2020 (6) TMI 265 - AT - Income Tax

Approval u/s 80G(5) rejected - assessee society is running a school and a B.Ed. college - assessee s society was given approval u/s 12AA - HELD THAT - Assessee society has been granted registration u/s 12AA of the Act by the department and, therefore, it remains undisputed that the department had found the activities of the assessee society genuine and, therefore, the genuineness of the activities cannot be doubted within a short span of six months. CIT (E) has himself stated that the assessee society has been running educational institutions and, thus, it is an accepted fact by the department that the society is carrying on educational activities. CIT (E) has drawn adverse inference from the fact of the assessee earning interest from FDRs and from the fact of maintaining FDRs. It is an accepted practice and a well known fact that educational institutions are directed to maintain some sort of reserve funds in the form of FDRs by the bodies granting affiliation and, therefore, the assessee cannot be put to a disadvantage for following the mandatory requirement by the affiliation bodies and boards. CIT (E) has misdirected himself by requiring the assessee society to submit a list of proposed donors and a plan for raising donations. In our considered opinion this is entirely irrelevant at the time of considering the assesee s application for approval u/s 80G. That the assessee had no history of receiving donations in the past also cannot be a ground for rejecting assessee s application u/s 80G. In another case of CIT vs. Rajmala Educational Society 2011 (10) TMI 459 - PUNJAB AND HARYANA HIGH COURT held that merely because there was some surplus with the assessee trust, the same could not be the ground to deny registration u/s 80G (5) of the Act. CIT (E) was not justified in rejecting the assessee s application for grant of approval u/s 80G (5) of the Act on frivolous grounds. We direct the Ld. CIT (E) to grant the approval u/s 80G (5) - Decided in favour of assessee.

Summary

Issues:
- Rejection of application for approval u/s 80G(5) of the Income Tax Act, 1961 by the Ld. CIT (E)
- Grounds raised by the assessee challenging the rejection

Analysis:

*Issue 1: Rejection of application for approval u/s 80G(5)*
The appeal was filed by the assessee against the order of the Ld. CIT (E) rejecting the application for approval u/s 80G(5) of the Income Tax Act, 1961. The Ld. CIT (E) based the rejection on various observations including the increase in annual receipts, surplus, cash balance, and fixed assets, which were all related to fee receipts from educational institutes run by the society. Additionally, concerns were raised about the failure to follow tax deduction provisions, interest income from FDRs, lack of donation history, and inadequate elaboration on target donor groups. The Ld. CIT (E) concluded that with available investible surpluses, there was no rationale for seeking donations, leading to the rejection of the application.

*Issue 2: Grounds raised by the assessee challenging the rejection*
The assessee challenged the rejection on multiple grounds. Firstly, it was argued that the application was filed in the prescribed format with all requisite documents. Secondly, the CIT (E) was accused of dismissing the application without proper consideration and ignoring the merits of the case. Thirdly, the CIT (E) was criticized for concluding that the trust had accumulated large funds without intent for expansion. Other grounds included objections to the requirement of elaborating on target donor groups, historical donation records, and the emphasis on asset creation over educational expansion. The assessee also contended that the trust existed solely for educational and charitable purposes, not for profit.

The ITAT, after hearing both parties and reviewing the facts, found that the rejection of the application by the Ld. CIT (E) was based on flawed reasoning. The ITAT highlighted that the society had been granted registration u/s 12AA, indicating the genuineness of its activities. The ITAT also emphasized that maintaining FDRs was a mandatory requirement for affiliation and should not be a basis for rejection. Moreover, the ITAT disagreed with the requirement for a list of proposed donors and past donation history, citing relevant judicial precedents. Ultimately, the ITAT directed the Ld. CIT (E) to grant approval u/s 80G(5) of the Act, based on the principles established by the Jurisdictional High Court precedents supporting the assessee's position.

In conclusion, the ITAT allowed the appeal of the assessee, overturning the rejection of the application for approval u/s 80G(5) and directing the Ld. CIT (E) to grant the approval as per the provisions of the Income Tax Act, 1961.