2018 (5) TMI 625 - AT - Income Tax

Rejection of application for approval u/s 80G - rejection of claim as assessee society has sufficient disposable funds available with it and no reason was given for seeking funds by way of donation, as appropriate - proof of charitable activities - Held that - The sufficiency of funds available with an institution seeking the approval is no where mentioned as condition to be looked into before granting approval. Rightly pointed out by the assessee the primary conditions to be fulfilled are that it should be established for charitable purpose, carrying out only charitable activity and should not be for the benefit of any caste or religion. The facts emerging from the order of the CIT(E) itself is that the assessee society is registered u/s 12AA of the Act as a charitable society entitled to claim exemption u/s 11 of the Act and has also been granted approval u/s 10(23C)(vi) of the Act making it eligible to claim exemption under the said section as university/institution established wholly for the purpose of imparting education and not for the purpose of generating profits. CIT(E) has not given any cognizance to the above facts and has in fact not examined the eligibility of the assessee to grant of approval vis a vis the conditions set out in section 80G(5) - Restore the issue back to the Ld.CIT(E) to reconsider the application for grant of approval strictly in the light of the conditions set out in section 80G(5) - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Rejection of the application for approval under Section 80G of the Income Tax Act, 1961.
2. Compliance with conditions under Section 80G(5) of the Income Tax Act and Rule 11AA of the Income Tax Rules, 1962.
3. Consideration of surplus funds and rationale for seeking donations.
4. Examination of the charitable nature and activities of the assessee society.
5. Procedural fairness and opportunity of hearing.

Detailed Analysis:

1. Rejection of the application for approval under Section 80G of the Income Tax Act, 1961:
The appeal was preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Exemptions), Chandigarh, dated 28.3.2017, which rejected the assessee's application for approval under Section 80G of the Income Tax Act, 1961. The application was filed in Form No. 10G on 26.9.2016 to seek donations eligible for deduction under the said section. The assessee society was registered under the Societies Registration Act XXI on 29.9.2003, registered under Section 12AA of the Act on 19.5.2004, and granted approval under Section 10(23C)(vi) of the Act on 21.8.2007.

2. Compliance with conditions under Section 80G(5) of the Income Tax Act and Rule 11AA of the Income Tax Rules, 1962:
The Ld. CIT(E) rejected the application, stating that the assessee had investible surpluses and did not bring out the rationale for seeking donations. The assessee's activities and claims of imparting education were not corroborated by its emphasis on asset creation and other investments. The Ld. CIT(E) highlighted that the society's main focus was on acquiring assets rather than propagating education, as evidenced by its financial statements from the last four years.

3. Consideration of surplus funds and rationale for seeking donations:
The Ld. CIT(E) noted that the society had large investible surpluses primarily invested in acquiring fixed assets and maintaining huge cash balances, which could be utilized for expanding education. The Ld. CIT(E) concluded that there was no rationale for seeking donations when the society had sufficient funds from various types of fees. The Ld. CIT(E) also pointed out that the assessee had not shown any history of receiving donations and had not elaborated on the target group, contours of expansion, or the list of potential donors.

4. Examination of the charitable nature and activities of the assessee society:
The Ld. counsel for the assessee argued that the society was registered as a charitable society under Section 12AA of the Act and had been approved for claiming exemption under Section 10(23C)(vi) of the Act as an institution existing solely for imparting education. The counsel contended that the society's charitable character had been approved by the Department and that there was no reason to deny the approval now, especially without pointing out the non-fulfillment of any conditions prescribed under Section 80G(5) and Rule 11AA.

5. Procedural fairness and opportunity of hearing:
The Ld. counsel for the assessee argued that the Ld. CIT(E) denied the approval solely based on irrelevant considerations, such as the availability of surpluses and the lack of rationale for seeking donations. The counsel emphasized that these were not conditions for grant of approval under Section 80G(5)(vi) of the Act. The Ld. DR, however, supported the order of the Ld. CIT(E), stating that the assessee had sufficient funds and had not shown any reason for seeking donations.

Conclusion:
The tribunal found that the rejection of the application by the Ld. CIT(E) was inappropriate, as the sufficiency of funds was not a condition for approval under Section 80G(5) of the Act. The tribunal noted that the primary conditions for approval were that the institution should be established for charitable purposes, carry out charitable activities, and not benefit any particular community or religion. The tribunal observed that the Ld. CIT(E) had not examined the eligibility of the assessee vis-a-vis these conditions and had not given due cognizance to the assessee's registration under Section 12AA and approval under Section 10(23C)(vi). The tribunal restored the issue to the Ld. CIT(E) for reconsideration strictly in light of the conditions set out in Section 80G(5) and directed that the assessee be given due opportunity of hearing.

Order:
The appeal of the assessee was allowed for statistical purposes, and the order was pronounced in the Open Court.