2012 (7) TMI 174 - AT - Income Tax

Rejection of renewal of exemption u/s 80G(5) - CIT(A)stated that the provisions contained in section 293C enables him to withdraw approval - Held that - Considering the amendment brought w.e.f. 1st of October, 2009 to omit the proviso of section 80G(5)(vi) to provide that the approval once granted shall continue to be valid in perpetuity. Further, the Commissioner will also have the power of withdraw the approval if the Commissioner is satisfied that the activities of such institution or fund are not genuine or are not being carried out in accordance with the objects of the institution or fund. Considering the proviso of section 293C it is clear that even if any Income-tax Authority wants to withdraw approval, he shall issue a show-cause notice against the proposed withdrawal to the assessee giving a reasonable opportunity of being heard, whereas in the present case no such show-cause notice has been issued to the assessee. Therefore no merit in this contention of the ld. CIT of invoking the proviso of section 293C - decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of the application for renewal of exemption under Section 80G of the Income-tax Act, 1961.
2. Validity of the rejection against the facts and circumstances of the case.
3. Consideration of the appellant society's previous exemption status.
4. Impact of Circular No. 5 dated 30.06.2010 on the exemption status.
5. Legitimacy of the order passed by CIT-I after the application for renewal was withdrawn.

Issue-wise Detailed Analysis:

1. Rejection of the Application for Renewal of Exemption under Section 80G of the Income-tax Act, 1961:
The assessee filed an application for renewal of exemption under Section 80G on 27.12.2010. The CIT-I, Ludhiana rejected this application, citing several reasons, including the religious nature of some of the society's objectives, expenditure on religious purposes, lack of evidence for permission to receive foreign donations, and the society being controlled by a single individual.

2. Validity of the Rejection Against the Facts and Circumstances of the Case:
The CIT-I's decision was based on the observation that the society did not fulfill the necessary conditions for exemption under Section 80G(5). Specific reasons included:
- The society's objectives included religious clauses.
- More than 10% of donations were spent on religious purposes.
- No evidence was provided for permission to receive foreign donations.
- The society was controlled by a single individual.

3. Consideration of the Appellant Society's Previous Exemption Status:
The appellant society had previously been granted exemption under Section 80G up to 31.3.2010. The CIT-I did not consider this previous exemption status adequately and rejected the renewal application despite the society's history of exemption.

4. Impact of Circular No. 5 Dated 30.06.2010 on the Exemption Status:
The appellant argued that according to Circular No. 5 dated 30.06.2010, the exemption under Section 80G is deemed to be in perpetuity. The Tribunal highlighted that the legislative amendment effective from 1st October 2009 omitted the proviso requiring renewal, meaning that once granted, the approval should continue in perpetuity unless specifically withdrawn.

5. Legitimacy of the Order Passed by CIT-I After the Application for Renewal was Withdrawn:
The appellant society withdrew its renewal application on 4.2.2011, citing the circular that deemed the exemption to be in perpetuity. Despite this withdrawal, the CIT-I proceeded with the rejection. The Tribunal found this action inappropriate, noting that the CIT-I should have considered the amended provisions and the withdrawal of the application.

Judgment:
The Tribunal, referencing the ITAT Lucknow Bench decision in the case of "Association for Advocacy and Legal Initiatives v. CIT," held that the approval under Section 80G(5) once granted should continue in perpetuity unless specifically withdrawn following due process, including issuing a show-cause notice. The Tribunal set aside the CIT-I's order and allowed the appeal, affirming that the exemption under Section 80G(5) should continue unless the concerned authority takes appropriate action in accordance with the law.