2009 (6) TMI 612 - AT - Income Tax

Renewal of recognition - The assessee-trust had furnished its application in Form No. 10G on 30th June 2008 with the Director of IT (Exemption) seeking renewal of recognition under s. 80G of the Act - renewal for recognition under s. 80G was rejected by the learned Director of IT (Exemption) - Audit report for financial year 2004-05 does not show the specific purpose for accumulation - Trust deed had not undergone any change or modification from the date of its execution and as such the Director of IT (Exemption) had no evidence to cast any such allegation of existence of business activity - Hon ble apex Court s finding in the case of Radhasoami Satsang vs. CIT (1991 -TMI - 5353 - SUPREME Court) and the decision of the Hon ble Tribunal Mumbai Bench D in the case of Cotton Textiles Export Promotion Council vs. ITO Accordingly it was held that the learned Director of IT (Exemption) was not justified in rejecting the application of the assessee-trust for renewal of recognition under s. 80G of the Act. The Director of IT (Exemption) is accordingly directed to renew the recognition under s. 80G of the Act to the assessee trust Decided in the favour of the assessee

Summary

Issues Involved:
1. Rejection of renewal of approval for recognition under Section 80G of the Income Tax Act.
2. Accumulation of funds in excess of the prescribed limit under Section 11(1)(a) of the Act.
3. Non-specificity in the application for accumulation of income.
4. Alleged non-charitable activities of the trust.

Detailed Analysis of Judgment:

1. Rejection of Renewal of Approval for Recognition under Section 80G:
The primary issue is the rejection of the renewal of approval for recognition under Section 80G of the Income Tax Act by the Director of IT (Exemption). The assessee trust had applied for renewal in Form No. 10G on 30th June 2008. The Director of IT (Exemption) rejected the renewal, citing several reasons, including the trust's accumulation of funds beyond the permissible limit and the non-specificity in the application for accumulation.

2. Accumulation of Funds in Excess of the Prescribed Limit under Section 11(1)(a):
The Director of IT (Exemption) noted that the trust had accumulated funds in excess of 15% as required under Section 11(1)(a) of the Act. Specifically, the trust accumulated Rs. 23.53 lakhs without applying the funds for the objects of the trust in the relevant financial year. This accumulation was also observed for the financial year 2005-06, indicating non-compliance with Section 11(2)(a).

3. Non-specificity in the Application for Accumulation of Income:
The Director of IT (Exemption) found that the audit report for the financial year 2004-05 did not specify the purpose for accumulation. The reference to clause 28 of the general objects, which has 15 clauses, was deemed insufficient. The trust had neither sought the Assessing Officer's permission for accumulation of funds nor mentioned it in the relevant columns of Form 10G.

4. Alleged Non-charitable Activities of the Trust:
The Director of IT (Exemption) also questioned the charitable nature of the trust's activities. It was noted that the trust primarily awarded merit scholarships to students obtaining the highest marks in IIM and IBS, Hyderabad, with only a small portion of scholarships reaching poor students. This was deemed inconsistent with the educational limb of the definition of charitable purpose as per the Supreme Court's ruling in Sole Trustee, Loka Shikshana Trust vs. CIT. Additionally, the trust was accused of performing no credible activity and serious violations of Section 11.

Trust's Arguments:
The assessee trust argued that the impugned order was passed without due application of mind and failed to observe the rule of consistency. The trust had been obtaining recognition from time to time, covering the period from 11th August 2003 to 31st March 2008. The trust deed had not undergone any change or modification from the date of its execution. The trust also argued that it had sought accumulation till 31st March 2010 as per law and that the application for accumulation need not be made every year. The trust's investments and disbursements were also highlighted to counter the allegations.

Legal Precedents Cited:
The trust cited several legal precedents to support its case, including:
- Radhasoami Satsang vs. CIT, where the Supreme Court held that in the absence of any material change, the Department should not take a different view from that taken in earlier proceedings.
- CIT vs. Malborough Polychem (P) Ltd., where the Rajasthan High Court held that the assessee could not be denied the benefit of Section 80HH, which was given by the Department all through.
- Cotton Textiles Export Promotion Council vs. ITO, where the Tribunal held that an assessee could give notice in writing in Form No. 10 for more than one year to claim accumulation of income under Section 11(2).
- Director of IT (Exemption) vs. Daulat Ram Education Society, where the Delhi High Court held that a charitable trust must specify the purposes for which the income is being accumulated and that plurality of purposes is allowed.

Department's Arguments:
The Department argued that the trust had violated the provisions of Section 11 and that its activities were not for charitable purposes. The Department relied on decisions from the Kerala High Court and Karnataka High Court to support its stance.

Tribunal's Findings:
The Tribunal carefully considered the rival submissions and perused the relevant documents. It found that the Director of IT (Exemption) had not provided any fresh or adverse material to unsettle the earlier orders granting recognition. The Tribunal noted that the trust had specifically mentioned the purposes for accumulation in Form No. 10 and that the Director of IT (Exemption) had not found any conditions under Section 80G(5) that the trust had not fulfilled.

Conclusion:
The Tribunal concluded that the Director of IT (Exemption) was not justified in rejecting the application for renewal of recognition under Section 80G. The Tribunal directed the Director of IT (Exemption) to renew the recognition under Section 80G to the assessee trust. The appeal of the assessee trust was allowed.