Section 115BAA of the IT Act enacted by way of the Taxation Laws Amendment Act, 2019, with effect from April 1, 2020, to promote growth and investment, enables benefit of the concessional tax rate of 22% (plus applicable surcharge and cess) to certain domestic companies, which satisfy the stipulations set out under Section 115BAA(2) of the IT Act.  The proviso to Section 115BAA(1) of the IT Act invalidates the option to be taxed in accordance with the concessional tax rate under Section 115BAA of the IT Act if stipulations set out under Section 115BAA(2) of the IT Act do not stand satisfied.  In view of Section 115BAA(5) of the IT Act read with Rule 21AE of the Income-tax Rules, 1962 (‘Rules’), with effect from April 1, 2020, the option to be taxed in accordance with the concessional tax rate under Section 115BAA of the IT Act is required to be exercised by way of filing of Form 10 – IC, on or before the due date of filing of return of income (‘ROI’), as per Section 139(1) of the IT Act.

Since the requirement to file Form 10 – IC has been introduced for the first time with effect from April 1, 2020, i.e., for assessment year (‘AY’) 2020-21, there have been instances where assessees have inadvertently failed to file Form 10 – IC within the prescribed time, resulting in denial to them of the concessional tax rate under Section 115BAA of the IT Act, absent strict compliance with the mandate of Section 115BAA(5) of the IT Act.  In almost all such instances, since the assessees are otherwise compliant with the substantive stipulations as set out under Section 115BAA(2) of the IT Act, proviso to Section 115BAA(1) of the IT Act is not triggered.  Consequently, denial of the concessional tax rate under Section 115BAA of the IT Act is likely to be attributed to the inadvertent delay in filing Form 10 – IC within the prescribed time.

In the aforementioned instances, the proper course of action is for an assessee to, first make good the inadvertent delay in filing of Form 10 – IC, by way of uploading scanned copy thereof online, through the income-tax portal, pending assessment proceedings.  This is likely to be construed to be sufficient compliance with the mandate of Section 115BAA(5) of the IT Act. ^[1]  Thereafter, the assessee should formally file an application to the Central Board of Direct Taxes (‘CBDT’), in terms of Section 119(2)(b) of the IT Act, seeking regularization of Form 10 – IC, filed belatedly.^[2] Section 119(2)(b) of the IT Act bestows significant power on the CBDT to tone down the rigours of law, where non-compliance impedes the substantive claim of an assessee.^[3]

Form 10 – IC is merely a declaration of exercise of option by an assessee, nothing more.  Such a declaration is likely to have been made in the ROI as well as the tax audit report furnished by the assessee. Even though Section 115BAA(5) of the IT Act uses the word ‘shall’, thereby mandatorily requiring filing of Form 10 – IC on or before the due date of furnishing ROI, such requirement is likely to be considered as directory^[4], since the legislative intent behind bringing in Section 115BAA of the IT Act, i.e., to promote growth and investment, would not stand defeated owing to belated filing of Form 10 – IC, being a mere declaration.^[5]  Further, the use of the word ‘shall’ in Section 115BAA(5) of the IT Act is likely not be considered mandatory, but merely directory, also in view of large-scale public inconvenience that is expected to ensue for default in complying with it. In light of the same, the time-limit provided for in Section 115BAA(5) of the IT Act will likely not be construed to be the period of limitation.^[6]  Additionally, two requirements are lumped together in Section 115BAA(5) of the IT Act, i.e., (i) exercise of option to be governed in terms of Section 115BAA of the IT Act, in the manner prescribed under Rule 21AE(1) of the Rules i.e., Form 10 – IC; and (ii) filing of Form 10 – IC, on or before the due date for filing of ROI.  While the first requirement is likely to be mandatory, the second is not, so long as the option to be governed in terms of Section 115BAA of the IT Act, in the manner prescribed under Rule 21AE(1) of the Rules, is exercised prior to the completion of assessment proceedings, along with an appropriate application for condonation of delay.^[7]  This view is reinforced by the fact that there is no stipulation like the one in the proviso to Section 115BAA of the IT Act that expressly invalidates the exercise of option to be taxed in accordance with the concessional tax rate under Section 115BAA of the IT Act, owing to non-filing of Form 10 – IC within the prescribed time.

In light of the foregoing reasons, Form 10 – IC, uploaded through the income tax portal belatedly is likely to be regularised by the CBDT, in exercise of capacious powers under Section 119(2)(b) of the IT Act, which powers strive to advance the cause of substantial justice, when pitted against technicalities.^[8]  Non-regularisation by CBDT is likely to reflect a restrictive approach, effectively throwing away a meritorious matter where the substantive stipulations of the law stand satisfied, at threshold itself.  Such approach is likely to be shunned down by the High Court, in exercise of Writ jurisdiction under Article 226 of the Constitution of India. ^[9]

[1] CIT v. Shivanand Electronics, [1994] 209 ITR 63 (Bombay High Court)

[2] Rajkamal Healds and Reeds Pvt. Ltd. v. ADIT, R. Special Civil Application No. 1085 of 2022, decision dated January 20, 2022 (Gujarat High Court); Little Angles Education Society v. UOI, [2021] 434 ITR 423 (Bombay High Court).

[3] Trust For Reaching the Unreached Through Trustee v. CIT (Exemptions), Ahmedabad, [2021] 279 Taxman 229 (Gujarat High Court); Dr. Smt. Sujatha Ramesh v. CBDT, [2018] 401 ITR 242 (Karnataka High Court).

[4] Whether a provision is mandatory, or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed.  One of the tests often adopted is to ascertain whether the object of the Legislature will be defeated or furthered by holding it directory.  If the object of the enactment will be defeated by holding it as directory, it should be construed as mandatory.  See CIT v. Shivanand Electronics, [1994] 209 ITR 63 (Bombay High Court).

[5] Govindlal Chhaganlal Patel v. The Agricultural Produce Market Committee, Godhra and Ors., [1975] 2 SCC 482 (Supreme Court).

[6] Dalchand v. Municipal Corporation, Bhopal and Ors., [1984] 2 SCC 486 (Supreme Court).

[7] Shivanand Electronics (Supra at 1).

[8] By way of Circular No. 7/2018, F. No. 197/55/2018-ITA-1, issued by the CBDT, dated December 20, 2018, delay in filing Form No. 9A and Form No. 10 was condoned for AY 2016-17, since the said year was the first year of e-filing of the said Forms.  Taking the said Circular as precedent, in our view, it may be argued that there is no impediment on the power of CBDT, in exercise of power under Section 119(2)(b) of the of the IT Act, to regularise the Form 10 – IC, uploaded through the income tax portal belatedly.  See The Institution of Civil Engineers Society vs. ACIT, appeal bearing ITA No. 1412/Chd/2019, decision dated 28.07.2021 (ITAT, Chandigarh).

[9] Trust For Reaching The Unreached Through Trustee v. CIT (Exemptions), Ahmedabad, [2021] 279 Taxman 229 (Gujarat High Court); Dr. Smt. Sujatha Ramesh v. CBDT, [2018] 401 ITR 242 (Karnataka High Court).