulate for application, wholly and exclusively, for the charitable objects for which it is established.

There is also an additional requirement in regard to accumulation of income.

The fund or institution should not invest or deposit its funds for any period during the previous year otherwise than in any form or mode specified in Section 11(5) of the I-T Act, 1961.

Another essential condition to be satisfied, though not specified in the Act, that has been judicially decided by the Delhi High Court, in the American Hotel & Lodging Association Educations Institute vs CBDT (2007 158 Taxman 146 Delhi) case, is that income should be applied in India. On appeal, the Supreme Court has, inferentially, approved this view of the High Court. Can approval can be claimed on the basis of delayed application? The reply to this has to be in the negative in view of clear provision in the Act from June 1, 2006 [supra].

This position has now also been confirmed by the Orissa High Court’s decision in the Rolan Educational & Charitable Trust vs CCIT (2009 221 CTR Orissa 88) case.

High Court’s decision

The case related to the approval for the financial year (FY) 2006-07 ending on March 31, 2007. The trust filed application on May 31, 2007, which was beyond the time prescribed in the statute. The approval was denied by the CCIT [now the authority is DGIT (Exemption)].

Thereafter, the matter was taken to the High Court by a writ petition. The issue before the court was whether the CCIT was justified in not entertaining the application under Section 10(23C)(vi) on the ground that it was not filed within the period of time prescribed and no powers vested with the CCIT to condone the delay.

The court replied to the query in the affirmative saying that the Finance Act, 2006 provided, inter alia, a period of limitation for entertaining application under Section 10(23C)(vi) for exemption made on or after June 1, 2006, and there is no provision for condonation of delay in presentation of such applications for grant of exemption under Section 10(23C)(vi), as has been provided for filing first appeal (to CIT(A)), second appeal (to ITAT) and appeal to the High Court and revision.

‘Not condonable’

The language used in the proviso to Section 10(23C)(vi) and notes on clauses to Finance Bill, 2006 clearly indicate that the delay in filing applications for approval under Section 10(23C) is not condonable. This shows that the legislature never intended to condone delay in presenting application under Section 10(23C). Hence, the High Court decided that the delay in filing application under Section 10(23C) cannot be condoned. The provision seems to be unduly harsh. There could be situations when for genuine and unavoidable reasons, the delay may be caused.

Hence, discretion to the Director-General needs to be given for condonation of delay if the applicant shows reasonable cause for the delay.

(The author is a former chairman of CBDT. blfeedback@thehindu.co.in)