2017 (5) TMI 1427 - HC - Income Tax

Renewal of the exemption under Section 80G(5) denied - as during the search and seizure operations an unaccounted cash was recovered and as such the assessee respondent was not properly maintaining its books of accounts - Held that - Tribunal is not justified that as the respondent assessee meets the requirement of the above conditions contained in sub-section 10(23C), it is also entitle to the benefit under Section 80G of the Act. There is no dispute that search and seizure operation was carried out in the premises of the respondent assessee and that a sum of ₹ 11.25 lacs was recovered in cash. This amount was not shown in the account books maintained by the respondent assesssee. It has come on record that the respondent assessee admitted before the Income Tax Settlement Commission that the cash found during the search and seizure operations amounting to ₹ 11.25 lacs belonged to it and that the receipts relating to this cash were not recorded in the account books. The above very fact clearly establishes beyond any doubt that the respondent assessee was not maintaining regular accounts of its receipts and expenditure. It is precisely on this ground that the application for renewal of approval/registration has been rejected. Assessee failed to fulfill one of the essential conditions for grant of renewal of approval/registration under Section 80G of the Act, we are of the opinion that the tribunal committed manifest error of law in setting aside the order of the Commissioner and in directing for grant of registration under Section 80G(5) to the respondent assessee. The fulfilment of conditions under Section 10(23C) of the Act is only one of the conditions prescribed under Section 80G of the Act but besides the said condition other conditions are also necessary to be satisfied for claiming benefit of Section 80 G of the Act. The respondent assessee failed to satisfy one of those conditions as mentioned earlier. Question of law answered in favour of the revenue and against the assessee and it is held that benefit under Section 80 G shall only be available on the strict compliance of the conditions laid down therein and not merely by satisfying the conditions of Section 10 (23 C) of the Act.

Summary

Issues:
1. Renewal of exemption under Section 80G of the Income Tax Act.
2. Discrepancy in maintaining accounts by the respondent assessee.
3. Interpretation of conditions under Section 80G and Section 10(23C) of the Act.
4. Compliance requirements for approval under Section 80G.

Renewal of Exemption under Section 80G:
The respondent, a registered society running a Dental College, applied for renewal of exemption under Section 80G of the Income Tax Act after the initial exemption expired. The Commissioner rejected the application citing unaccounted cash found during a search operation, indicating improper maintenance of accounts. The Income Tax Appellate Tribunal later allowed the appeal, granting the exemption. The High Court reviewed the case, focusing on the discrepancy in maintaining accounts and the conditions for renewal under Section 80G.

Discrepancy in Maintaining Accounts:
During a search and seizure operation, unaccounted cash was found in the respondent's premises, which was not recorded in the account books. The respondent admitted to the undisclosed cash before the Income Tax Settlement Commission. The failure to maintain regular accounts of receipts and expenditure was a crucial factor leading to the rejection of the renewal application under Section 80G.

Interpretation of Conditions under Section 80G and Section 10(23C):
Section 10(23C) exempts income of non-profit educational institutions, while Section 80G allows deductions for donations to charitable institutions. The High Court highlighted the distinct conditions under both sections, emphasizing the necessity for the respondent to meet the specific requirements under Section 80G, including the maintenance of regular accounts, apart from compliance with Section 10(23C) conditions.

Compliance Requirements for Approval under Section 80G:
The judgment clarified that while compliance with Section 10(23C) conditions is essential, meeting the additional conditions under Section 80G, such as maintaining proper accounts, is crucial for approval under that section. The High Court ruled that the respondent's failure to fulfill the accounting condition warranted the rejection of the renewal application under Section 80G, despite meeting other criteria under Section 10(23C).

Conclusion:
The High Court set aside the Income Tax Appellate Tribunal's decision, emphasizing the importance of strict compliance with conditions under Section 80G for approval. The judgment highlighted that while meeting Section 10(23C) conditions is necessary, adherence to all requirements under Section 80G, including maintaining regular accounts, is indispensable for seeking approval or renewal. The respondent's failure to maintain proper accounts led to the rejection of the renewal application, underscoring the significance of fulfilling all specified conditions for availing benefits under Section 80G.