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Trust not eligible for Sec. 12AB registration if it isn’t registered under State Trust Act applicable to it: ITAT

Lokesh Agarwal Dharmarth vs. Commissioner of Income Tax (Exemption) - [2024] 164 taxmann.com 228 (Jaipur - Trib.)

The assessee was a charitable trust formed in December 2012. During the relevant assessment year, it applied for registration under section 12AB. The application was rejected by the CIT(E) on the following grounds:

a) Non-registration of the assessee with the Rajasthan Public Trust Act.

b) The genuineness of activities could not be ascertained due to non-compliance.

c) Incomplete Form 10AB filed by the assessee.

Aggrieved by the order, an appeal was filed to the Jaipur Tribunal.

The Tribunal held that it was an admitted fact that the assessee was not registered under the Rajasthan Public Trust Act. The assessee submitted that its application for registration under the Rajasthan Public Trust Act was pending with the competent authority.

As per section 17 of the Rajasthan Public Trust Act, it is mandatory for a Public Trust to register under the Rajasthan Public Trust Act within three months from the date of its creation. Section 12AB(1) of the Income-tax Act mandates that all the applicable laws shall be followed, and if any applicable law is not followed by the Trust, then it is not eligible for registration.

In the instant case, admittedly, the Rajasthan Public Trust Act applies to the assessee, and the assessee did not follow its provisions. Therefore, as per section 12AB(1), the assessee was not eligible for registration under section 12AB of the Act.

A Section that refuses to go

One spaceship was sent on an important mission to remove debris. The astronaut came across Section 248 of income tax, sitting prettily there. It had been removed, but because it had not been fully extinguished, it flew into space. The astronaut tried to tear it, but it stuck back as one whole. He used explosives to blast it, but it remained in one piece. He tried to burn it, but it emerged unscathed. He tried to run a bulldozer over it, but it danced in front of contraption. Finally, an income tax expert said that unless it is thrown out of tax provisions it would not go. So, everyone is waiting for Budget 2024 to remove it.

Why a Need for TDS Refund Arises

In many situations, the deductor after deducting tax realizes that it was not required to be done or was done at a higher rate. The need of refund arises in such cases.

Section 248 was a mischievous provision. To obtain a refund of the tax deducted and paid by a person, where it was not deductible, the taxpayer had to go in for the difficult appellate process. He had to make an appeal to the Commissioner (Appeals) for a declaration that no tax was deductible on such income. Section 248 did not allow making an appeal to an assessing officer, which made the process tedious and long.

In view of mitigating the hardships and rationalizing the refund procedure, the new section 239A was inserted in the Act to provide that such a person, who has made the deduction of tax under such an agreement or arrangement and borne the tax liability, when no tax deduction was required, may file an application for refund of such tax deducted, excluding interest, before the Assessing Officer.

Budget 2022, therefore, simplified and hastened this process of seeking refund on a wrong TDS. An assessee can now make an appeal before the assessing officer, and will be required to approach deputy commissioner or commissioner if he/she is not satisfied by the assessing officer's order.

The Relevant Section

239A. Refund for denying liability to deduct tax in certain cases.

(1)?Where under an agreement or other arrangement, in writing, the tax deductible on any income, other than interest, under section 195 is to be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central Government claims that no tax was required to be deducted on such income, may, within a period of thirty days from the date of payment of such tax, file an application before the Assessing Officer for refund of such tax in such form and such manner as may be prescribed

(2) The Assessing Officer shall, by an order in writing, allow or reject the application: Provided that no application under sub-section (1) shall be rejected unless an opportunity of being heard has been given to the applicant

(3)?The Assessing Officer may, before passing an order under sub-section (2), make such inquiry as he considers necessary.

(4)?The order under sub-section (2) shall be passed within six months from the end of the month in which application under sub-section (1) is received.]

Direct Approach

The appeal can be filed directly after making payment of tax so deducted to the credit of the Government account.

The Assessing Officer may allow or reject the application and is required to pass an order in writing to this effect.

However, the AO cannot reject an application without providing a hearing opportunity to the assessee.

