2013 (6) TMI 165 - HC - Income Tax

Renewal of extension under section 80-G rejected - petitioner-Trust claims to be running a public charitable Homoeopathic dispensary - Held that - A cogent and categorical finding has been recorded in the impugned order that although huge amount has been received as donation by the Trust during the previous years, but amount spent for the charitable purpose is merely an eye wash. The claim of the assessee that building constructed by it is for running a charitable hospital has been found to be incorrect as it failed to produce the sanctioned plan and other documents to prove the nature and user of the building constructed by it. Letting out of IIIrd floor of the said building to another company for commercial purpose rather goes to support that what has been constructed is not a hospital but a commercial property. In such circumstances, no fault can be found with the order of the CIT refusing to extend exemption 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.

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

Detailed Analysis:

Issue 1: Rejection of the Application for Renewal of Exemption under Section 80-G

The petitioner, a registered Trust, filed a writ petition challenging the order dated 4.10.2006 by the Commissioner of Income Tax-1 (CIT), Kanpur, which rejected the application for renewal of exemption under Section 80-G of the Income Tax Act, 1961. The CIT's decision was based on the observation that a significant portion of the Trust's corpus donations was utilized for constructing and acquiring commercial property, which was allegedly done with profit motives. It was noted that only a meager amount of the Trust's income was applied for charitable purposes, leading to the conclusion that the Trust was predominantly engaged in commercial activities rather than charitable ones, violating the mandate of Section 11(4A).

The petitioner contended that constructing a building from the Trust's corpus does not inherently negate its charitable nature. They argued that the construction was intended to generate income to fulfill the Trust's objectives and that letting out a small portion of the building was to augment the Trust's income for charitable purposes. However, the CIT found that the Trust failed to provide approved plans or documents to prove that the construction was for a specialty hospital. It was also observed that a portion of the building was let out for commercial purposes, further supporting the CIT's conclusion.

The court upheld the CIT's decision, noting that the Trust's expenditure on charitable activities was minimal compared to the donations received. The court emphasized that the construction of commercial property was not the Trust's objective, and the Trust failed to demonstrate that the building was intended for running a charitable hospital.

Issue 2: Issuance of Show Cause Notice for Cancellation of Registration under Section 12-A

The show cause notice dated 4.10.2006 was issued by the CIT under Section 12AA(3), calling upon the petitioner-Trust to explain why its registration under Section 12-A should not be canceled. The petitioner challenged this notice, but the court deemed the challenge premature, as it was merely a show cause notice. The court stated that the petitioner could file a reply to the notice and present evidence to justify its claim for continuation of registration as a charitable institution.

The court referred to similar cases where challenges to such notices were considered premature and emphasized that the petitioner should utilize the opportunity to respond to the show cause notice before the CIT.

Conclusion:

The writ petition was dismissed, with the court granting the petitioner the liberty to file a reply to the show cause notice and present evidence to support its claim for continuation of registration under Section 12-A. The CIT was directed to decide the matter in accordance with the law, considering the petitioner's objections and evidence without being influenced by the findings in the order dated 4.10.2006 or the present judgment.

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