Clerical Error in Trust Registration: Kerala HC Sets Aside ITAT Order, Directs CIT(E) to Reconsider Claim Under CBDT Circular [Read Order]

In a recent judgement, the Kerala High Court has quashed the order of the Income Tax Appellate Tribunal (ITAT) which denied the demand of a trust for retrospective registration. CBDT Circular No. 7/2024,” the Court directed the matter to be sent back to the Commissioner of Income Tax (Exemptions) [CIT(E)] for reconsideration.

The appellant, Atma Bodhodaya Sangham Sree Subhananda Trust was a charitable trust, which was originally registered under Section 12A of the Income Tax Act, 1961 since the year 1988. There was an alleged system issue due to which the trust wrongly opted for Section 10(23) instead of Section 12A for the registration renewal for the year 2020-21. Hence registration was given in the wrong section. The trust realised the mistake, returned the wrong registration and re-applied under Section 12A. But the authorities gave temporary registration only for the year 2023-24, leaving the trust unregistered for the intervening years (2022-23).

The appellant came to the Court challenging the ruling of the ITAT which had held that registration under Section 12A did not have retrospective effect. The appellant submitted that CBDT Circular No. 7/2024 gave an opportunity to address such mistakes by accepting fresh applications up to 30.06.2024. They argued that their submission of the improper registration should be deemed a rejection on the basis of defect and they were entitled to the relief under the Circular.

Jose Joseph Senior Standing Counsel for Income Tax Department opposed the appeal. He contended that the Circular applies only in circumstances where the preceding application was rejected on the ground of filing under an incorrect provision. He submitted that since the trust's application under Section 10(23) was actually accepted and not denied, the benefits of the Circular could not be extended to them.

The ITAT or subordinate authorities have not assessed the impact of CBDT Circular No. 7/2024 in sufficient detail as the subject was not directly mentioned before the Tribunal, remarked Justice Devan Ramachandran and Justice Basant Balaji.

The Court recognised there was insufficient evidence to substantiate the “system error” but the trust had been a registered company since 1988 and it was likely that the mistaken choice was a genuine mistake. The Bench observed that if the application had been dismissed at the very outset, the trust would have been obviously entitled to the benefit of the Circular.

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