2014 (3) TMI 402 - AT - Income Tax

Rejection of application for grant of certificate u/s 80G of the Act Held that - The satisfaction qua the genuineness of the activities of the applicant fund/institution as an independent condition, even as it is open to be argued that the same, i.e., the said satisfaction, is not a separate or independent condition, and has to lead to a finding as to the non-fulfillment of any of the conditions specified in clauses (i) to (v) of section 80G(5) inasmuch as an order rejecting the application u/s. 80G(5)(vi) has to record a finding to that effect, along with the reasons for the same - Relying upon CIT vs. Sarladevi Sarabhai Trust 1988 (3) TMI 53 - GUJARAT High Court - the assessee-trust as a matter of regular course made donations out of its corpus funds, thus dissipating them, while the same are required to be retained and/or capitalized, forming part of the capital structure of the recipient - The activities of the assessee would qualify for exemption only subject to application u/s. 11(1)(a) thus, the competent authority is directed to grant approval u/s. 80G(5)(vi) Decided in favour of Assessee.

Summary

Issues:
Appeal against rejection of application for 80G certificate.

Analysis:
The judgment involves an appeal against the rejection of an application for a certificate under section 80G of the Income Tax Act, 1961. The main issue is whether the approval under section 80G(5)(vi) was rightly denied to the assessee. The assessee, a charitable trust, applied for the certificate, but the Director of Income Tax (Exemption) observed that no charitable activity was being pursued as the donations received were applied towards other charitable trusts. The Director denied approval under section 80G(5) based on this observation. The assessee contended that the donations to other trusts were covered by its object clause, but the Director did not find this argument convincing.

The Tribunal considered various legal precedents cited by the assessee regarding donations to other charitable trusts being considered as application of income for charitable purposes. Section 80G provides for deductions for sums paid to specified funds or institutions. The Tribunal analyzed the conditions under section 80G(5) that need to be fulfilled for an institution to qualify. It noted that the Director did not specify which condition was not satisfied, leading to the rejection of approval. The Tribunal found that the assessee trust appeared to satisfy the conditions of section 80G(5) and that the donations to other trusts could be considered an application of income under section 11(1)(a).

The Tribunal examined the trust deed and concluded that the donations to other charitable institutions were in line with the trust's objects and constituted an application of income under section 11(1)(a). It found no issues with the genuineness of the donations or their utilization for charitable purposes. The Tribunal considered the satisfaction of genuineness of activities as an independent condition for approval under section 80G. It also addressed the issue of donations from corpus funds and clarified that such donations were permissible under the trust's charter and would be subject to assessment, not the grant of approval under section 80G(5).

Ultimately, the Tribunal accepted the assessee's case, directing the competent authority to grant approval under section 80G(5)(vi) and vacating the earlier findings. The appeal was allowed in favor of the assessee.