9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (9) TMI 405 - AT - Income TaxExemption u/s 11 - Application for approval u/s 80G rejected - assessee-applicant, a Trust registered under M.P. Public Trust Act, 1951. It is also registered as a charitable institution u/s. 12AA - HELD THAT - The question of carrying any activity in the nature of trade, commerce or business, is applicable only to the residuary class, i.e., advancement of any other object of general public utility , and not to the other categories of charitable purpose, as defined u/s. 2(15), viz. education, medical relief, etc. There could be an angle of genuineness as well inasmuch as income could only be at a normative level of receipt, so that any income beyond the same may indicate, or at least prima facie , non-genuineness of the receipt itself. In this regard, 98% of the agricultural receipt as income was explained by Shri Gupta, to be on account of absence of agricultural activity; the receipt being by way of rent, admitting of very low expenditure. Where, then, is the scope for the activity being regarded as commercial on that score? The income component at 27% to 33% for other divisions could be relevant only where it can said to exceed, rather by far, of the normative level, not defined or delineated. The objection of surplus or commercial activity by the ld. CIT(E) is thus not valid. The objection fails. Receipt by way of medical associate share and education associate share - Section 13(2)(a) r/w s. 13(1) shall operate to exclude sections 11 and 12, resulting in contravention of the condition of section 80G(5)(i). Yes, the entity/s using the facility may not be covered u/s. 13(3), for s. 13 to apply, but there is neither any explanation by the assessee nor any finding by the ld. CIT(E) qua this. Further, there is also the angle of genuineness. A more than adequate compensation could, on the other hand, imply routing of perhaps taxable income into the coffers of the assessee for being claimed exempt. That is, non-adequacy is impermissible even in the case of an excess or overcharge where the payer entity is generating taxable income, and irrespective of whether it is covered u/s. 13(3) or not. There being no finding qua this aspect, the matter is set aside to the file of the ld. CIT(E) for the same. Needless to add, he shall do so per a speaking order and after allowing reasonable opportunity of being heard to the assessee. The ld. CIT(E) shall, as explained hereinbefore, record his satisfaction qua each of the conditions specified in clauses (i) to (v) of sec. 80G(5) or, as case may be, specify reason/s for his non-satisfaction of any of the said conditions. A finding as to the non-genuineness of activity/s cannot be lightly issued, particularly considering that the applicant-trust has a long history, and the matter is to be decided on an objective assessment of the obtaining facts. The onus thereof is on the Revenue. That apart, adequacy of consideration entails the technical subject of valuation. The same is therefore to be approached with utmost care, and finding/s issued on a consideration of the totality of the facts and circumstances of the case, on the touchstone of reasonability. The onus to establish and justify its claim of adequacy, we may though clarify, is on the appellant-applicant inasmuch as the same represents a condition precedent for the grant of exemption. As regards agricultural income, the same is exempt u/s. 10(1), and does not therefore require its application for the objects of trust for being claimed exempt, even as argued before us. The same, however, is to utilized only for its purposes, i.e., either the expenses of the trusts or its objects. So utilized, it gets either consumed or becomes the trusts property, income from which is exempt upon being applied for charitable purposes. Appeal is allowed for statistical purposes.
Issues Involved:
1. Denial of approval under section 80G(5)(vi) of the Income Tax Act, 1961. 2. Generation of surplus by the assessee. 3. Nature of agricultural income. 4. Nature of receipts from 'Medical Associate Share' and 'Education Associate Share.' 5. Applicability of amended law concerning automatic renewal of approval under section 80G(5)(vi). Issue-wise Detailed Analysis: 1. Denial of approval under section 80G(5)(vi) of the Income Tax Act, 1961: The appeal concerns the denial of approval under section 80G(5)(vi) by the Commissioner of Income Tax (Exemption), Bhopal. The Tribunal noted that the decision to approve or reject must be based on the conditions specified in section 80G(5)(i) to (v) read with rule 11AA. The Tribunal found that the impugned order did not specify which conditions were not satisfied, necessitating a remand to the competent authority to issue a clear order in accordance with the law. 2. Generation of surplus by the assessee: The CIT(E) denied approval partly because the assessee was generating substantial surpluses annually. The assessee argued that the surplus did not account for capital expenditure or loan repayments, which would result in a net deficiency. The Tribunal clarified that surplus generation is not inherently violative of section 80G(5). Surplus is necessary for applying income for charitable purposes, qualifying for exemption under section 11. The Tribunal found the objection of surplus generation invalid. 3. Nature of agricultural income: The CIT(E) argued that agricultural income was derived from renting land, thus constituting commercial activity. The Tribunal noted that the agricultural income being 98% of the gross receipt was due to the absence of agricultural activity and was instead rental income. The Tribunal concluded that this did not make the activity commercial and found the objection invalid. 4. Nature of receipts from 'Medical Associate Share' and 'Education Associate Share': The CIT(E) highlighted substantial receipts from 'Medical Associate Share' and 'Education Associate Share,' questioning their nature. The Tribunal noted that these receipts, representing charges for using the assessee's facilities by associate concerns, required examination for adequacy of consideration. Inadequate or excessive compensation could imply non-genuineness or routing of taxable income into exempt entities. The Tribunal remanded the matter to the CIT(E) for a detailed examination and a speaking order. 5. Applicability of amended law concerning automatic renewal of approval under section 80G(5)(vi): The assessee argued that the amended law effective from 1.10.2009 mandated automatic renewal of approvals expiring before that date. The Tribunal disagreed, stating that the amended law applies prospectively. Approvals granted before 1.10.2009 must be renewed upon expiry, and once renewed, they extend in perpetuity. The Tribunal found the reliance on the Board Circular and case law misplaced. Conclusion: The Tribunal remanded the matter to the CIT(E) to issue a detailed order in accordance with the law, specifying reasons for non-satisfaction of any conditions under section 80G(5). The appeal was allowed for statistical purposes.
|
