2019 (5) TMI 837 - AT - Income Tax

Denial of approval u/s 80G(5)(vi) - need of the assessee to seek donations, i.e., in view of its huge surplus and cash reserves - apprehension that the donations shall be misused as ground for denying the said approval - HELD THAT - In the facts of the case, the ld. CIT(E) has based his decision of the donations being liable to be misused wholly on the basis of the assessee-society being prosperous and, consequently, in no apparent, or shown, need for donations to support its activities. While that may invite a charge of the promoters being over-zealous or over ambitious, it surely does not lead to the inference of seeking donation for admission, i.e., of the approval u/s. 80G(5)(vi) being liable to be misused a distinct possibility. This is particularly so as the same is in fact illegal, in view of the decision by the Apex Court as in TMA Pai Foundation v. State of Karnataka 2002 (10) TMI 739 - SUPREME COURT referred to during hearing, emphasizing that the admission is in any case is to be merit based, and Modern Dental College and Research Center 2016 (5) TMI 1366 - SUPREME COURT . Why should a management, in no dearth of funds, risk its reputation and, rather, even the future of its institution, by asking for such ill gotten money? Clearly, we are unable to regard the present case as one of distinct possibility i.e., the test or the threshold which, in our view, must characterize the impugned transactions of donations which the applicant-appellant targets while seeking benefit u/s. 80G(5), so as to oust its case for being a eligible for approval thereunder. In our view, therefore, the assessee cannot be denied approval u/s. 80G. We, accordingly, setting aside the impugned order, direct the competent authority to grant the said approval. The assessee shall, however, give a legal undertaking to the Revenue that it shall not seek contributions, directly or indirectly, from persons who (or whose wards seek admission) to various educational or training institutions run, or may be run, by the assessee-society. - Decided in favour of assessee.

Issues Involved:
1. Denial of approval under section 80G(5)(vi) of the Income Tax Act, 1961.
2. Examination of the genuineness of the activities of the assessee-society.
3. Assessment of the need for donations and potential misuse.
4. Consideration of the implications of registration under section 12AA.

Detailed Analysis:

1. Denial of approval under section 80G(5)(vi) of the Income Tax Act, 1961:
The primary issue in this case is the denial of approval under section 80G(5)(vi) by the Commissioner of Income Tax (Exemptions), Chandigarh. The assessee-society, registered under the Societies Registration Act, 1860 and as a charitable institution under section 12AA, contends that this approval should not have been denied given its continued registration and the exemption of its income under section 11 of the Act. The Tribunal clarified that registration under section 12AA does not automatically entitle the assessee to approval under section 80G(5)(vi), as both provisions serve different purposes and conditions.

2. Examination of the genuineness of the activities of the assessee-society:
The Tribunal emphasized that the genuineness of the activities is a crucial factor for approval under section 80G(5)(vi). The Revenue's concern was the potential misuse of donations for securing admissions to professional courses, which is deemed illegal. The Tribunal agreed that the competent authority must ascertain the real purpose of the society's activities, distinguishing between genuine charitable activities and potential misuse. However, mere apprehensions without concrete evidence cannot justify denial of approval.

3. Assessment of the need for donations and potential misuse:
The Revenue argued that the assessee-society, with significant surpluses and assets, had not demonstrated a need for donations, raising suspicions of misuse. The Tribunal noted that while the competent authority can inquire into the need for donations, the denial of approval must be based on more than just a possibility of misuse. The Tribunal stressed that the possibility of misuse must be a "distinct possibility" supported by surrounding facts and circumstances, rather than mere conjecture.

4. Consideration of the implications of registration under section 12AA:
The Tribunal clarified that registration under section 12AA does not automatically lead to approval under section 80G(5)(vi). The competent authority must independently verify the genuineness of the activities and the need for donations. The Tribunal highlighted that both provisions are part of a regulatory framework to ensure that only genuine charitable institutions benefit from tax exemptions and approvals.

Conclusion:
The Tribunal concluded that the denial of approval under section 80G(5)(vi) was not justified solely based on the assessee-society's financial prosperity and the potential for misuse. The Tribunal directed the competent authority to grant the approval, subject to the assessee-society providing a legal undertaking not to seek contributions from persons seeking admissions to its educational institutions. This condition aims to address the Revenue's concerns about potential misuse while ensuring that genuine charitable activities are not hindered.

The Tribunal's decision underscores the importance of a balanced approach in regulatory oversight, ensuring that approvals are granted based on concrete evidence and genuine need, rather than mere apprehensions of misuse.

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