2012 (11) TMI 270 - AT - Income Tax

Exemption u/s 80G of the Income-tax Act Held 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 concerned and after giving a reasonable opportunity of being heard shall withdraw approval after recording reasons for doing so - in the present case no such show cause notice has been issued to the assessee - CIT without issuing any such notice has withdrawn approval - renewal of exemption u/s 80G(5)(vi) cannot be denied to the assessee, having valid approval - DIT(E) was not justified in denying renewal of approval u/s 80G(5)(vi) of the Act

Issues Involved:
1. Legality of the rejection orders by DIT(E), New Delhi.
2. Justification for rejection of Form No. 10G for exemption under section 80G of the Income-tax Act, 1961.
3. Opportunity of being heard before rejection as per Rule 11AA of the Income-tax Rules, 1962.
4. Timeliness of the rejection order in accordance with the prescribed time limit.

Detailed Analysis:

1. Legality of the Rejection Orders by DIT(E), New Delhi:
The assessee challenged the legality of the rejection orders issued by the DIT(E), arguing that the orders were bad in law and on facts. The DIT(E) rejected the application for approval under section 80G(5)(vi) of the Income-tax Act, 1961, on the grounds that the trust's activities were primarily benefiting the employees of Select Holiday Resorts Pvt. Ltd., rather than the general public. The Tribunal found that the trust was registered under section 12A of the Act since 1973 and had been granted approval under section 80G(5)(vi) in the past. The Tribunal noted that the trust's objects did not restrict the beneficiaries to the employees of the said company and that the financial assistance was provided to employees earning below Rs.10,000 per month. The Tribunal held that the DIT(E) was not justified in denying the approval, as the trust's activities were not exclusively for the employees of the company and the beneficiaries were part of the general public.

2. Justification for Rejection of Form No. 10G for Exemption:
The DIT(E) rejected the application on the basis that the trust's activities were not for the general public but for a specific group of employees. The Tribunal observed that the trust had been providing scholarships and financial assistance to the children of employees of Select Holiday Resorts Pvt. Ltd. but noted that the trust deed did not restrict the beneficiaries to the employees of the company. The Tribunal cited several judicial decisions, including CIT Vs. Walchand Diamond Jubilee Trust and CIT vs. Tata Steel Charitable Trust, which supported the view that an object beneficial to a section of the public is an object of general public utility. The Tribunal concluded that the DIT(E) was not justified in denying the approval, as the trust's activities were charitable and for the benefit of a section of the public.

3. Opportunity of Being Heard Before Rejection:
The assessee argued that the rejection order was passed without giving them an opportunity to be heard, as required by Rule 11AA of the Income-tax Rules, 1962. The Tribunal noted that the DIT(E) had not issued any show-cause notice or provided a sufficient opportunity for the assessee to present their case. The Tribunal emphasized that the principles of natural justice require that no order of rejection should be passed without giving the institution or fund an opportunity of being heard. The Tribunal held that the DIT(E) failed to comply with this requirement, making the rejection order legally untenable.

4. Timeliness of the Rejection Order:
The assessee contended that the rejection order was barred by time, as it was received on 16th September 2011, while the application was filed on 8th March 2011. According to the Income-tax Rules, 1962, the Commissioner must pass an order within six months from the date of application. The Tribunal did not specifically address this issue in detail, as the primary grounds for allowing the appeal were based on the merits of the case and the procedural lapses by the DIT(E). However, the Tribunal's decision to allow the appeal implied that the rejection order was not only procedurally flawed but also delayed beyond the prescribed time limit.

Conclusion:
The Tribunal allowed the appeal, holding that the DIT(E) was not justified in denying the renewal of approval under section 80G(5)(vi) of the Income-tax Act, 1961. The Tribunal emphasized that the trust's activities were charitable and for the benefit of a section of the public, and that the DIT(E) had failed to provide a sufficient opportunity of being heard. The Tribunal also noted that the registration under section 12A of the Act was still subsisting, and no material was presented to justify the denial of approval. Consequently, the Tribunal directed that the approval under section 80G(5)(vi) should be granted to the assessee.

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