2023 (5) TMI 793 - AT - Income Tax

Registration u/s. 80G - according to the CIT(Exemption) that whatever educational activities are carried out, building constructed, funds invested in construction of building by the assessee are not protected and denied the registration u/s. 80G(5)(vi) - AR submitted that admittedly, the said land belongs to the four trustees and the assessee s trust entered into lease agreement with the said trustees for 30 years - revenue contended that overall activity of construction of building as per the terms of the lease agreement direct benefit of the persons covered u/s. 13(3) of the Act which clearly violates the conditions mentioned u/s. 80G(5)(vi) HELD THAT - We find force in the arguments of the ld. DR that the assessee will have no right whatsoever over the construction of building and its development, utilizing from the assessee s trust fund. The assessee is also bound to vacate the said premises after the lease period. As brought to our notice that the CIT(Exemption) rejected the assessee s application on two earlier occasions and this is the third application wherein the assessee has not made any efforts in modifying the lease deed as the case may be. As rightly pointed by the ld. DR if the registration u/s. 80G(5)(vi) of the Act is granted, the assessee is entitled to receive certain donations which are tax free being utilized for construction, development and the achievement of its objects etc. which goes to the hands of the lessors after the expiry of lease period of 30 years. We find there is no guarantee or protection given to the said tax free asset in the lease deed and will benefit the persons i.e. trustees covered u/s. 13(3) of the Act. Thus, we find no infirmity in the order of CIT(Exemption) and it is justified. Thus, the grounds raised by the assessee are dismissed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Justification of CIT(Exemption) in rejecting the application for registration under section 80G of the Income Tax Act.

Summary:

Issue 1: Delay in Filing the Appeal
The appeal was filed with a delay of 3 days. The delay was condoned based on the decision of the Hon'ble Supreme Court during the National Lockdown due to the Covid-19 pandemic.

Issue 2: Justification of CIT(Exemption) in Rejecting the Application for Registration under Section 80G
The assessee sought registration under section 80G(5)(vi) of the Income Tax Act. The CIT(Exemption) rejected the application, citing that the building was constructed on land owned by the trustees and not reflected in the balance sheet. The CIT(Exemption) opined that the educational activities and the building constructed from the trust's funds were not protected, as the ownership remained with the trustees. The lease agreement for 30 years did not provide irrevocable rights to the assessee, and the building could be repossessed by the trustees, violating conditions under section 80G(5)(vi).

The assessee argued that the lease agreement could be modified to benefit the trust and that the rejection by CIT(Exemption) lacked basis. However, the revenue contended that the lease agreement provided direct benefits to persons covered under section 13(3) of the Act, violating section 80G(5)(vi). The lease agreement lacked an automatic renewal clause, and the trust had no right over the constructed building after the lease period, implying that the trust would hand over a tax-free asset to the trustees after 30 years.

The Tribunal found merit in the revenue's arguments, noting that the assessee had not modified the lease deed despite previous rejections. The Tribunal upheld the CIT(Exemption)'s order, stating that granting registration under section 80G(5)(vi) would enable the trust to receive tax-free donations, ultimately benefiting the trustees, which violates the Act. Thus, the appeal was dismissed.