2022 (5) TMI 774 - AT - Income Tax

Exemption u/s 11 - Approval u/s 80G(5)(vi) - denial of approval u/s. 80G(5)(vi) in the instant case is the earning of huge profits, i.e., in excess of what may be deemed appropriate or reasonable by the competent authority - HELD THAT - The assessee-society is registered as a charitable institution u/s. 12AA - Its object clauses (copy on record), which include that toward education, which it is presently solely undertaking and is per se charitable u/s. 2(15), i.e., independent and irrespective of the extent of profit that may arise in the course of carrying out the said charitable purpose. True, capital expenditure would only result in expansion of its activities and, consequently, further profit, but the said activities, being in the realm of education are, as aforesaid, charitable under the Act. We have, toward this, also gone through the rules and regulations of the assessee-society, including that per the latest amendment therein, i.e., on 28/12/2020 to find that there is no embargo in its charter on the earning of profits. None such is also observed either u/s. 80G(5) or the relevant rule, being r. 11AA. The same therefore does not serve as a valid ground for denial of approval. As perused each of the decisions cited by the Revenue, to find them as inapplicable. The same are, firstly, in respect of an Approval u/s. 10(23C)(vi), which provision clearly stipulates the condition of the educational institution as existing solely for the educational purpose and not for the purpose of profit, so that in the facts of a given case, it could be contended that the pre-dominant purpose for the existence of the said institution is the earning of profit. The other decisions are qua the residual clause of s. 2(15), i.e., advancement of any object of general public utility , to which commercial considerations apply, in contradistinction to the other charitable purposes, including education . As regards the objection with reference to the discrepancies in the assessee s accounts in view of the differences observed between the amount applied and amount accumulated as per the statement of computation of income (forming part of the return of income) and the audit report (in Form 10B), the same, to our mind, is a matter that may have a bearing on the quantum of exemption u/s. 11 of the Act and, thus, falls in the domain of the AO in the assessment proceedings. There is nothing on record to show that the assessee has been denied exemption u/s. 11 for that or any other reason Finally, while the ld. CIT(E) does state, at para 7 of his order, that he is taking steps to cancel the assessee s registration u/s. 12AA, Shri Jain, the ld. counsel for the assessee, would, on asking, confirm the Bench during hearing to the assessee having not received any notice for cancellation of the said registration. In any case of the matter, where so, approval u/s. 80G(5)(vi) would stand to be withdrawn in consequence (s.293C). The said statement by the ld. CIT(E), not acted upon, is thus, to no consequence. Assessee appeal allowed.

Summary

Issues:
- Appeal against non-approval order of CIT(E) under section 80(G)(5)(vi) of the Income Tax Act, 1961.

Analysis:
1. Facts and Background:
- The appellant, a Society running educational institutions, applied for approval under section 80G(5)(vi) of the Income Tax Act, 1961.
- The CIT(E) rejected the application citing the society's generation of significant surpluses from student fees and lack of evidence of providing relief or concession to students.

2. Reasons for Rejection:
- The CIT(E) noted the society's high fees and substantial profits, along with capital expenditure aimed at profit generation rather than charity.
- Discrepancies between amounts applied for charitable purposes and accumulated amounts were highlighted.

3. Contentions and Case Laws:
- Both sides presented arguments, with the appellant citing relevant case laws supporting their charitable status.
- The CIT-DR relied on different case laws to support the denial of approval.

4. Judicial Analysis:
- The Tribunal found the denial of approval solely based on the society's profits to be unjustified, as the society's educational activities were inherently charitable.
- Previous case laws cited by the Revenue were deemed inapplicable to the current scenario.
- Discrepancies in accounts were considered relevant for assessment proceedings under section 11 of the Act, not for denial of approval under section 80G(5)(vi).

5. Conclusion:
- The Tribunal overturned the CIT(E)'s decision, directing the grant of approval under section 80G(5)(vi) to the society.
- The statement about cancellation of registration under section 12AA, not acted upon, was deemed inconsequential to the approval process.

6. Final Decision:
- The appeal was allowed, and approval under section 80G(5)(vi) was granted to the society effective as per legal provisions.

This detailed analysis of the judgment highlights the key issues, arguments presented, and the Tribunal's reasoning leading to the final decision in favor of the appellant society.