2019 (5) TMI 855 - AT - Income Tax

Denial of approval u/s 80G(5)(vi) - denial of approval for the reason that since it had a large asset base there was no valid reason for taking donation - HELD THAT - CIT(E) has not considered the application of the assessee in accordance with that prescribed under the Act and the Rules read alongwith it. There is no finding in the entire order vis a vis the genuineness of the activities carried out by the applicant/assessee. All the findings of the CIT(E) whether regarding no reason being given by the applicant for seeking donations considering that it had enough funds, or that it was receiving fees in cash, or that it intended opening a vridh ashram which was not its object, do not impinge on its charitable character or the genuineness of the activities carried out by it. The section does not state that the applicant has to justify taking donations. Similarly how receiving fees in cash impinges its charitable character, we fail to understand ,in the absence of any finding that such cash receipts were not being recorded in its books of accounts. Also the vision/plan of the applicant/assessee to undertake a project in the future of opening vridh ashram cannot be the reason for denying approval as being not part of its stated object, since as rightly pointed out by the assessee, the assessee has not undertaken the activity and it cannot be denied approval for contemplating carrying out in the future an activity not as per its stated objects since it can very well modify its objects when doing so . In the absence of any finding of the CIT(E), as required by law for granting approval u/s 80G regarding the charitable character and genuineness of the activities carried out by the assessee/applicant, we consider it fit to restore the issue back to the CIT(E) to reconsider the application of the assessee afresh and thereafter pass an order in accordance with law. We may add that the assessee be given due opportunity of hearing in this regard. Appeal of the assessee allowed for statistical purposes.

Issues Involved:
1. Denial of approval under section 80G(5)(vi) of the Income Tax Act, 1961.
2. Validity of reasons provided by the CIT(E) for the denial of approval.
3. Compliance with conditions specified in section 80G(5) and Rule 11AA of the Income Tax Rules, 1962.

Detailed Analysis:

1. Denial of approval under section 80G(5)(vi) of the Income Tax Act, 1961:
The assessee appealed against the CIT(E)'s order dated 31.5.2018, which denied approval under section 80G(5)(vi) of the Income Tax Act, 1961. The application for approval was filed on 21.11.2017, and the assessee had previously been granted registration as a charitable trust under section 12AA of the Act on 18.9.2008. The CIT(E) denied the approval based on several reasons, including the assured fee structure, large asset base, acceptance of fees in cash, and the intention to run a Vridh Ashram, which was not part of its stated objects.

2. Validity of reasons provided by the CIT(E) for the denial of approval:
The CIT(E) provided multiple reasons for denying the approval:
- Assured Fee Structure: The CIT(E) argued that the assured fee structure and additional receipts could affect the charitable character of the institution.
- Large Asset Base: The CIT(E) noted that the institution had a large asset base and had never sought donations in the past, questioning the need for donations.
- Acceptance of Fees in Cash: The CIT(E) expressed concerns about the acceptance of fees in cash, which were not deposited in the bank.
- Intention to Run a Vridh Ashram: The CIT(E) pointed out that the intention to run a Vridh Ashram was not aligned with the stated objects of the institution.

The CIT(E) concluded that the institution failed to justify the need for donations, the sudden deficit, and the proposed construction of a Vridh Ashram, which was not part of its stated objects and lacked necessary FCRA clearance for foreign donations.

3. Compliance with conditions specified in section 80G(5) and Rule 11AA of the Income Tax Rules, 1962:
The Tribunal found merit in the assessee's arguments and noted that for the purpose of granting approval under section 80G(5)(vi), the institution must fulfill the conditions laid down in section 80G(5) and Rule 11AA. The conditions include:
- The institution should be established for charitable purposes.
- It should not benefit any particular religious community or caste.
- It should maintain regular accounts of its receipts and expenditure.
- It should be constituted as a public charitable trust or registered under relevant laws.

The Tribunal observed that the CIT(E) did not consider the application in accordance with the prescribed conditions. There was no finding regarding the genuineness of the activities carried out by the institution. The reasons provided by the CIT(E) did not impinge on the charitable character or the genuineness of the activities. The Tribunal emphasized that the applicant need not justify taking donations, and the acceptance of fees in cash did not affect its charitable character in the absence of any finding that such receipts were not recorded in the books of accounts. The proposed Vridh Ashram was a future plan, and the institution could modify its objects when undertaking such activities.

Conclusion:
The Tribunal set aside the order of the CIT(E) and restored the issue back to the CIT(E) to reconsider the application afresh. The CIT(E) was directed to pass an order in accordance with the law, ensuring that the assessee is given due opportunity of hearing. The appeal of the assessee was allowed for statistical purposes.

← Previous Next →