2017 (12) TMI 1740 - AT - Income Tax

Approval claimed u/s 80G(5) - Exemption u/s 11 - denial of claim as assessee has not undertaken much activity in accordance with the objects - HELD THAT - Commissioner has already granted registration u/s 12AA of the Act and approval u/s 80G was not rejected on the ground of not obtaining registration u/s 12AA of the Act but only on the limited ground that no activity has been carried out. The decision of ABACUS FOUNDATION VERSUS COMMISSIONER OF INCOME TAX (EXEMPTIONS) 2016 (11) TMI 390 - ITAT KOLKATA as rightly been pointed out by the Ld. Counsel, supports the stand of assessee that if the activities of the trust are genuine, at the stage of commencement of institution, registration has to be granted automatically and claim u/s 80G of the Act can be followed with grant of registration. Ld. Commissioner (Exemptions) did not reject the request of the assessee for approval u/s 80G of the Act on the ground of not annexing the registration certificate u/s 12AA of the Act but on the limited ground that it has not undertaken much activity. At the inception of the institution, one cannot expect serious activities, since it needs funds and to obtain funds, the trust needs approval u/s 80G of the Act. Thus, the activities are interlinked with obtaining approval. Hence, mere fact that the assessee could not undertake much activity within the short span of 3 months, the Commissioner (Exemptions) should not have refused the claim of approval u/s 80G(5) - Decided in favour of assessee.

Summary

Issues:
1. Approval u/s 80G(5) of the Income Tax Act not accorded due to lack of activity in accordance with objects.
2. Interpretation of the requirement of undertaking activities for approval u/s 80G(5)(vi) of the Act.
3. Discrepancy between ITAT Lucknow bench and ITAT Kolkata bench decisions on the timing of seeking approval u/s 80G of the Act.
4. Relevance of carrying out charitable activities at the commencement of an institution for registration u/s 12AA of the Act.

Analysis:
1. The appeal was against the Commissioner's order denying approval u/s 80G(5) due to lack of activity in line with the trust's objects. The Commissioner cited Rule 11AA of Income Tax Rules, 1962, stating the trust had not undertaken significant activities since inception, making it ineligible for approval. The trust argued that it was newly established and needed time to generate funds for activities. The ITAT emphasized the interlink between activities and approval, directing the Commissioner to consider granting approval if all conditions were met.

2. The case highlighted the importance of undertaking activities in line with the objects for approval u/s 80G(5)(vi) of the Act. The trust's delayed application after inception was a point of contention, with the ITAT emphasizing the need for a pragmatic approach considering the trust's circumstances and the necessity of funds for activities.

3. A discrepancy arose between the ITAT Lucknow bench and ITAT Kolkata bench decisions regarding the timing of seeking approval u/s 80G of the Act. The Lucknow bench required a gap between seeking approval u/s 12AA and u/s 80G, while the Kolkata bench focused on the genuineness of activities at the institution's commencement. The ITAT in this case distinguished the scenarios and upheld the Kolkata bench's stance.

4. The relevance of carrying out charitable activities at the commencement of an institution for registration u/s 12AA of the Act was discussed. The trust's reliance on the ITAT Kolkata bench decision supported the argument that registration should not be refused based on the lack of activities at the institution's inception. The ITAT emphasized the automatic grant of registration if activities were genuine, with approval u/s 80G to follow suit.

In conclusion, the ITAT directed the Commissioner to consider the trust's circumstances and grant approval u/s 80G(5) if all conditions were met, emphasizing the importance of a pragmatic approach in evaluating charitable activities and the timing of seeking approvals under the Income Tax Act.