2024 (5) TMI 495 - AT - Income Tax

Application seeking approval u/s 80G(5)(vi) rejected - assessee trust was granted provisional registration u/s 80G in Form 10AC - application for regular registration was rejected stating that some of the objects of the applicant/assessee are religious in nature - HELD THAT - It is evident that the assessee trust is granted registration u/s 12A by the CIT(E) with the same objectives as enlisted in the trust deed. Though the assessee trust is established with some of the objectives involved in certain religious activities, on perusal of the audited financial statements, more particularly from the Income Expenditure account for the periods, submitted as a part of paper book and also as submitted to Ld. CIT(E), it is not emanating that the assessee trust had incurred any expenditure on religious activities. No show cause notice was issued to the assessee before rejecting the application u/s 80G by Ld. CIT(E). The show cause notice holds immense significance in income tax proceedings, ensuring procedural fairness and safeguarding the rights of taxpayers. There are many judicial pronouncements which have reinforced the indispensability of this notice, emphasizing that orders issued without its adherence may be deemed invalid. On perusal of financials, facts, and circumstances of the present case, after thoughtful deliberations, we are of the opinion that the order passed by CIT(E) is bad at law. We are of the considered view that the assessee trust having not spent any money on religious purposes, is eligible for grant of approval u/s 80G(5) of the Act - Appeal of the assessee is allowed.

Summary

Issues involved:
The appeal against the rejection of application for final registration u/s 80G(5) of the Income Tax Act, 1961.

Facts of the case:
The assessee, a trust registered under the Gujarat Public Trust Act, 1950, was granted registration u/s 12A of the Income Tax Act, 1961. The trust's objects include education, medical relief, and other general public utility. The trust applied for regular registration u/s 80G(5), which was rejected by the Ld. CIT(E) citing religious nature of some objects. The rejection was based on judicial pronouncements, including the case of Upper Gange Sugar Mills Ltd. Vs. CIT.

On Merits:
The counsel for the assessee argued that no expenditure of religious nature was incurred by the trust in the past three assessment years, supported by audited financial statements. It was contended that the judgement in the Upper Gange Sugar Mills case is not applicable post the insertion of section 80G(5B), which allows institutions engaged in charitable activities to benefit from section 80G. The counsel also highlighted the importance of a show cause notice, which was not issued in this case.

The Ld. DR supported the rejection order, but upon review, the tribunal found that the trust had not spent any money on religious purposes. The tribunal referred to section 80G(5B) and CBDT Circular No.779 to emphasize that trusts predominantly engaged in charitable activities can avail benefits under section 80G. It was noted that no show cause notice was issued, which is crucial in income tax proceedings for procedural fairness.

The tribunal concluded that the rejection order was legally flawed, as the trust was eligible for approval u/s 80G(5) due to no expenditure on religious purposes. The order of the Ld. CIT(E) was set aside, directing approval for the trust. The appeal was allowed based on this sole issue.

Conclusion:
The tribunal allowed the appeal of the assessee, setting aside the rejection order and directing the grant of approval to the trust u/s 80G(5) of the Income Tax Act, 1961.