2014 (1) TMI 1812 - AT - Income Tax

Rejecting Application in Form 10G - Renewal of exemption for donations u/s80G - Held That - Due to pendancy of some procedural requirements in the application we can t deny renewal of exemption u/s80G. Therefore we hold that the assessee has filed the valid application on 02-11-2011 and for considering the approval u/s. 80G the same date is to be taken into consideration. Examining the nature of the activity - Held That - As per the case of Sonepat Hindu Educational & Charitable Society (supra) submits that so far as the nature of the activities of the assessee are concerned the assessee cannot be refused the approval u/s. 80G as admittedly in the preceding years on the same activities and objects the assessee has been granted approval u/s. 80G and the registration u/s. 12A is still valid. Moreover the assessee s case is also squarely covered by the decision of Hon ble High Court of Gujarat in the case of N.N. Desai Charitable Trust Vs. CIT 246 ITR 452 (Guj). We therefore allow the appeal filed by the assessee and direct the CIT-II Pune to grant the approval u/s. 80G w.e.f. 02-11-2011.- Decided in favor of assessee.

Summary

Issues Involved:
1. Procedural compliance for approval under section 80G.
2. Nature of activities and their qualification as charitable under section 2(15).
3. Examination of receipts and their classification.
4. Foreign trip expenses and their relevance to charitable activities.
5. Treatment of interest on fixed deposits in financial statements.

Issue-wise Detailed Analysis:

1. Procedural Compliance for Approval under Section 80G:
The assessee filed an application for approval under section 80G of the Income-tax Act. The initial application lacked necessary documents such as financial statements for the years 2010 and 2011, notes on activities, and a copy of the Memorandum of Association. The Ld. CIT pointed out these procedural defects. The assessee rectified these defects by filing the required documents on 20-04-2012. The Ld. CIT treated the application as valid from this date. However, the tribunal held that the valid application date should be 02-11-2011, when the application was initially submitted, as the procedural compliance was made during the pendency of the application.

2. Nature of Activities and Their Qualification as Charitable under Section 2(15):
The Ld. CIT observed that the assessee received substantial amounts under "Enduro Receipts" and from camps, which appeared commercial in nature and were subjected to TDS under sections 194C and 194J. The CIT concluded that these activities were in the nature of trade, commerce, or business, thus falling under the proviso to section 2(15), which excludes such activities from being considered charitable. The assessee argued that these receipts were incidental to its charitable activities, which include education and adventure sports, and thus should not be construed as commercial activities. The tribunal referred to the case of Sonepat Hindu Educational & Charitable Society, where it was held that once an institution is registered under section 12A, it is deemed to be for charitable purposes, and the nature of activities should not be re-examined for approval under section 80G.

3. Examination of Receipts and Their Classification:
The Ld. CIT noted that the assessee received payments categorized as "Advertising Agency" and other professional services, which were subjected to TDS. The assessee contended that these payments were for sponsorships and advertisements related to its charitable activities. The tribunal found that the CIT's examination of the nature of receipts was beyond the scope of enquiry for approval under section 80G, as established in the Sonepat Hindu Educational & Charitable Society case.

4. Foreign Trip Expenses and Their Relevance to Charitable Activities:
The Ld. CIT observed that the assessee incurred foreign trip expenses, which were not clearly related to its charitable activities. The assessee explained that these trips were for participating in adventure sports events abroad, which helped in organizing similar events in India. The tribunal noted that the foreign trip expenses, even if questioned, would affect the computation of income applied to charitable purposes but not the eligibility for approval under section 80G.

5. Treatment of Interest on Fixed Deposits in Financial Statements:
The Ld. CIT found that the assessee did not route interest on fixed deposits through the Income & Expenditure account for the year ended 31-03-2011, instead adding it directly to the balance sheet. The assessee acknowledged this error but argued it was not a recurring issue. The tribunal did not consider this point further, as the primary reason for rejecting the approval was based on the proviso to section 2(15).

Conclusion:
The tribunal allowed the assessee's appeal, directing the CIT-II, Pune to grant approval under section 80G effective from 02-11-2011, emphasizing that procedural compliance was rectified and the nature of activities should not have been re-examined given the existing registration under section 12A. The decision was pronounced in the open court on 27-01-2014.