ITAT Ruling: Trust's Section 11 Exemption Upheld Despite Missing Registration Certificate

Section 11 exemption upheld: Trusts are not denied tax benefits due to non-filing of original registration certificates.

Case Name: Lokmanya Shikshan Prasara K Mandal Vs Income-tax Officer

The Income Tax Appellate Tribunal (ITAT), Pune Bench, ruled in Lokmanya Shikshan Prasara K Mandal vs. ITO (January 9, 2025) that the Assessing Officer (AO) cannot deny exemption under Section 11 of the Income Tax Act to a trust solely because it failed to produce the original copy of its Section 12A registration certificate. Here are the key points from the ruling:

Key Takeaways

1. Denial of Exemption Invalid

   • The AO rejected the trust’s claim for exemption under Section 11, arguing that the original Section 12A registration certificate was not submitted.

   • The ITAT held that since the tax department is the custodian of registration records, the trust cannot be penalized for not furnishing the original certificate. The AO should have verified the trust’s registration status through departmental records56.

2. Trust’s Compliance and Activities

   • The trust, which runs primary and secondary schools, had been registered under Section 12A since 1974 and consistently claimed exemptions under Section 11.

   • The ITAT emphasized that procedural lapses (e.g., missing documentation) should not override substantive compliance if the trust’s charitable activities and registration status remain valid25.

3. Precedent and CBDT Circulars

   • The ruling aligns with prior decisions, such as Mazdoor Welfare Trust (2024), where exemptions under Section 11 were upheld despite delayed audits of earlier years’ accounts2.

   • The ITAT referenced CBDT Circular No. 173/193/2019, which directs rectification of procedural errors in Section 143(1)(a) orders rather than denying exemptions outright15.

4. Remand for Verification

   • The case was remanded to the AO to verify the disallowed expenses and grant exemptions under Section 11, provided the trust’s activities and compliance with audit requirements are confirmed25.

Broader Implications

• Substance Over Form: Exemptions under Section 11 hinge on the trust’s charitable purpose and compliance with audit/registration requirements, not technicalities like document submission47.

• Department’s Duty to Verify: The tax authority must cross-check its own records before denying exemptions for procedural reasons56.

• Consistency in Judicial Approach: Courts and tribunals increasingly prioritize the intent of charitable activities over minor procedural gaps27.

Relevant Case Laws Cited

Case	Key Ruling
Mazdoor Welfare Trust (2024)	Exemption allowed despite past audit lapses, as activities remained unchanged2.
Magadi Planning Authority vs. ITO	Fees charged for public welfare (not profit) qualify for Section 11 exemption3.
Adarsh Foundation vs. DCIT (2024)	Exemption upheld if activities align with charitable objectives6.

This ruling reinforces that charitable trusts must focus on maintaining their core activities and registration compliance, while tax authorities are obligated to verify records proactively. Procedural oversights, when rectified, should not negate legitimate exemptions under Section 11