2025 (1) TMI 977 - HC - Income Tax

Denial of renewal benefit of tax relief u/s 80G - arrangement between the doctors and the petitioner-Trust amounted to take the premises of the Trust on rent and carrying private practice thus no charitable work was being carried out - Charitable activity or not? As per revenue Trust has not provided facility of space to the Doctors of various specialties under one roof and Trust has given donations to various organizations - whether the petitioner Trust is meeting out its charitable purpose or not ? - HELD THAT - Recently Hon ble Apex Court while considering the requirement of continuing the registration for an Educational Trust in the case of M/s New Noble Educational Society 2022 (10) TMI 855 - SUPREME COURT proceeded to hold that the word solely would also mean that the ancillary work which may be carried out by the Society for the purpose of enhancing education would also be treated as work for charitable purposes. The order is based only on assumptions and there is not supportive evidence collective or discussed in that regard. For the impugned action we are also unable to find that until some action is taken by the respondents by saying that it does not deserve any registration because of failure to meet out the objects mentioned in clause 8 of the registration targeting the donations alleging the same to be against the object would not satisfy us. There would not be any dispute to the effect that the petitioner Trust runs only one Chhuttani Medical Centre . Therefore the donations made to it cannot be doubted merely for the reason that the donations in other years are of smaller amount. Respondents have not taken note of the fact that the petitioner Trust had been making donations to Sardarni Uttam Kaur Charitable Society which is also registered u/s 12-A and had been granted exemption u/s 80-G. Neither from the record nor anything pointed out by the respondents that their action is in pursuance to the complaint from any person/organization/society to which the medical services are being provided by the petitioner Trust. Actually the respondents were required to convince itself as to whether the petitioner-Trust is meeting out its charitable purpose or not ? Once the foundation of registration u/s 12-A is not questioned the ancillary expenses to achieve the object of the Trust as enshrined in the Memorandum of Object and Terms there is no point of raising mere suspicion on the donations which many a times are ancillary in nature and though directly or indirectly meet out the object of its registration. We find that the action of the respondents is not tenable because same is not based upon any substantial evidence. Therefore impugned orders are hereby set-aside and consequently the writ petitions are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the petitioner-Trust is entitled to the renewal of tax relief under Section 80-G of the Income Tax Act, 1961.
• Whether the donations made by the petitioner-Trust to other societies and organizations align with its charitable objectives.
• Whether the activities conducted by the petitioner-Trust fulfill the charitable purposes as outlined in its Trust Deed.
• Whether the denial of the renewal of exemption under Section 80-G by the Commissioner of Income-tax was justified.
• Whether the petitioner-Trust's income for certain assessment years has escaped assessment under Section 147 of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Renewal of Tax Relief under Section 80-G

• Relevant Legal Framework and Precedents: Section 80-G of the Income Tax Act provides tax relief to donors for contributions made to certain charitable institutions. The petitioner-Trust sought renewal of this benefit.
• Court's Interpretation and Reasoning: The court examined whether the Trust's activities aligned with its stated charitable objectives, which is a prerequisite for renewal of tax relief under Section 80-G.
• Key Evidence and Findings: The Trust's activities, including running a medical center and making donations to other societies, were scrutinized. The Commissioner had denied renewal based on the Trust's perceived failure to engage in charitable activities.
• Application of Law to Facts: The court analyzed whether the Trust's activities met the criteria for charitable purposes under the Income Tax Act.
• Treatment of Competing Arguments: The Trust argued that its activities were charitable, while the Revenue contended that the Trust's predominant objective was profit-making.
• Conclusions: The court found that the Trust's activities did not justify the denial of renewal under Section 80-G, as they were consistent with its charitable objectives.

Issue 2: Alignment of Donations with Charitable Objectives

• Relevant Legal Framework and Precedents: Donations made by a charitable trust must align with its stated objectives to qualify for tax exemptions.
• Court's Interpretation and Reasoning: The court examined whether the donations made by the Trust to other societies were in furtherance of its charitable objectives.
• Key Evidence and Findings: The Trust had made significant donations to Sardarni Uttam Kaur Educational Society, which the Commissioner argued were not aligned with the Trust's objectives.
• Application of Law to Facts: The court assessed whether these donations furthered the Trust's charitable purposes as outlined in its Trust Deed.
• Treatment of Competing Arguments: The Trust argued that the donations were within its objectives, while the Revenue claimed they were not.
• Conclusions: The court found that the donations were consistent with the Trust's objectives and did not justify denial of tax benefits.

Issue 3: Activities Fulfilling Charitable Purposes

• Relevant Legal Framework and Precedents: The Trust's activities must align with its charitable purposes to maintain its tax-exempt status.
• Court's Interpretation and Reasoning: The court evaluated whether the Trust's activities, such as operating a medical center, fulfilled its charitable purposes.
• Key Evidence and Findings: The Trust provided medical facilities and made donations, which it claimed were charitable activities.
• Application of Law to Facts: The court considered whether these activities met the legal definition of charitable purposes.
• Treatment of Competing Arguments: The Trust asserted its activities were charitable, while the Revenue disagreed.
• Conclusions: The court concluded that the Trust's activities were charitable and aligned with its objectives.

Issue 4: Justification of Denial of Renewal by Commissioner

• Relevant Legal Framework and Precedents: The Commissioner must have substantial evidence to deny renewal under Section 80-G.
• Court's Interpretation and Reasoning: The court reviewed whether the Commissioner's decision was based on substantial evidence.
• Key Evidence and Findings: The Commissioner had denied renewal based on perceived profit-making activities.
• Application of Law to Facts: The court assessed whether the denial was justified based on the Trust's activities.
• Treatment of Competing Arguments: The Trust challenged the denial, arguing it was unjustified.
• Conclusions: The court found the denial was not justified, as the Trust's activities were charitable.

Issue 5: Escaped Assessment under Section 147

• Relevant Legal Framework and Precedents: Section 147 allows reassessment if income has escaped assessment.
• Court's Interpretation and Reasoning: The court considered whether the Trust's income had indeed escaped assessment.
• Key Evidence and Findings: The Revenue issued notices for reassessment, claiming income had escaped assessment.
• Application of Law to Facts: The court analyzed whether the conditions for reassessment were met.
• Treatment of Competing Arguments: The Trust contested the reassessment notices.
• Conclusions: The court found no substantial evidence of income escaping assessment, invalidating the reassessment notices.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The renewal for exemption u/s 80G is given for the future, i.e., for the period yet to come and that is to enable the Institution/Trust to carry on with the activities."
• Core Principles Established: The Trust's activities must align with its charitable objectives to qualify for tax exemptions. Substantial evidence is required to deny renewal of tax benefits.
• Final Determinations on Each Issue: The court concluded that the Trust's activities were charitable, the donations were aligned with its objectives, and the denial of renewal under Section 80-G was not justified. The reassessment notices were also invalidated due to lack of evidence.