2005 (5) TMI 52 - HC - Income Tax

Commissioner rejecting application seeking renewal of exemption under section 80G - petitioner, a society was incorporated with the objects of establishing educational institutions anywhere in India - in view of the fact that the petitioner had enjoyed approval under section 80G even after the amendment of its objects on September 17, 1999, and after the insertion of clause (vi) with effect from October 1, 1991, the Commissioner was not justified in holding that either fresh registration under section 12A(a) was required or the memorandum should have been amended - In so far as exemption under section 10(23C) is concerned, for the view we have taken above on the application of sections 11 and 12, exemption under the said provision would not be necessary to make the petitioner eligible for approval under section 80G. None the less, it is stated that the application for claiming exemption under the said provision is also pending for the past few years. - For the foregoing reasons, we are of the view that the impugned order of the Commissioner refusing approval to the petitioner-society under section 80G is founded on irrelevant considerations and, therefore, cannot be sustained

Issues Involved:
1. Requirement for fresh registration under section 12A(a) of the Income-tax Act due to change in objects.
2. Non-notification under section 10(23C) of the Act for assessment year 2000-01 onwards.
3. Amendment of the memorandum as per section 92 of the Civil Procedure Code.
4. Maintenance of separate books of account for income from business activities.
5. Lack of evidence for substantial entertainment expenditure.

Issue-wise Detailed Analysis:

1. Requirement for Fresh Registration Under Section 12A(a):
The petitioner, a society registered under the Societies Registration Act, 1860, had its objects rearranged on September 17, 1989, to include technical and professional education, health-related institutions, and other charitable activities. The Commissioner rejected the renewal of exemption under section 80G, arguing that the society should have applied for fresh registration under section 12A(a) due to the change in its objects. The court found that the petitioner enjoyed approval under section 80G from 1991 to March 31, 1999, even after the amendment of its objects. The court held that fresh registration under section 12A(a) was not required because the objects continued to be charitable and educational in nature, and the society's income remained exempt under sections 10(23C) and 11 of the Act.

2. Non-notification Under Section 10(23C):
The Commissioner also rejected the application on the grounds that the petitioner's institution had not been notified under section 10(23C) for the assessment year 2000-01 onwards. The court noted that the petitioner's application under section 10(23) had been pending for over three years and was deemed to have been granted in terms of rule 2CA(3) of the Income-tax Rules. The court held that the scope of enquiry by the Commissioner should extend to eligibility for exemption under various provisions of the Act but not to the actual computation of income. Therefore, exemption under section 10(23C) was not necessary for approval under section 80G.

3. Amendment of the Memorandum as per Section 92 of the Civil Procedure Code:
The Commissioner argued that the society's memorandum should have been amended as per the procedure prescribed in section 92 of the Civil Procedure Code, as observed by the Supreme Court in the case of Trustees of H.E.H. The Nizam's Pilgrimage Money Trust v. CIT. The court found that the ratio of the decision in Nizam's case was not applicable in this context. The court emphasized that the Commissioner should focus on the real purpose of the society, which continued to be charitable, and not deny approval based on technicalities.

4. Maintenance of Separate Books of Account:
The Commissioner contended that the society should have maintained separate books of account for income from the purchase and sale of books, as required by the proviso to section 80G(5)(i). The court acknowledged this requirement but found that the primary focus should be on whether the society was established for charitable purposes and whether it was registered under section 12A. The court held that the Commissioner should not deny approval based on the failure to maintain separate books of account alone, especially when the society's primary activities were charitable.

5. Lack of Evidence for Entertainment Expenditure:
The Commissioner also rejected the application on the grounds that the society had spent substantial amounts on entertainment expenditure for visitors and examiners but had not provided supporting evidence. The court held that this was a matter of actual computation of income and should not be the basis for denying approval under section 80G. The court emphasized that the Commissioner should focus on whether the society met the conditions for charitable purposes and registration under section 12A.

Conclusion:
The court concluded that the impugned order of the Commissioner rejecting the petitioner's application for approval under section 80G was based on irrelevant considerations and could not be sustained. The court quashed the order and directed the Commissioner to take a fresh decision on the petitioner's application in accordance with the law. The writ petition was allowed, and the rule was made absolute, with no order as to costs.

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