2024 (1) TMI 483 - AT - Income Tax

Exemption u/s 11 - registration u/s 12AB and approval u/s 80G(5) denied - Charitable activity u/s 2(15) - sole reason of rejecting assessee s application by CIT(E) is the last part of Clause 4(p) in the trust-deed which prescribes without being responsible or accountable for any loss caused thereby from which as inferred that the trustees have unlimited authority to divert funds of trust by giving loans to any related or favourable party - HELD THAT - The words for any of the above charitable purposes coming before the underlined words being relied upon by revenue, cannot be ignored. One cannot take out a part of the sentence and interpret, one has to read entire verdict of a sentence. Otherwise, it becomes mis-reading. We find that in the said clause 4(p), it is clearly mentioned that the trustees can give loans for any of the above charitable purposes only. Therefore, the apprehension of revenue that the loans would be given to a related or favourable party is a heighted apprehension. In any case, Ld. AR has shown, with the help of audited financial statements, that till now the trust has not made any such loan to a related or favourable party. If the trust makes any such loan in future, the law provides for forfeiture of exemption u/s 13 which in case of necessity, can be invoked by authorities. Looking into these aspects, we do not find any merit in the objection raised by Ld. CIT(E). Since the sole objection raised by Ld. CIT(E) is dissolved, we order the Ld. CIT(E) to consider the application of assessee and pass a needful order granting registration u/s 12AB as applied for. Registration u/s 80GB - Since objection, as noted for registration u/s 12AB stands dissolved, it stands dissolved for section 80G also. We find that the assessee s case is directly covered by two decisions relied upon by Ld. AR, namely (i) KVC Trust 2011 (3) TMI 121 - ITAT, CHENNAI and (ii) Mishri Lal Gordhan Lal Batra Charitable Trust 2007 (12) TMI 200 - RAJASTHAN HIGH COURT . DR is not able to show any reason for non-applicability of these decisions or to show any contrary decision holding the field. Therefore, following the same view, we are inclined to direct the CIT(E) to consider the application of assessee and grant registration after limited verification that the assessee s case fits in section 80G(5B).

Summary

Issues Involved:
1. Registration under Section 12AB.
2. Approval under Section 80G.

Summary:

Issue 1: Registration under Section 12AB

The appeal concerning registration under Section 12AB was filed by the assessee against the order of the Commissioner of Income-Tax (Exemption) [CIT(E)], Bhopal. The CIT(E) initially raised multiple objections but ultimately rejected the application based solely on an objection in Para No. 3 of the show-cause notice. This objection pertained to Clause 4(p) of the trust-deed, which allowed trustees to give loans "without being responsible or accountable for any loss caused thereby." The CIT(E) interpreted this clause as permitting trustees to divert funds without accountability, thus not qualifying for exemption under Section 11 of the Income-tax Act, 1961.

The assessee's representative argued that the clause allowed loans strictly for charitable purposes and that no loans had been given to any party. The Tribunal found merit in the assessee's argument, emphasizing that the clause must be read in its entirety, which specifies that loans are for charitable purposes only. The Tribunal concluded that the CIT(E)'s objection was unfounded and directed the CIT(E) to grant the registration under Section 12AB.

Issue 2: Approval under Section 80G

The appeal concerning approval under Section 80G was similarly filed against the CIT(E)'s order. The CIT(E) had rejected the application based on objections in Para Nos. 3 and 6 of the show-cause notice. The objection in Para No. 3 was identical to that in the Section 12AB appeal and was dissolved for the same reasons.

The second objection pertained to Clauses 4(r) and 4(s) of the trust-deed, which involved establishing prayer halls and aiding in the renovation of religious places. The CIT(E) viewed these objects as religious in nature, violating Section 80G(5)(ii) and Explanation 3 to Section 80G, which exclude purposes of a religious nature from charitable purposes. The assessee argued that these objects did not imply religious activity and that no funds had been spent on these objects. Furthermore, Section 80G(5B) allows religious expenditure up to 5% of total income without affecting approval under Section 80G.

The Tribunal found the assessee's case covered by precedents, including the ITAT Chennai and Rajasthan High Court decisions, which supported approval under Section 80G despite minor religious objects. The Tribunal directed the CIT(E) to grant approval under Section 80G after verifying compliance with Section 80G(5B).

Conclusion:

Both appeals were allowed, directing the CIT(E) to grant registration under Section 12AB and approval under Section 80G, subject to necessary verifications.