2017 (11) TMI 630 - AT - Income Tax

Denying approval u/s 80G(5)(vi) - CIT(E) stated that atleast 3 of 5 purposes for which the assessee had been established had religious contours, which was in contravention to the provisions of section 80G(5)(iii) of the Act and was also hit by Explanation-3 to sub-section (5) of section 80G, which precludes purposes of religious nature from the coverage of charitable purpose and also the assessee trust was spending meagre amount on its charitable activities - Held that - Propagating and inculcating religious feelings, brotherhood and nationalism among Aggarwal community only aim at bringing together members of the Agarwal community and developing feeling of nationalism amongst them which benefits the society at large and cannot be said to be either benefiting Aggarwal community only nor being in the nature of religious purpose. As for the object of celebration of Agarsain Jayanti , it definitely does not have a religious contour and the Ld.Counsel for the assessee has emphasized that the celebrations involve the public at large therefore we fail to understand as to how the said object is for the benefit of a particular community only. Moreover only one object out of several objects cannot give a religious or communal colour to the assessee society. The rest of the objects aimed at developing the moral fabric of the society, help poor and needy children in their education and running charitable dispensaries and hospitals for the public at large are all charitable activities for the benefit of the general public. Also on perusing the financial statements of the assessee society for the preceding three years i.e. year ending on 31-03-13,31-03-14 & 31-03-15 that all expenditures incurred are only in the context of running its chariable dispensary by way of purchasing medicines, paying staff salary and incurring misc. expenses only. No expenditure explicitly benefitting the Aggarwal community has been incurred by the assessee. Therefore we find no merit in the contention of the Revenue that the objects of the assessee society had religious contours and were benefitting a particular community only. Further the contention of the Revenue that the assessee was spending only a small portion of its receipts on the stated charitable activities is again we find factually incorrect. The said finding, we find, has been arrived at after excluding the spend on salary, which as per the Ld.CIT(E) is not a charitable activity. But considering the fact that the assessee is carrying out number of charitable activities as stated in its objects which includes running the charitable dispensaries and hospitals for the public in general, the manning of the said dispensaries by adequate personnel and also the requirement of staff for managing the affairs of the society are basic and essential expenditure which are to be considered to have been incurred in the course of carrying out its charitable activities alone and, therefore, staff salary paid on account of the same cannot be treated as being expenses not related to the charitable activity of the assessee concern. Thus the expenses incurred on staff salary are also to be treated as part of charitable activities carried out by the assessee and considering the same, therefore, the quantum of expenditure incurred by the assessee on its activities takes a quantum jump and thus the findings of Ld.CIT(E) that the assessee has incurred meagre income on its stated charitable expenses gets negated. - Decided in favour of assessee.

Summary

Issues:
Denial of approval u/s 80G(5)(vi) of the Income Tax Act, 1961 for assessment year 2016-17 based on not being established solely for charitable purpose and spending meagre amount on charitable activities.

Analysis:
The appeal was filed against the order denying approval u/s 80G(5)(vi) of the Income Tax Act, 1961. The denial was based on the trust not fulfilling the requirement of being established solely for charitable purposes and spending insufficiently on charitable activities. The trust was registered as a charitable trust under section 12AA of the Act. The denial was due to the trust having purposes with religious contours, which was against the provisions of section 80G(5)(iii) and Explanation-3 to sub-section (5) of section 80G. The appeal raised grounds questioning the rejection of the application under section 80G(5)(vi).

During the hearing, the counsel for the assessee argued that the trust's objects did not benefit any particular religious community or caste. The counsel highlighted that the objects aimed at developing good character, promoting brotherhood, and providing education and healthcare to the public at large. The counsel referenced section 80G(5)(iii) and Explanation-3 to demonstrate that the trust's activities were not of a religious nature and thus eligible for approval under section 80G(5).

The counsel further contested the claim of spending meagre amounts on charitable activities by presenting financial statements showing consistent spending on charitable objectives. The counsel emphasized that expenses on staff salaries were essential for running charitable activities and should be considered part of the charitable expenses. Various charitable activities undertaken by the trust were also highlighted to support the argument that the trust was primarily engaged in charitable activities.

After considering the arguments and reviewing the trust's objects and financial statements, the Tribunal found merit in the assessee's contentions. It was observed that the trust's objects did not have religious contours and were aimed at benefiting the general public. The Tribunal also noted that the expenses incurred, including staff salaries, were essential for carrying out charitable activities. Consequently, the order denying approval under section 80G(5) was set aside, and the trust was directed to be granted approval under the said section.

In conclusion, the appeal of the assessee was allowed, and the order was pronounced in favor of the assessee in the open court.