The order of the Assessing Officer is appealable under section 246A of the Act and if such a person is not satisfied with the order of the Assessing Officer, he may go into appeal against such order before the Commissioner (Appeals) under section 246A of the Act. The claim for refund under section 239A shall be made in Form No. 29D. The application in Form 29D shall be accompanied by copy of an agreement or other arrangement referred to in section 239A.

Example

The rent paid on a property that is owned by an NRI requires that the tenant deduct 31.2% TDS on it and deposit it online with the tax department through Form 15CA. However, this is not applicable if the NRI landlord's income from India falls below the exemption limit. In a case where the tenant has deducted tax at source but the landlord furnishes a certificate that proves his income is below the exemption limit, the tenant, under Section 239 A will have to approach the Assessing Officer.

Faux Pas

Now, what is the mistake, referred to earlier, wherein Section 248 continues to exist in statute book ?

Section 249(2) (a) makes a blunder, by referring to section 248 as under:

"The appeal shall be presented within thirty days of the following date, that is to say,- (a)[ where the appeal is under section 248, the date of payment of the tax, " Thus, the assessee does not know whether he has to proceed under Section 248 or Section 239A, to seek a TDS refund.

In reality, the provisions of section 248 of the Act should not apply in cases where the date of tax payment, to the credit of the Central Government, is on or after 01.04.2022.

The Useless Section 248

In one case, it was held that Section 248 was an incapable provision. In ITO v. CMS (India) Operations & Maintenance Co.(P.) Ltd. [2013] 38 taxmann.com 92 (Chennai-Trib.) it was held that Sec.248 does not enable an assessee to file an appeal even after deduction of tax at source claiming that no tax was required to be deducted at source since such appeal is only for a declaration regarding tax liability, if any.

Not only this, taxpayers were making appeals under the wrong Section 248, many times. For example in KLJ Organic Ltd. v. CIT - [2022] 136 taxmann.com 353/286 Taxman 282 (Delhi) the assessee filed appeal under Section 248, instead of Section 264, which had to be corrected.

Also, the agreement or arrangement, under which the tax has been deducted and paid, was strangely not ever brought on the record of the Assessing Officer or examined by him.

Why Refund of Interest Is Not Allowed

The expression 'Tax' does not include interest for purpose of section 249(4) of Act.

This is because as per the definition in section 2(43), tax does not include interest which is independently referred to in section 2(28A).

When the legislature itself has used two different expressions and defined them separately, then whilst considering the language of a section, the court is bound to look at the definitions in the legislation for the purpose of interpreting and construing the expressions and words under the Act.

The object is to avoid conflict and have a harmonious interpretation, unless the context otherwise requires. Therefore, the expression "tax" does not include interest for the purpose of section 249(4). - [2009] CIT v. Manoj Kumar Beriwal (316 ITR 218/217 CTR 407 (Bom.)]

Suggestion

Section 239A does not cover a situation where the payer feels that TDS should have been deducted/deposited at a rate lower than the rate at which the same has been deducted/deposited. There could be instances where TDS is deposited @10% on gross sums payable to the nonresident considering the receipts of the non-resident to be taxable as "fees for technical services" u/s 115A of the Act and the payer is of the view that the income is covered under the deeming provisions of section 44BB of the Act, and, hence, only 10% of total income of the nonresident is subject to income-tax at the rate of 40% (plus applicable surcharge and health and education cess) thereby arriving at an effective rate of 4% (plus applicable surcharge and health and education cess). In such a case, it is apprehended that, given the coverage of section 239A of the Act and the language employed therein, the application for refund of excess TDS deposited may not be entertained by the Assessing Officer.

Summing Up Remarks

Section 249, prescribing manner and time limits for filing an appeal before CIT (A), still contains the reference to Section 248. Therefore, the necessary amendments should be brought to substitute the reference of Section 248 with Section 239A in Section 249.

The confusion between Section 248 and Section 239A is creating awkward situations, like this

A man rushed into a building thinking: "I have to meet the AO and find about my TDS refund." The next moment, he ran out of building saying: "No, I have to know from CIT (A) about TDS refund." He went to another building. After entering, he again rushed out saying: "No, no, it's AO, not CIT (A) who can tell about my TDS refund." The process went on. All because of a certain naughty Section 248, which has perched itself atop income tax statute.

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