2016 (3) TMI 595 - HC - Income Tax

Eligibility for approval under Section 80 G(5)(vi) - Whether approval under Section 80 G(5)(vi) can be granted before the end of financial year, when the trust/institution had not appended the accounts for the accounting year? - Held that - The assessee commenced activity by providing notebooks to school children and publication of development of the region and in order to support the activity was only by way of flow of finance, which can happen on receipt of donations. Recognition under Section 80G of the Act , as observed by the Tribunal will be one of the factors to induce donors to donate funds to trusts, to encourage such kind of activity by the trust for the development of the society as well as the Nation. For the said reasons the Tribunal allowed the appeal, set aside the order of the CIT, Gulbarga and directed grant of recognition under Section 80G(5)(vi) read with rule 11AA(5) of the Act . - Decided against revenue

Summary

Issues:
1. Interpretation of Section 80G(5)(vi) of the Income Tax Act regarding the timing of granting approval before the end of the financial year.
2. Validity of the denial of approval under Section 80G by the CIT, Gulbarga.
3. Examination of the application for recognition under Section 80G by the Income Tax Appellate Tribunal.
4. Consideration of the factors for granting recognition under Section 80G.

Analysis:
1. The High Court addressed the substantial question of law regarding the timing of granting approval under Section 80G(5)(vi) of the Income Tax Act. The court examined the application made by the assessee trust and the conditions required for approval. The court noted the arguments presented by the CIT, Gulbarga, which emphasized the necessity to decide for the whole year and not just a part thereof. The court analyzed the provisions of the Act and the requirements for approval under Section 80G.

2. The High Court reviewed the decision of the CIT, Gulbarga, which denied approval under Section 80G to the assessee trust. The court considered the reasons provided by the CIT, Gulbarga, including the need for compliance with Sections 11, 12, and 13 of the Act, and the requirement for audited accounts to determine income qualification for exemption under Section 11. The court evaluated the CIT's conclusion that the application was premature as the trust did not satisfy the conditions stipulated under the Act.

3. The High Court examined the appeal filed by the assessee trust before the Income Tax Appellate Tribunal challenging the CIT's decision. The Tribunal observed that recognition under Section 80G cannot be granted based on the presumption of compliance with the Act, highlighting the importance of genuine donors benefiting from the Act. The Tribunal considered the trust's activities and the role of recognition under Section 80G in encouraging donations for societal development.

4. The High Court analyzed the Tribunal's decision to set aside the CIT's order and grant recognition under Section 80G(5)(vi) to the assessee trust. The court agreed with the Tribunal's reasoning, emphasizing the trust's activities aimed at societal development and the significance of recognition under Section 80G in attracting donors. The court dismissed the appeal, affirming the Tribunal's decision and the grant of recognition under Section 80G to the trust.

In conclusion, the High Court's detailed analysis of the issues surrounding the interpretation and application of Section 80G of the Income Tax Act provides clarity on the requirements for approval and recognition under the Act. The court's examination of the CIT's decision, the Tribunal's findings, and the implications of granting recognition under Section 80G underscores the importance of compliance with the Act for charitable trusts seeking tax benefits and donor support.