The Central board of direct tax (CBDT) in its press release said that “It may be noted that The Finance Act 2020 rationalised the procedure relating to approval/registration/notification of certain entities referred to the section 10(23C), 12AA, 35 and 80G of the act, with effect from 1st June 2020. As per the new procedure, the entities already approved/registered/notified under these sections would be required to file intimation within three months i.e. by 31st August 2020. Further, the procedure for approval/registration/notification of new entities has been rationalised with effect from 1st June 2020”. The above notification from CBDT was issued due to the amended finance act 2020″. However, in view of the unprecedented humanitarian and economic crisis, the CBDT has decided that the implementation of a new procedure for approval/ registration/notification be deferred to October 1st, 2020. Accordingly, the entities approved/registered/notified under section 10(23C), 12AA, 35, and 80G of the Act will be required to file intimation within three months from October 1st, 2020 i.e. by December 31st, 2020.
The amended finance Act, 2020 has far-reaching effect in respect of all charitable trusts/institutions claiming exemption under section 10(23C) or under section 11 of the Income Tax Act if they do not re-register their trust/institution. Earlier to this amendment a charitable trust or institution was required to obtain registration under section 12A at the time of its inception and such registration /approval granted by the Principal Commissioner or the Commissioner, without any expiry period i.e. registration is valid till such time it is withdrawn or canceled under section 12AA(3) or section 12AA(4) of the Act. In the amended finance act 2020, a new clause (ac) has been inserted in section 12A with effect from 1st June 2020(now deferred to 1st October 2020) providing that where the trust or institution is registered under Section 12A or under Section 12AA, it shall be required to make an application in the prescribed form to the Principal Commissioner or Commissioner for registration of trust within three months from 1st June 2020 (now deferred to 1st October 2020) and such trust or institution should obtain registration under section 12AB. All such registrations/ approvals granted by Principal Commissioner or Commissioner would be hereafter issued only with an expiry period of 5 years.
Thus, the provision of section 12AA shall not be applicable on or after 1st October 2020 and those trusts or institutions which were registered under Section 12A or Section 12AA shall mandatorily go for re-registration within a period of three months starting from 1st October 2020 i.e. up to 31st December 2020 and obtain registration under Section 12AB. Further, it has been provided that trust or institution which has been registered under new Section 12AB shall be required to apply for re-registration (renewal) at least six months prior to the expiry of the period of registration i.e. 5 years.
It is important to note that any trust or institution which has not made application for re-registration before 31st December 2020, then, by implication, the existing registration of such trust or institution shall stand cancelled on the expiry of three months i.e. 31st December 2020, with the result that such trust or institution shall not be eligible for claiming exemption in respect of its income under section 11 of the Act. Moreover, as per section 115TD of the Act, such trust or institution shall be required to pay tax on the aggregate fair market value of the total assets of the trust or the institution as on 31st December 2020, which exceeds the total liability of such trust on that date. The tax payable on such value shall be at the maximum marginal rate. The provision of this act can have a perilous implication on trusts or institutions, which have rented out their old properties at a nominal rate if their existing registration expires on December 31st 2020 and not re-registered under new law.
It is notified in the Finance Act 2020 that all pending applications as on 1st June 2020 on which order has not been passed shall be deemed to be an application under the new procedure and hence, such applicant shall not be required to file the application again. The amended Act, 2020 has reiterated the existing provision in section 12A to provide that wherein trust or institution has adopted or undertaken modification of its objects which do not conform to the conditions on the basis of which registration was granted earlier, then such trust or institution shall again apply for registration within a period of 30 days from the date of said adoption or modification. The Commissioner in such cases will call for information for verification and follow the same process as in the case of re-registration or renewal of its registration.
