2020 (1) TMI 1017 - AT - Income Tax

Approval u/s 80G(5)(vi) denied - contention has been raised is that the company has been formed to carry out the corporate social responsibility of the other company - Whether registration u/s 12A was not sufficient condition for claiming approval under section 80G(5) ? - HELD THAT - There is no averment or allegation that the assessee-company does not fulfil the condition as required under section 80G(5) So far as the contention of the learned Commissioner of Income-tax (Exemptions) that the company has been formed to fulfil the corporate social responsibility of the another company the issue has been settled by the co-ordinate Delhi Bench of the Tribunal in Nanak Chand Jain Charitable Trust v. CIT(E) 2018 (2) TMI 874 - ITAT DELHI wherein it has been held that merely because the assessee-trust/ company has been formed by another company for complying the corporate social responsibility requirements it cannot be denied registration under section 12AA unless the genuineness of the activities of the assessee-trust or its charitable objects is doubtful. Also see ESCORTS SKILL DEVELOPMENT VERSUS CIT (EXEMPTIONS) CHANDIGARH 2019 (5) TMI 770 - ITAT DELHI - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of approval under section 80G(5)(vi) of the Income-tax Act, 1961.
2. Charitable status and activities of the appellant-society.
3. Allegations regarding corporate social responsibility (CSR) compliance.

Detailed Analysis:

1. Denial of Approval under Section 80G(5)(vi) of the Income-tax Act, 1961:
The primary issue in the appeal is the denial of approval under section 80G(5)(vi) of the Income-tax Act, 1961 by the Commissioner of Income-tax (Exemptions), Chandigarh. The appellant-society had already been registered as a charitable institution under section 12A of the Act and had applied for approval under section 80G on July 31, 2018. The Commissioner of Income-tax (Exemptions) denied the approval, stating that the appellant-society was not established for charitable purposes, which is a prerequisite for approval under section 80G. Furthermore, the Commissioner observed that the primary source of income for the appellant-society was donations from another company, Edifecs Technologies Pvt Ltd, and that the society was essentially a CSR arm of this company. The Commissioner concluded that the benefit of approval for exemption to donations cannot be extended to such an entity, as it is part of an arrangement that allows corporates to claim deductions on amounts not allowable as deductions from income under the Finance (No. 2) Act, 2014.

2. Charitable Status and Activities of the Appellant-Society:
The appellant-society contested that it had already been granted registration under section 12A of the Act, which was still subsisting and not canceled. The Tribunal noted that the Commissioner of Income-tax (Exemptions) did not doubt the charitable objects and activities of the appellant-society. The Tribunal emphasized that the mere formation of the society to carry out CSR activities of another company does not disqualify it from obtaining approval under section 80G(5) unless the genuineness of its activities or its charitable objects is in doubt. The Tribunal referred to the provisions of section 80G(5) and noted that the appellant-society fulfilled the necessary conditions.

3. Allegations Regarding Corporate Social Responsibility (CSR) Compliance:
The Commissioner of Income-tax (Exemptions) argued that the appellant-society was formed to fulfill the CSR obligations of another company, and therefore, should not be granted approval under section 80G. However, the Tribunal referred to the decision of the Delhi Bench of the Tribunal in the case of Nanak Chand Jain Charitable Trust v. CIT(E), which held that forming a trust for CSR compliance does not disqualify it from registration under section 12AA unless its activities or charitable objects are not genuine. The Tribunal also cited the decision in the case of Escorts Skill Development v. CIT (E) and Roundglass Foundation v. CIT (E), which supported the appellant-society's position.

Conclusion:
The Tribunal set aside the order of the Commissioner of Income-tax (Exemptions) and directed the Commissioner to grant approval under section 80G(5) of the Income-tax Act, 1961 to the appellant-society. The appeal of the appellant-society was allowed, and the order was pronounced in the open court on December 20, 2019.

The Tribunal's judgment emphasized that the charitable status and activities of the appellant-society were not in doubt, and the mere compliance with CSR requirements did not disqualify it from obtaining approval under section 80G(5). The Tribunal relied on precedents to support its decision, ensuring that the appellant-society's charitable objectives and genuine activities were recognized for tax exemption purposes.