2025 (3) TMI 645 - AT - Income Tax

Rejection of application for approval u/s 10(23)(vi) - insufficient evidence of educational purposes - HELD THAT - It is not in dispute that the application was dismissed on the basis that the assessee failed to furnish the sufficient material required for formation of satisfaction that the assessee was carrying out its activity for educational purposes. As stated by assessee that this was being the first year of its incorporation and the assessee was not afforded sufficient opportunity. It is further stated that the allegation that huge profit was made by running an commercial institute on commercial lines and channelizing the profits earned for augmenting the business without giving any element of charity is without any basis since the activities were yet to be commenced. It is not in dispute that the assessee foundation was incorporated on 06.04.2018 and an application for registration was made 16.04.2018. CIT(E) erred in rejecting the application without bringing any material suggesting that the assessee was not carrying out its activity in accordance with its objects. Moreover it is not the case of Revenue that the proposed activities are not genuine and such activities are not for educational purposes.CIT(E) ought to have recorded specific finding in this regard. Therefore the impugned order is hereby set aside and the application is restored to the Ld. CIT(E) to decide it afresh.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Commissioner of Income Tax (Exemptions) [CIT(E)] erred in rejecting the application for approval under Section 10(23C) of the Income Tax Act, 1961, due to insufficient evidence of educational purposes.
Whether the principle of natural justice was violated by not providing the assessee with a reasonable opportunity to be heard.
Whether the CIT(E) failed to properly assess the proposed activities of the foundation, given that it was in its first year of incorporation.
Whether typographical errors in the order affected the validity of the CIT(E)'s decision.

ISSUE-WISE DETAILED ANALYSIS

1. Rejection of Application under Section 10(23C)

Relevant Legal Framework and Precedents: Section 10(23C) of the Income Tax Act provides for exemption of income for entities engaged in educational purposes. The Supreme Court in Ananda Social and Educational Trust clarified that the term 'activities' in Section 12AA includes proposed activities, and the Commissioner must assess whether these are in line with the charitable objectives.
Court's Interpretation and Reasoning: The Tribunal noted that the CIT(E) rejected the application due to a lack of sufficient material to confirm the educational nature of the activities. However, the Tribunal highlighted that the CIT(E) did not provide specific findings that the proposed activities were not genuine or educational.
Key Evidence and Findings: The foundation was newly incorporated, and the application was made shortly after its establishment. The Tribunal found no evidence that the foundation's activities were contrary to its stated objectives.
Application of Law to Facts: The Tribunal applied the precedent set by the Supreme Court, emphasizing that the CIT(E) should have considered the proposed activities and the foundation's objectives, rather than focusing solely on the lack of past activities.
Treatment of Competing Arguments: The Tribunal considered the CIT-DR's argument that the CIT(E) was under a statutory obligation to verify the activities. However, it concluded that the CIT(E) failed to substantiate claims that the activities were not educational.
Conclusions: The Tribunal concluded that the CIT(E) erred in rejecting the application without sufficient basis and set aside the order for reconsideration.

2. Violation of Natural Justice

Relevant Legal Framework and Precedents: The principle of natural justice requires that parties be given a fair opportunity to present their case. The Tribunal referenced the procedural fairness expected in administrative decisions.
Court's Interpretation and Reasoning: The Tribunal noted that the foundation was not granted an adjournment and was given only one opportunity to present its case, which was insufficient.
Key Evidence and Findings: The record indicated that the foundation sought an adjournment, which was not granted, leading to the decision being made without adequate representation from the foundation.
Application of Law to Facts: The Tribunal found that the CIT(E) did not provide a reasonable opportunity for the foundation to be heard, thus violating natural justice.
Treatment of Competing Arguments: The Tribunal acknowledged the CIT-DR's stance that procedural errors should not invalidate the order but emphasized the importance of fair hearing.
Conclusions: The Tribunal determined that the lack of a fair hearing was a significant procedural flaw, warranting a reconsideration of the application.

3. Typographical Errors in the Order

Relevant Legal Framework and Precedents: Typographical errors in legal documents do not generally invalidate decisions unless they affect the substance of the decision.
Court's Interpretation and Reasoning: The Tribunal considered the errors as minor and not affecting the substantive rights of the parties.
Key Evidence and Findings: References to the foundation as a 'trust' or 'society' were noted as typographical errors.
Application of Law to Facts: The Tribunal concluded that these errors did not impact the validity of the CIT(E)'s decision.
Treatment of Competing Arguments: The Tribunal dismissed the argument that typographical errors were grounds for setting aside the order.
Conclusions: The Tribunal found that the typographical errors did not materially affect the outcome.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term 'activities' in the provision includes 'proposed activities'."
Core Principles Established: The Tribunal reinforced the principle that proposed activities should be considered for registration under Section 10(23C), and procedural fairness must be upheld.
Final Determinations on Each Issue: The Tribunal set aside the CIT(E)'s order and remanded the application for fresh consideration, emphasizing the need for a fair hearing and proper assessment of the foundation's objectives and proposed activities.

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