2013 (6) TMI 131 - HC - Income Tax

Renewal of extension u/s 80-G rejected - registration under section 12-A also canceled - Held that - According to the finding recorded in the impugned order, the corpus donation received by the Trust upto 31.5.2005 was Rs. 5,33,000/- as it was formed of Rs. 5000/- only. Most of it was utilized in constructing the shopping complex. The balance sheet as on 31.5.2005 further reflects that an amount of Rs. 7,96,821/- has been spent on construction. On the other hand, the petitioner had applied only meager amount of its income for running homeopathic dispensary. Though petitioner is making tall claims of dispensing medicines free of cost, but it had spent small amount of Rs. 12,325/- on medicines in the year 2004-05 and Rs. 9490/- on medicines during the period of 2003-04. Admittedly, till date, the entire so called charitable activities of the petitioner-Trust remained confined to two rooms on the ground floor of premises No 33/70-72, Topi Bazar, Chowk, Kanpur which were admittedly made available to it free of cost since the Trust came into existence. Thus admitted fact of record reveals that there has been no expansion of any charitable activities. On the other hand, the petitioner-Trust under the guise of constructing a Homeopathic hospital and dispensary has rather constructed shopping complex and major part of it has already been let out. The petitioner-Trust also does not dispute that its expenditure on medicines during successive years had remained static and also could not place any material to show that the figures mentioned in the impugned order relating to the expenditure made in the name of charity is in any manner perverse - CIT had rightly withdrawn the exemption granted under section 80-G of the Act. Challenge the notice u/s 12A (3)- Held that - Suffice it to say that it is merely a show cause notice and challenge to it at this stage is premature. It is open to the petitioner to file its reply to the show cause notice against purposed action before the CIT and in such proceedings it is open to the petitioner to produce all such evidence which may justify its claim for continuation of its registration as a charitable institution. See Madhya Pradesh Madhyan Vs. CIT.(2002 (2) TMI 56 - MADHYA PRADESH High Court) - writ petition is dismissed with liberty to the petitioner to file its reply to the show cause notice.

Summary

Issues Involved:
1. Validity of the rejection of the application for renewal of exemption under section 80-G of the Income Tax Act, 1961.
2. Validity of the show cause notice for cancellation of registration under section 12-A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the rejection of the application for renewal of exemption under section 80-G of the Income Tax Act, 1961:

The petitioner, a registered Trust, sought the renewal of exemption under section 80-G of the Income Tax Act, 1961. The Commissioner of Income Tax-1, Kanpur (CIT) rejected this application, finding that the Trust had utilized significant corpus donations for constructing a shopping complex rather than for charitable purposes. The CIT noted that the Trust had constructed 12 shops on the first floor and 2 halls and one store room on the second floor of the premises, which were let out for rent, rather than using the space for a charitable dispensary as claimed. The CIT concluded that the Trust's activities were profit-oriented and not incidental to its charitable objectives. The Trust's expenditure on charitable activities, such as running a homeopathic dispensary, was minimal compared to the funds received. The court concurred with the CIT's findings, emphasizing that the Trust had mis-utilized donations under the guise of charity for commercial ventures, thus justifying the rejection of the renewal application under section 80-G.

2. Validity of the show cause notice for cancellation of registration under section 12-A of the Income Tax Act, 1961:

The CIT issued a show cause notice to the petitioner-Trust under section 12-AA(3) of the Income Tax Act, calling upon the Trust to explain why its registration under section 12-A should not be canceled. The Trust challenged this notice in the writ petition. The court held that the challenge to the show cause notice was premature, as it was merely an initial step in the process. The petitioner was advised to respond to the notice and present evidence to justify its claim for continued registration as a charitable institution. The court emphasized that the final decision on the registration would be made by the CIT based on the evidence and objections presented by the petitioner, without being influenced by the findings in the order rejecting the section 80-G exemption or the court's judgment.

Conclusion:

The writ petition was dismissed, with the court upholding the CIT's decision to reject the renewal of exemption under section 80-G due to the Trust's diversion of funds for commercial purposes. The court also dismissed the challenge to the show cause notice under section 12-A as premature, allowing the petitioner to respond and present evidence to the CIT.