2017 (5) TMI 536 - AT - Income Tax

Approval of exemption u/s 80G(5)(vi) - expenditure for a non-chartiable purpose - Income & Expenditure account of the applicant trust shows that the main expenditure was incurred by the applicant by way of donation to another trust - Held that - There is no such clause in the trust deed that the assets and properties of the trust shall be considered for transfer to any other society / trust with identical aims and objects. The Ld. CIT(E) observed that on perusal of the Income & Expenditure account of the applicant trust shows that the main expenditure was incurred by the applicant by way of donation to another trust namely Shri Krishan Parnami Manav Sewa Trust Hisar However the applicant trust himself has not made any such expenditure for a charitable purpose which is covered u/s. 2(15) of the Income Tax Act. We also note since the Applicant was not qualified for exemption u/s. 12AA of the I.T. Act 1961 and its application for registration u/s. 12AA was rejected by the Ld. CIT(E) vide his order dated 7.5.2015. And against the Ld. CIT(E) s aforesaid order the Assessee appealed before the Tribunal and the Tribunal while dealing in assessee s own case has set aside the issue in dispute to the file of the Ld. CIT(E) to decide the issue afresh and at present the Assessee has not been exempted u/s. 12AA of the I.T. Act therefore the Applicant was not qualified for grant of approval under section 80G of the Income Tax Act hence the Application for grant of approval u/s. 80G was rightly rejected by the Ld. CIT(E) - Decided against assessee.

Summary

Issues:
- Rejection of approval under section 80G(5)(vi) of the Income Tax Act
- Compliance with necessary conditions for approval of exemption under section 80G(5)(vi) of the Act
- Investment requirements under section 11(2) of the Income Tax Act
- Expenditure for charitable purposes under section 2(15) of the Income Tax Act
- Dismissal of the appeal against the order of the Ld. CIT(E)

Analysis:
1. Rejection of approval under section 80G(5)(vi) of the Income Tax Act:
The Assessee filed an appeal against the order passed by the Ld. Commissioner of Income Tax(Exemptions), Chandigarh, rejecting the approval under section 80G(5)(vi) of the Income Tax Act. The grounds raised in the appeal highlighted the arbitrary and erroneous nature of the rejection, emphasizing the need for relief. The Assessee contended that the rejection was based on invalid considerations and deserved to be set aside.

2. Compliance with necessary conditions for approval of exemption under section 80G(5)(vi) of the Act:
The Applicant Trust applied for approval under section 80G, but the Ld. CIT(E) found discrepancies in the Trust Deed regarding investment requirements specified in section 11(2) of the Income Tax Act. The Trust's ability to dissolve and transfer assets to another charitable organization was also scrutinized. The main expenditure incurred by the Applicant Trust was through donations to another trust, leading to a determination that the Applicant did not qualify for approval under section 80G.

3. Investment requirements under section 11(2) of the Income Tax Act:
The Trust Deed lacked provisions for investments in specified modes as required by section 11(2) of the Income Tax Act. The absence of clauses mandating investment in accordance with section 11(5) raised concerns about compliance with the Act's investment regulations, contributing to the rejection of the approval application.

4. Expenditure for charitable purposes under section 2(15) of the Income Tax Act:
The analysis of the Income & Expenditure account revealed that while the Applicant Trust donated to another charitable organization, it did not make expenditures for charitable purposes as defined under section 2(15) of the Income Tax Act. This discrepancy further solidified the Ld. CIT(E)'s decision to reject the approval under section 80G.

5. Dismissal of the appeal against the order of the Ld. CIT(E):
The Tribunal upheld the Ld. CIT(E)'s decision to reject the application for approval under section 80G, citing the Applicant's lack of qualification for exemption under section 12AA of the Income Tax Act. The Tribunal referred the issue back to the Ld. CIT(E) for reconsideration, emphasizing that the Applicant's non-exemption under section 12AA justified the rejection of approval under section 80G. Consequently, the appeal filed by the Assessee was dismissed, affirming the Ld. CIT(E)'s order.

In conclusion, the judgment delves into the intricacies of compliance with statutory provisions and conditions for obtaining approval under section 80G of the Income Tax Act, ultimately leading to the dismissal of the Assessee's appeal against the rejection of approval by the Ld. CIT(E).