2023 (3) TMI 566 - SCH - Income Tax

Exemption u/s 11 - scope of provision of Section 80G (5B) read with Rule 11 AA - whether registration u/s 12AA by itself is not automatic for granting approval u/s 80G? - HELD THAT - The respondent assessee trust s objects include inter alia spiritual awakening of the common masses, spreading teachings of great Indian saints, organizing gatherings of the people desirous to be benefited from spiritual preachings, publicizing such preachings and philosophies of great saints and extending financial assistance to the poor, destitute etc. The Commissioner to whom the assessee applied for grant of exemption of the donations received by it, refused that benefit citing Section 80G (5B) and noticing that the assessee was spending more than 5% of the receipts for religious purposes such as puja expenses besides which it also incurred telecast expenses. ITAT and the High Court principally went by the circumstance that the certificate under Section 12AA of the Income Tax Act was subsisting. Having heard counsel for the parties and having considered the record, what is evident is that neither the order of refusal of the certificate under Section 80G (5B) nor the subsequent order of the ITAT dealt with essential facts as to the quantum of receipts and the expenditure incurred. While there can be no dispute that the assessee asserts that it continues to hold exemption under Section 12AA of the Income Tax Act, nevertheless, for the benefit u/s 80G (5B), the requirements of that provision have to be satisfied separately. Assessee had relied upon the judgment of this Court reported as Commissioner of Income Tax vs. M/S. Dawoodi Bohara Jamat, however, this Court is of the opinion that in view of the final order we proposed, there is no need to discuss the applicability or otherwise of that decision. In view of the fact that the Commissioner s order as well as the order of the ITAT are bereft of any factual details as to the nature of activities which the assessee/applicant carries on as well as the details of the accounts involved and furthermore, having regard to the fact that the assessee, for some reason, did not participate in the proceedings before the Commissioner of Income Tax except filing of written submissions, this Court is of the opinion that the matter requires to be considered afresh. The assessee had contended that it is recipient of the benefit under Section 80G (5B) for a subsequent period (AY 2022-23 to 2026-27). It is open to the assessee to rely on that aspect as well. The impugned order is hereby set aside. Commissioner of Income Tax Exemption, Chandigarh is directed to examine the matter afresh in light of the contentions to be urged on behalf of the assessee.

Summary

Issues:
1. Interpretation of Section 80G (5B) of the Income Tax Act and Rule 11 AA of the Income Tax Rules.
2. Exemption of donations received by a trust for religious and charitable purposes.
3. Requirement of separate satisfaction for benefits under Section 80G (5B) despite holding exemption under Section 12AA of the Income Tax Act.
4. Lack of factual details in the Commissioner's order and ITAT's order.
5. Need for fresh consideration of the matter due to absence of detailed accounts and participation by the assessee.
6. Setting aside the impugned order and directing the Commissioner of Income Tax Exemption to re-examine the matter.

Analysis:
The Supreme Court addressed the issue raised by the revenue regarding the correctness of the judgment of the Punjab and Haryana High Court, which upheld the ruling of the Income Tax Appellate Tribunal based on Section 80G (5B) of the Income Tax Act and Rule 11 AA of the Income Tax Rules. The respondent assessee trust's objectives included spiritual awakening, spreading teachings of Indian saints, organizing gatherings for spiritual preachings, publicizing such teachings, and providing financial assistance to the needy. The Commissioner refused exemption of donations citing Section 80G (5B) due to the trust's expenditure on religious activities exceeding 5% of receipts along with telecast expenses, despite holding a certificate under Section 12AA.

Upon review, the Supreme Court found that the orders of refusal and subsequent proceedings lacked essential factual details regarding the quantum of receipts and expenditures. While acknowledging the trust's exemption under Section 12AA, the Court emphasized the separate requirements of Section 80G (5B) that needed to be fulfilled. The Court noted the absence of detailed activities and accounts in the orders, coupled with the assessee's limited participation in the proceedings, necessitating a fresh consideration of the matter.

The Court set aside the impugned order and directed the Commissioner of Income Tax Exemption to re-examine the case, allowing the assessee to rely on subsequent periods for benefits under Section 80G (5B). The decision highlighted the importance of factual clarity and active participation in tax exemption proceedings, ensuring a comprehensive assessment of eligibility criteria and activities for claiming benefits under relevant provisions.