2018 (6) TMI 454 - HC - Income Tax

Charitable activity - approval u/s 80G denied as activities of the respondent-society were not for charitable purposes and 50% of the donations was from the trustees themselves in the absence of any documentary evidence - corpus donation for land building - Held that - Ordinarily when an assessee-society is established in the initial years it may be required to set up its place of office from where it would operate and also require building to carry on charitable activities therein. Purchase of land and building by itself would not be sufficient to conclude that the assessee is involved in non-charitable activities. CIT(E) before denying approval under Section 80G(5)(vi) of the Act was required to record a definite finding of fact that the funds utilised for land and building was being utilised for private purposes and not for charitable purposes. The action of the assessee-society in such circumstances cannot be held to be for non-charitable purposes. The CIT(E) had acted on mere suspicion and conjectures to deny approval to the assessee-society. Further as per the Income Expenditure Account for the financial year 2015-16, an amount of ₹ 1,03,275/- had been spent on account of student fees out of which ₹ 37,000/- had been spent on a single child on different occasions. This was held to be not qualifying for charitable acts done on a systematic regular basis. This is the result of suspicion alone. This being first year of operation after registration under Section 12AA of the Act which was accorded on 30.11.2015, the approach of CIT(E) declining approval under Section 80G(5)(vi) of the Act cannot be said to reasonable and legally sustainable. - Decided against revenue

Summary

Issues:
1. Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
2. Denial of approval under Section 80G(5)(vi) of the Act by the Commissioner of Income Tax (Exemptions).
3. Tribunal's decision allowing the appeal based on existing registration under Section 12AA of the Act.
4. Interpretation of the law regarding granting approval under Section 80G of the Act.
5. Discrepancies in the expenditure of the respondent-society and denial of charitable status.

Analysis:
1. The appellant-revenue filed an appeal under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal, challenging the denial of approval under Section 80G(5)(vi) of the Act by the Commissioner of Income Tax (Exemptions). The Tribunal allowed the appeal based on the existence of registration under Section 12AA of the Act, leading to the current appeal.

2. The Commissioner of Income Tax (Exemptions) had denied approval under Section 80G(5)(vi) to the respondent-society, citing reasons such as a significant portion of donations coming from trustees themselves, lack of documentary evidence for claimed corpus donations, and focus on land and building creation rather than charitable activities. The Tribunal overturned this decision, emphasizing the importance of existing registration under Section 12AA for granting approval under Section 80G.

3. The judgment referred to a previous case to highlight that while registration under Section 12AA is crucial for Section 80G approval, it may not be sufficient on its own. In the present case, the respondent-society had obtained registration under Section 12AA before seeking approval under Section 80G, which influenced the Tribunal's decision to allow the appeal.

4. The judgment analyzed the law's interpretation regarding granting approval under Section 80G of the Act, emphasizing the need for a case-specific assessment. The Tribunal's decision was upheld based on the facts of the case, where the denial of approval by the Commissioner was deemed unreasonable and lacking legal basis.

5. The discrepancies in the respondent-society's expenditure, particularly the allocation of funds for student fees and lack of systematic charitable activities, were scrutinized. The judgment concluded that the denial of approval under Section 80G was unfounded, especially considering it was the society's first year of operation after registration under Section 12AA. The possibility of future assessments for charitable status was acknowledged.

In conclusion, the High Court dismissed the appeal by the appellant-revenue, upholding the Tribunal's decision based on the existing registration under Section 12AA and finding no substantial errors in the Tribunal's findings.