2013 (12) TMI 1045 - AT - Income Tax

Approval under section 80G Held that - The assessee trust is an extension of the mutual Club of Masons - The mother body has not sacrificed or surrendered its mutual status. Therefore, that mutual status transgresses to the assessee-trust as well - As the mother body, Club of Masons, is not surrendering its status of mutuality, it is not possible to treat the assessee-trust as an independent charitable institution The application put in by the assessee under section 80G cannot be entertained in law - Decided against assessee.

Summary

Issues:
Renewal of exemption under section 80G for a trust.

Analysis:
The appeal was filed by the assessee, a trust, against the rejection of its renewal application for exemption under section 80G by the Director of Income-tax (Exemptions) at Chennai. The assessee had been enjoying approval under section 80G from April 1, 1996 to March 31, 2007, and filed a renewal application in 2012 after a gap of about five years. The Assessing Officer reported that the assessee had not carried out any charitable activities for the relevant financial years and questioned the expenditure of Rs. 10,000 on a keyboard for a musician. The Director of Income-tax (Exemptions) rejected the renewal application based on these findings.

The ITAT Chennai heard the appeal and noted that the assessee had not carried out charitable activities due to lack of funds, and the expenditure on the keyboard was justified as it helped a musician in teaching youngsters. The ITAT found the reasons given by the Director of Income-tax (Exemptions) insufficient to reject the application and emphasized the charitable nature of the keyboard purchase. However, the ITAT concluded that the law did not permit granting approval under section 80G to the assessee due to a legal lacuna, despite the Director's oversight.

The ITAT delved into the legal character of the organization, the Club of Masons, which was the mother body of the assessee-trust. It highlighted the clash between the principle of mutuality and charitable activities when the mother body engaged in such activities. The ITAT concluded that the trust, being an extension of the mother body, could not claim charitable status due to the inherent clashes and legal designations. As the mother body did not surrender its mutual status, treating the assessee-trust as an independent charitable institution would encourage a violation of law. Therefore, the ITAT found that the assessee could not be construed as a charitable institution under the Income-tax Act, leading to the dismissal of the appeal.

The ITAT also raised the question of the assessee's entitlement to registration under section 12AA and suggested that the Director of Income-tax (Exemptions) examine the issue. Additionally, the ITAT advised Revenue Officers to consider the conflict of status between clubs like the Club of Masons and trusts formed by them in relation to availing benefits under section 12AA/80G, leaving the decision to the Revenue's discretion. Ultimately, the appeal filed by the assessee was dismissed.