2015 (10) TMI 932 - AT - Income Tax

Grant of approval for the purposes of Section 80G - CIT(A) denied the claim - Held that - So far as possibility of doing any commercial activity is concerned, which is substance of learned Commissioner s rejection of application, there is nothing in Section 80 G (5) which can justify rejection of application on that basis. All that Section 80G(5)(i) states is that where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 or clause (22) or clause (22A) or clause (23) or clause (23AA) or clause (23C) of section 10 . There are certain other fine points on this issue but there is no need to go into all those issues as undisputedly, there is no such income on the facts of this case. There may be a possibility of engaging in a commercial activity , with the help of community centre the assessee is building, but this possibility, even if that be so, cannot be reason enough to decline the application for registration under section 80 G. Commissioner s action is a classic example of proceeding on the basis of surmises and conjectures and on the basis of irrelevant considerations. What Commissioner needs to do in such cases is very well elaborated upon in Rule 11 AA reproduced earlier in this order. Learned Commissioner, should, inter alia, examine (i) copy of registration granted under section 12A or copy of notification issued under section 10(23) or 10(23C); (ii) notes on activities of institution or fund since its inception or during the last three years, whichever is less; and (iii) copies of accounts of the institution or fund since its inception or during the last three years, whichever is less. In case learned Commissioner is not satisfied with such material, it is open to him to call for such further documents or information from the institution or fund or cause such inquiries to be made as he may deem necessary in order to satisfy himself about the genuineness of the activities of such institution or fund. In the impugned order, however, there is not even a whisper about the note on activities on the institution nor on why is the learned Commissioner not satisfied about facts set out in these notes and other information submitted by the assessee institution. Thus remit the matter to the file of the learned Commissioner for fresh adjudication - Decided in favour of assessee for statistical purposes.

Summary

Issues involved:
- Denial of approval for Section 80G of the Income Tax Act, 1961 based on the expenditure for purchase of land and construction of a community hall.
- Interpretation of requirements for approval under Rule 11AA of the Income Tax Rules.
- Examination of conditions under Section 80G(5) for donations to charitable institutions.
- Assessment of the Commissioner's decision to reject the application and the legal basis for such rejection.

The judgment addressed the denial of approval under Section 80G of the Income Tax Act, 1961 due to the expenditure on land purchase and community hall construction. The Commissioner rejected the application citing potential commercial use of the community hall and lack of evidence of significant charitable activities. The Tribunal noted the legal requirements for approval under Rule 11AA, emphasizing the need for satisfaction of conditions laid down in clauses (i) to (v) of sub-section (5) of Section 80G. The Tribunal highlighted the Commissioner's obligation to examine registration details, activity notes, and accounts to ensure genuineness. The judgment emphasized the importance of a reasoned decision and giving the applicant an opportunity to be heard before rejection.

The Tribunal analyzed Section 80G(5) which outlines conditions for donations to charitable institutions. It clarified that the possibility of commercial activity does not warrant rejection unless income is liable for inclusion under specified sections. The Tribunal criticized the Commissioner's reliance on conjectures and irrelevant considerations, stressing the need for a thorough examination of provided materials. The judgment underscored the Commissioner's duty to assess the institution's activities and financial records before making a decision, highlighting the lack of proper evaluation in the case at hand.

Ultimately, the Tribunal allowed the appeal for statistical purposes, directing a fresh adjudication by the Commissioner. The judgment emphasized the importance of following legal procedures, providing a reasoned decision, and granting the applicant a fair opportunity to present their case. The Tribunal's decision aimed to ensure compliance with legal provisions and proper assessment of charitable institutions seeking approval under Section 80G.