Case: Swami Satyaprakashanand Shiv Mandir Trust v. ITO, ITA No. 93/DDN/2024
Background and Issue
Under Section 11 of the Income Tax Act, income derived from property held for charitable or religious purposes is exempt from tax subject to compliance with prescribed conditions. One such condition is the filing of an audit report in Form No. 10B under Section 12A(b) and Rule 17B, applicable when the income exceeds the specified threshold.
Historically, tax authorities insisted that the audit report be filed on or before the due date of filing the income tax return under Section 139(1)—usually by 30th September. Failure to do so often resulted in the denial of exemption.
The principal question before the Income Tax Appellate Tribunal (ITAT), Dehradun Bench was:
Is the filing of the audit report in Form 10B a mandatory condition for claiming exemption under Section 11, or is it merely a directory procedural requirement?
Statutory Provisions and Compliance Requirements
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Section 11: Grants exemption for income applied or accumulated for charitable or religious purposes.
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Section 12A(b) and Rule 17B: Mandate audit of accounts and filing of the audit report in Form 10B where income exceeds threshold limits.
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Section 139(1): Requires filing of income tax returns by the due date (usually 30th September for trusts).
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Section 119(2)(b): Provides power to condone delay in certain procedural compliances.
ITAT’s Judicial Reasoning and Findings
After careful examination, the ITAT held that:
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The filing of the audit report in Form 10B is a directory requirement rather than a mandatory condition for exemption under Section 11.
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The critical factor is whether the audit report was filed before the completion of the assessment under Section 143(3).
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Reliance was placed on authoritative precedents, including:
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Earthing Trust v. ITO (Delhi ITAT), where late filing of Form 10B was held not to disentitle exemption.
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CIT v. A K S Alloys Pvt Ltd (Madras HC), affirming procedural nature of audit report submission.
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The Tribunal underscored the legislative intent of Section 11, which is to exempt income genuinely devoted to charitable purposes, not to impose undue hardship on trusts due to procedural delays.
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Denial of exemption solely on the basis of delayed audit report filing would amount to disproportionate penalty, contrary to principles of natural justice.
Practical Impact for Charitable and Religious Trusts
Key Takeaways
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Delay in submitting the audit report in Form 10B beyond the due date of filing returns under Section 139(1) will not automatically result in denial of exemption under Section 11, provided the report is eventually filed before the completion of assessment.
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Trusts should ensure timely audit and submission but have judicial backing for leniency where delays are inadvertent and do not prejudice Revenue.
Recommendations for Compliance
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Engage qualified auditors early to avoid last-minute delays.
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Maintain thorough documentation of audit report submission dates.
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In case of delay, file the audit report promptly before assessment and consider application under Section 119(2)(b) for condonation.
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Seek professional advice on managing compliance timelines and responding to notices related to Form 10B.
Broader Jurisprudential Context and Policy Considerations
This ruling is consistent with a growing judicial trend that:
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Emphasizes substance over form in tax compliance.
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Advocates procedural flexibility to avoid penalizing genuine taxpayers for non-prejudicial delays.
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Supports the principle of equity and fairness in tax administration, especially for non-profit entities serving public welfare.
Tax authorities are encouraged to adopt a balanced and pragmatic approach towards procedural lapses, focusing on material compliance rather than strict timelines.
Conclusion
The ITAT Dehradun’s ruling in Swami Satyaprakashanand Shiv Mandir Trust reaffirms that:
The filing of the audit report in Form 10B is a directory procedural requirement, not a mandatory condition to claim exemption under Section 11 of the Income Tax Act.
Trusts and their advisors should align their compliance strategies accordingly, ensuring audit reports are filed as soon as possible, with the reassurance that late filing—if made before assessment—will not jeopardize exemption claims.
