2010 (4) TMI 845 - AT - Income Tax

Application of the assessee for renewal of approval under s. 80G of the IT Act - Director of IT (Exemptions) also rejected the application for renewal of exemption on the ground that some fee was collected by the assessee trust from the participants and the same amounts to carrying on business activities Held that - trust which is a research foundation, did not conduct any medical tests, and the question of charging any fees for medical tests does not arise at all, activities of the research foundation amounted to advancement of any other object of general public utility but at the same time, the activities cannot be termed as business activities or commercial activities, because the activities are not carried out for profit motive, Director of IT (Exemptions) directed to grant renewal of exemption under s. 80G of the Act, assessee is allowed

Summary

Issues:
Renewal of approval under section 80G of the IT Act, violation of provisions of section 13(1)(b) of the IT Act, violation of conditions in sections 11 and 12 of the IT Act, applicability of proviso to section 2(15) of the IT Act, rejection of renewal based on technical defect in drafting of trust deed, collection of fees by the trust, classification of activities as business or not.

Renewal of Approval under Section 80G:
The appeal was against the rejection of the application for renewal of approval under section 80G of the IT Act by the Director of IT (Exemptions). The key issue was a technical defect in the drafting of the trust deed, where the trust's activities were initially mentioned to support the Indian Christian minority community but later clarified to be open to all communities. The Tribunal found that the trust's activities were indeed inclusive of various communities, and there was no violation of section 13(1)(b) of the IT Act. Reference was made to a previous case where it was held that benefiting a particular community due to circumstances does not indicate a violation.

Violation of Provisions of Sections 11 and 12:
The Director of IT (Exemptions) alleged a violation of sections 11 and 12 of the IT Act based on clauses in the trust deed suggesting activities outside India. However, the Tribunal found no evidence of activities or income applied outside India by the trust. It was determined that the issue of income application could be addressed during assessment, not at the renewal stage.

Applicability of Proviso to Section 2(15):
The Director of IT (Exemptions) contended that the trust was hit by the proviso to section 2(15) of the IT Act, which restricts entities engaged in commercial activities from exemption. The Tribunal disagreed, noting that the trust, being an educational and research foundation, did not engage in trade, commerce, or profit-oriented services, thus not falling under the proviso.

Collection of Fees by the Trust:
Another ground for rejection was the collection of fees by the trust, raising concerns of engaging in business activities. The Tribunal analyzed the nature of the fees collected, emphasizing they were not fixed, not for profit, and used to cover program expenses. It was clarified that the trust's activities did not constitute business or commercial activities due to the absence of profit motive.

Conclusion:
The Tribunal allowed the appeal, directing the Director of IT (Exemptions) to grant renewal of exemption under section 80G of the IT Act. The decision was based on the trust's inclusive activities, lack of evidence of income application outside India, non-commercial nature of the trust's operations, and the voluntary and non-profit-oriented fee collection practices.