2017 (5) TMI 633 - AT - Income Tax

Rejecting application seeking exemption u/s 80G(5)(vi) - CIT (Exemption) has pointed out that the applicant primarily intends to carry out the activities outside India and the applicant has not submitted any approval u/s 11(1)(c) - Held that - On combined reading of section 80G(5)(vi) and section 11(1)(c) of the Act, the approval under section 80G is subject to grant of approval under section 11(1)(c) of the Act. In the instant case, since such approval is not in place, the requirement of section 80G(5)(vi) cannot be said to be satisfied. Therefore, the issue is not that the scope of activities should be restricted to India and it cannot be carried out outside of India. The issue is limited to carrying out the activities outside India after seeking approval from competent authority u/s 11(1)(c) of the Act. The ld CIT(E) was therefore correct in denying the approval under section 80(G)(vi) in absence of approval of competent authority under section 11(1)(c) of the Act. Applicant has simply collected funds and has not carried out any significant charitable activities - Held that - Regarding the activities carried out by the appellant towards achievement of its charitable objectives, the CIT(E) has stated that the assessee has entered into memorandum of understanding with Digital Empowerment Foundation on dated 10.08.2015 with a focus to benefit the inaccessible people in the villages of India with wireless connectivity. Further, the ld CIT(E) noted that the assessee has alloted funds of ₹ 26,35,440/- for solar work at Guatemala City and ₹ 51,94,250/- for solar work at Philippine. The ld CIT(E) therefore acknowledges all these facts and the only reason stated to be non carrying out any significant activity by the assessee. In our view, given the fact that the assessee has only been incorporated around an year back and there are actions which are taken by the assessee towards achieving its charitable objectives which are not doubted, the approval under section 80G cannot be denied solely on this ground and to this extent, we do not concur with the ld CIT(E). The fact remains that the assessee has not obtained the approval under section 11(1)(c) of the Act and in absence of the same, the application under section 80G(5)(vi) has rightly been rejected by the ld CIT(E). The appeal of the assessee thus stands dismissed.

Issues Involved:
1. Rejection of application seeking exemption under Section 80G(5)(vi) of the Income Tax Act, 1961.
2. Interpretation of Section 80G(5) and its conditions.
3. Applicability of Section 11(1)(c) regarding activities outside India.
4. Significance of carrying out charitable activities for approval under Section 80G.

Detailed Analysis:

Issue 1: Rejection of Application Seeking Exemption under Section 80G(5)(vi)
The primary issue is whether the rejection of the assessee's application for exemption under Section 80G(5)(vi) of the Income Tax Act, 1961 by the CIT (Exemption) was justified. The CIT (Exemption) denied the approval on the grounds that the applicant intended to carry out activities outside India without obtaining approval under Section 11(1)(c) and had not conducted significant charitable activities.

Issue 2: Interpretation of Section 80G(5) and Its Conditions
The assessee argued that Section 80G(5) only requires the institution to be established in India for charitable purposes and does not restrict the scope of activities to within India. The relevant provisions of Section 80G(5) were cited, which outline the conditions for approval, including that the institution should not include its income in the total income under Sections 11 and 12, maintain regular accounts, and not benefit any particular religious community or caste.

Issue 3: Applicability of Section 11(1)(c) Regarding Activities Outside India
The CIT (Exemption) highlighted that the assessee intended to carry out activities outside India and had allocated funds for projects in Guatemala City and the Philippines. According to Section 11(1)(c), income applied to charitable purposes outside India is not excluded from total income unless approved by the competent authority. The Tribunal noted that the assessee had not obtained such approval, and the applicability of Section 11(1)(c) was not contested by the assessee.

Issue 4: Significance of Carrying Out Charitable Activities for Approval under Section 80G
The CIT (Exemption) also denied approval on the basis that the assessee had not conducted significant charitable activities. However, the Tribunal observed that the assessee had been incorporated recently and had taken steps towards achieving its charitable objectives, such as entering into an MOU with Digital Empowerment Foundation and allocating funds for solar projects. The Tribunal concluded that the lack of significant activities alone should not be a ground for denying approval under Section 80G, provided other conditions are met.

Conclusion:
The Tribunal upheld the CIT (Exemption)'s decision to deny approval under Section 80G(5)(vi) due to the absence of approval under Section 11(1)(c) for activities outside India. However, it disagreed with the CIT (Exemption)'s reasoning that the lack of significant activities was a valid ground for denial. The Tribunal advised the assessee to seek approval under Section 11(1)(c) and then reapply for exemption under Section 80G(5)(vi). The appeal was thus dismissed, but the assessee was given the liberty to reapply once the necessary approval was obtained.

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