Madras HC declares Clause 5(ii) of Circular No.6/2023 on Trusts issued by CBDT Arbitrary and Ultra vires to Constitution of India [Read Order]
CBDT was instructed to review petitioners' applications for recognition under clause (i) of section 80G(5) of the Act as timely and to adjudicate upon them within six months.
Madras HC Clause – 5(ii) of Circular No.62023 on Trusts CBDT Arbitrary – Ultra vires to Constitution of India – TAXSCAN
Madras HC Clause – 5(ii) of Circular No.62023 on Trusts CBDT Arbitrary – Ultra vires to Constitution of India – TAXSCAN
In a recent verdict, the Madras High Court declared Clause 5(ii) of Circular No.6 of 2023, issued by the Central Board of Direct Taxes ( CBDT ) on May 24, 2023, as illegitimate, arbitrary, and unconstitutional. This clause, which failed to extend the deadline for Section 80G(5) to new trusts, was deemed in violation of the Constitution of India.
A single bench of Justice Senthilkumar Ramamoorthy noted that “on a combined reading of the earlier Circular No.8 of 2022 and the impugned Circular No.6 of 2023, it can be clear that the only reason which is shown for the exercise of the powers is that these trusts faced hardship since they could not apply on time. No reason whatsoever is mentioned to omit "the clause (i) of the first proviso to sub-section (5) of Section 80G of the Act" in respect of the new trusts applying under Form No.10AB alone.”
The petitioner applied for provisional approval in Form No.10A on September 25, 2021, seeking approval under clause (iv) of the first proviso to sub-section 5 of Section 80G of the Act, and it was granted provisional approval on October 6, 2021. The trust began its activities on September 9, 2021, and thus had to apply for regular approval/registration in Form No.10AB within six months from the commencement date, i.e., within six months from September 9, 2021.
Due to challenges faced by assesses in electronically filing Form No.10AB, the Central Board of Direct Taxes, through Circular No.8 of 2022 dated March 21, 2022, extended the deadline for filing applications for regular registration/approval until September 30, 2022. This extension applied to both existing and new trusts seeking registrations under Sections 10(23C), 12A, and 80G(5) of the Act.
Despite the extended deadline, the petitioner failed to submit Form No.10AB and only applied on March 22, 2023. Subsequently, in response to representations from numerous trusts and institutions whose applications were rejected due to exceeding the time limit, the first respondent issued Circular No.6 of 2023, dated May 24, 2023, further extending the deadline to alleviate the genuine hardships faced by these entities.
The extension of time granted differed for existing and new trusts, firstly, Existing trusts received an extension until September 30, 2023, for provisions related to Section 10(23C), Section 12A(1)(ac), and Section 80G(5) of the Act and secondly, New trusts also received the same extension for Section 10(23C) and Section 12A(1)(ac) provisions but not for Section 80G(5).
As a result, the petitioner's application for approval under Section 80G(5) was deemed untimely. Consequently, the petitioner has filed Writ Petitions challenging Clause 5(ii) of Circular No.6 of 2023, dated May 24, 2023, arguing it to be arbitrary and ultra vires the Constitution of India for not extending the due date for such applications.
Challenging this exclusion, the petitioners contended that the decision was discriminatory and violated Article 14 of the Constitution of India. They argued that the omission of new trusts from the extension contradicted the rationale behind the circulars, which aimed to alleviate hardships faced by trusts in digitally filing their applications.
On the other hand, the respondents, represented by the Additional Solicitor General of India, asserted that the petitioner trusts had failed to adhere to the prescribed timelines and therefore could not claim a right to an extension. They argued that the distinction made between existing and new trusts was permissible and reasonable.
The bench observed that “we agree with the learned Additional Solicitor General of India that the petitioner trusts do not have any vested right to claim an extension of time. When the statute prescribes a time limit, the petitioner trusts are expected to apply within the said date to avail the benefits.”
Further observed that the differential treatment in this case lacks a substantial and relevant distinction pertinent to the circular's objective, rendering it artificial. Despite evasive responses from the respondents, no rationale for such classification was provided. Consequently, the bench deemed clause (ii) of the Circular, dated May 24, 2023, arbitrary and in violation of Article 14 of the Constitution of India, making it ultra vires.
It was stated that “Because we find that clause (ii) of the impugned circular is unconstitutional, we direct the first respondent to consider the applications of the petitioners as to the recognition/approval in respect of clause (i) of the first proviso to sub-section (5) of section 80G of the Act as within time and consider the same and pass orders thereon on merits as per law.”
In the result, the Writ Petitions were allowed on the following terms:-
- The clause 5(ii) of Circular No.6 of 2023 bearing F.No.370133/06/2023-TPL, dated 24.05.2023 of the first respondent is declared as illegitimate, arbitrary, and ultra vires the Constitution of India;
- The respondents are directed to consider the applications submitted by the petitioners as to the recognition/approval in respect of clause (i) of the first proviso to sub-section (5) of section 80G of the Act as within time and consider the same and pass orders thereon on merits, in accordance with law within six months from the date of receipt of a copy of this order;
To Read the full text of the Order CLICK HERE
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