2013 (12) TMI 468 - AT - Income Tax

Renewal of exemption u/s 80G(5) - As per the income and expenditure statement as on 31.3.2009, 31.03.2010 and 31.03.2011 there is surplus of income over expenditure to the tune of Rs. 34,01,445 - The gross receipts of the assessee society for the three years were Rs.3,65,99,748/-, Rs.3,01,39,572/- and Rs.3,66,37,960/- respectively Held that - The assessee trust runs Working Women s Hostel, M.R. School, Home for disabled persons, Empowerment Centre etc. on purely commercial basis - The assessee has shown in its books of account profit grants from Government and other forums - The main expenditure has been incurred only with regard to running of the school - The assessee has not been able to place any document on record to show that the assessee is actually utilizing the funds towards charitable activities - During the course of carrying on charitable activities, the charitable institution may earn some income but the income so earned has to be utilized for charitable purposes only Decided against assessee.

Summary

Issues:
1. Appeal against the order of CIT-I, Trichy regarding exemption under section 80G(5)(vi) of the Income Tax Act, 1961.
2. Jurisdiction of CIT under section 80G.
3. Rejection of renewal of exemption under section 80G.
4. Sufficiency of opportunity granted to the assessee.
5. Existence of charitable activities by the assessee trust.
6. Utilization of funds towards charitable activities.
7. Inference drawn against the assessee due to lack of evidence.
8. Commercial activities of the trust under the guise of charitable activities.

Issue 1:
The appeal was filed by the assessee against the order of CIT-I, Trichy concerning exemption under section 80G(5)(vi) of the Income Tax Act, 1961. The assessee, a society registered under section 12A(a) of the Act, had applied for renewal of exemption under section 80G, which was rejected by the CIT. The Tribunal was approached by the assessee challenging this decision.

Issue 2:
The counsel for the assessee argued that the CIT exceeded his jurisdiction under section 80G by rejecting the renewal application. It was contended that the CIT cannot question the charitable activities of the trust once it is established that the activities align with the charitable purpose. Reference was made to various High Court judgments supporting the limited scope of section 80G and the inability of the CIT to re-evaluate the objects of registration.

Issue 3:
The CIT's order highlighted that the trust primarily engaged in commercial activities, and despite showing a surplus of income, failed to demonstrate substantial charitable activities. The order emphasized the necessity for at least 85% of the trust's income to be utilized for charitable purposes, which was not met by the trust. The Tribunal upheld the CIT's decision, stating that the trust did not provide sufficient evidence of engaging in charitable activities.

Issue 4:
The counsel for the assessee raised concerns about the inadequate opportunity granted by the CIT to explain the income and expenditure account. It was argued that the single day provided to present the case was insufficient, indicating a lack of fair opportunity for the assessee to present their side.

Issue 5:
The Revenue contended that the trust did not demonstrate any charitable activities, both historically and presently. The lack of evidence supporting charitable endeavors by the trust led to the assertion that the CIT's decision was well-reasoned and justified.

Issue 6:
The Tribunal noted the absence of documentary evidence substantiating the trust's claims of utilizing funds for charitable activities. The failure to provide concrete proof resulted in an adverse inference against the assessee, emphasizing the importance of funds earned through charitable activities being utilized solely for charitable purposes.

Issue 7:
The Tribunal emphasized the need for charitable institutions to ensure income earned from charitable activities is directed towards fulfilling charitable purposes. It cautioned against organizations engaging in commercial activities under the guise of charitable work to exploit associated benefits.

In conclusion, the Tribunal upheld the CIT's decision to reject the renewal of exemption under section 80G for the trust, citing the lack of evidence supporting substantial charitable activities and the commercial nature of the trust's operations. The appeal was dismissed for being devoid of merit.