2013 (2) TMI 294 - HC - Income Tax

Exemption granted u/s 80(G)(5) withdrawn - Whether approval once granted shall continue in perpetuity as per Circular No. 5/2010? - ITAT set aside the withdrawal orders - Held that - The order of the Tribunal setting aside the order of CIT is based on sound reasoning as asseesse had valid exemption on 1.10.2010 when the provisions of Section 80G were amended so as to dispense the periodic renewal of the exemptions. Such statutory provisions were clarified by Circular No. 5 of 2010 and Circular No.7 of 2010 issued by CBDT. Once the statute has given perpetuity to the exemptions granted under Section 80(G)(5) the same could not be withdrawn without issuing show cause notice in terms of the statutory provisions in the manner prescribed by law.

Summary

Issues:
1. Appeal under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal regarding the continuation of approval under Section 80G(5) of the Act.
2. Validity of withdrawal of exemption under Section 80(G) of the Act by the Commissioner of Income Tax despite circulars clarifying perpetual exemptions.

Analysis:
1. The appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) regarding the continuation of approval under Section 80G(5) of the Income Tax Act. The Tribunal had held that the approval once granted to the assessee under Section 80G(5) shall continue in perpetuity as per circulars issued by the Central Board of Direct Taxes (CBDT). The Revenue raised substantial questions of law challenging the Tribunal's decision. The High Court noted that the Tribunal's decision was based on sound reasoning as the assessee had a valid exemption on 1.10.2010, and the provisions were amended to dispense with periodic renewal of exemptions, as clarified by Circular No. 5 of 2010 and Circular No. 7 of 2010 issued by the CBDT. The High Court found that since the exemptions were granted perpetuity under Section 80(G)(5) of the Act, they could not be withdrawn without following the prescribed statutory procedures.

2. The assessee, a charitable trust, was granted exemption under Section 80(G) of the Act, valid until 31st March 2010. The assessee applied for renewal of exemption on 27.12.2010, but it was withdrawn on 04.02.2011 by the Commissioner of Income Tax, despite circulars clarifying perpetual exemptions. The withdrawal was based on the finding that the activities of the trust were not charitable. However, the High Court observed that the Commissioner's order withdrawing the exemption was set aside by the Tribunal. The High Court emphasized that once the statute granted perpetuity to exemptions under Section 80(G)(5) of the Act, they could not be withdrawn without following the prescribed legal procedures. Therefore, the High Court dismissed the appeal, stating that no substantial question of law arose for consideration in this case.