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2008 (4) TMI 396 - AT - Income TaxRecognition Of Institution - Application for renew approval u/s 80G(5)(vi) rejected - For the purpose of deciding on whether or not to grant approval under section 80G a CIT has to only examine whether or not the conditions set out in section 80G(5)(i) to (v) are satisfied. HELD THAT - Assessee maintains accounts of its receipts and expenditure. The discrepancies pointed out by the Departmental Representative in wrong accounting treatment to receipts by taking the same directly to balance sheet are not really relevant in this context because all that law requires is that accounts of receipts and expenditure be maintained by the assessee. The correctness of fine issue in accounting treatment are not covered by the scope of section 80G(5)(iv). The societies registered under Societies Registration Act 1960 as admittedly the assessee is are one such form of organization. This condition is also therefore satisfied. In the course of hearing before us there was good deal of discussion on the objections raised by the Assessing Officer in the course of assessment years 2003-04 and 2004-05 and arguments on merits were advanced by both the sides. However as learned CIT(A) is in season of the matter we refrain from making any specific observations on these aspects. Suffice to say that prima facie correctness of the findings of the Assessing Officer cannot be said to be entirely free from doubt and in any event these findings at best challenge assessee s compliance with certain rule and procedures which do not in any way challenge the fact charitable activities actually having been carried out. Therefore based on these findings one cannot come to the conclusion that the charitable activities of the assessee society were not genuine in any event as we have stated earlier as well all that the learned CIT has to see for the purpose of deciding whether or not the approval is to be granted for the purpose of section 80G is whether or not the conditions of section 80G(5)(i) to (v) are satisfied and as per the mandate of rule 11AA(4) once these conditions are satisfied he has to grant the approval. Genuineness of the charitable/activity in the absence of any specific mention about connotations of that expression in the Income-tax Act or Income-tax Rules must remain confined to the aspect that the charitable activities are actually carried out by the assessee. The accounting treatment of receipt and fixation of fees in excess of the norms laid down by the controlling bodies even if that be so do not decide the genuineness of activities of trust or institution. Therefore in our considered view effectively all the necessary requirements under rule 11AA(4) are satisfied and the CIT ought to have granted approval under section 80G(2)(iv). We therefore uphold the grievance of the assessee and accordingly direct the CIT to grant approval under section 80G. In the result the appeal is allowed.
Issues Involved:
1. Justification of CIT-III, Pune in declining to renew approval under section 80G of the Income-tax Act, 1961 for assessment year 2006-07 onwards. 2. Compliance with the conditions under section 80G(5)(i) to (v) of the Income-tax Act. 3. Genuineness of the charitable activities of the assessee society. Issue-wise Detailed Analysis: 1. Justification of CIT-III, Pune in Declining to Renew Approval under Section 80G: The primary issue in this appeal is whether the CIT-III, Pune was justified in declining to renew the approval under section 80G of the Income-tax Act, 1961. The assessee, a society registered under the Societies Registration Act, 1860 and Bombay Trusts Act, 1950, applied for renewal of approval under section 80G. The CIT noted irregularities in three out of 57 institutions, such as unauthorized collections, maintaining separate accounts for such collections, collecting capitation fees, and not routing development funds through the profit & loss account. The CIT rejected the renewal application based on these findings and the denial of complete exemption under sections 11 and 12 for the assessment years 2003-04 and 2004-05. 2. Compliance with the Conditions under Section 80G(5)(i) to (v): To adjudicate the issue, the tribunal first examined the scheme of the Act regarding approval under section 80G. According to section 80G(5)(vi), the CIT must be satisfied that the applicant meets the conditions laid down in clauses (i) to (v) of section 80G(5). These conditions include: - The income of the institution should not be liable to inclusion in its total income under sections 11 and 12 or clause (23AA) or clause (23C) of section 10. - The instrument or rules governing the institution should not contain any provision for the transfer or application of income or assets for purposes other than charitable purposes. - The institution should not be for the benefit of any particular religious community or caste. - The institution should maintain regular accounts of its receipts and expenditure. - The institution should be constituted as a public charitable trust or registered under the Societies Registration Act, 1860, or any corresponding law. The tribunal found that the CIT's decision should be based on these objective and unambiguous tests. The tribunal also noted that the CIT has the power to call for further documents or information to satisfy himself about the genuineness of the activities of the trust or institution. 3. Genuineness of the Charitable Activities of the Assessee Society: The tribunal considered the order dated 6-8-2007 issued by the Chief CIT-II Pune, granting exemption under section 10(23C) to the assessee from assessment years 2006-07 onwards. The tribunal admitted this additional evidence and noted that the exemption was granted subject to certain conditions, such as applying income exclusively to the objects of the institution, not investing funds in prohibited modes, and filing regular returns of income. The tribunal addressed the contention that the assessee's conduct did not inspire confidence in complying with these conditions. However, the tribunal emphasized that for the purpose of granting approval under section 80G, the CIT should only examine whether the conditions set out in section 80G(5)(i) to (v) are satisfied. The tribunal found that the assessee met these conditions, as the exemption under section 10(23C) was granted, and the assessee maintained regular accounts of its receipts and expenditure. The tribunal also noted that the objections raised by the Assessing Officer regarding the assessee's accounting treatment and charging of excessive fees did not challenge the genuineness of the charitable activities. The tribunal concluded that the CIT should have granted approval under section 80G, as the necessary requirements under rule 11AA(4) were satisfied. Conclusion: In view of the above discussions, the tribunal upheld the grievance of the assessee and directed the CIT to grant approval under section 80G. The appeal was allowed, and the CIT was instructed to grant the approval as the assessee met the necessary conditions under section 80G(5)(i) to (v).
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