1999 (5) TMI 11 - HC - Income Tax

s.80G(5) review limited to registration, charitable character and income under ss.11/12; Commissioner cannot pre-empt tax assessments

HC allowed the petition, quashed the Commissioner's refusal to grant s.80G(5) approval, and directed a fresh decision in accordance with law. The court ... Application of the petitioner under section 80G(5) - Special Deduction - public charitable trust - entitled to exemption from tax in respect of its income under sections 11 and 12 - seeking renewal of approval for the trust to enable donors to claim deductions on donations made to it - HELD THAT:- We find that for applicability of sections 11 and 12, what is required is that such trust must have moved an application for registration under section 12A and registered for that purpose. Once a trust is registered under section 12A, its income from property, which includes donations whether covered under section 11(1)(d) or under section 12 such donations are deemed to be income from property, is not to be included in its total income under section 11 or section 12. The enquiry under section 80G(5) cannot go beyond that. The actual assessment of the trust and its actual liability to tax in accordance with the provisions of sections 11 and 12 and 12A has no hearing on the claim of the donors for whose benefit approval is accorded, Explanation 2 to section 80G(5) which tells in no uncertain terms that a deduction to which the assessee is entitled in respect of the donation made to an institution or fund to which sub-section (5) applies shall not be denied merely on either or both of the following grounds, namely, that any part of the income of the institution or fund has become chargeable to tax due to non-compliance with any of the provisions under section 11, section 12 and/or section 12A and under clause (c) of sub-section (1) of section 13, the exemption under section 11 or 12 can be denied to an institution or fund in respect of the income accruing or arising to it from any investment referred to in clause (h) of sub-section (2) of section 13. We see no reason that such exercise can be taken in respect of a trust which is claiming exemption not under section 10 but under sections 11 and 12 of the Act, once the Commissioner finds that the person who is claiming approval is the assessee who claimed his income not liable to be included in the taxable income under section 11 or 12. The enquiry relates to whether it is registered under section 12A, whether it is a trust wholly for charitable purposes or religious purposes, and whether income received by it is liable to be considered under section 11, but it does not go beyond that to examine as an Assessing Officer whether the income received by it at the close of any particular year or years was or was not actually included in the taxable income in the past. This consideration must be whether the income receivable by it will or will not be liable to be considered for exclusion under section 11. Such enquiry obviously cannot include an enquiry whether at the close of the previous year the donee will actually be able to sustain such claim because of non-fulfilment of some conditions by him as to the applicability or accumulation of income, as it is not possible to predicate that in praesenti when donation is made. As we have noticed above, that question would depend upon the facts existing at the close of the assessment year and at the time of considering the application it cannot be examined in the light of what is going to happen in pending assessments in respect of which approval certificate was already existing and the assessment of which would not affect the donations made to the trust during that year. Viewed from any angle, we are of view that the order of the Commissioner refusing approval is founded on wholly irrelevant considerations by trenching upon the field of the Assessing Officer by pronouncing on the taxability or non-taxability of any income in respect of the assessments for the past year which are yet to be completed, and does not relate to a period for which approval, if accorded, is to operate. As a result, we allow this special civil application, quash the impugned order and direct the Commissioner of Income-tax to make a fresh order in accordance with law. Issues Involved:1. Rejection of application u/s 80G(5) of the Income-tax Act, 1961.2. Conditions for approval u/s 80G(5).3. Scope of enquiry by the Commissioner while granting approval u/s 80G(5).Summary:1. Rejection of application u/s 80G(5) of the Income-tax Act, 1961:The petition challenges the order dated February 18, 1999, by the Commissioner of Income-tax, Surat, which rejected the petitioner's application for renewal of approval u/s 80G(5) of the Income-tax Act, 1961. The petitioner, a trustee of a public charitable trust registered under the Bombay Public Trusts Act, 1950, and also registered u/s 12A of the Income-tax Act, sought renewal of approval for the trust to enable donors to claim deductions on donations made to it.2. Conditions for approval u/s 80G(5):The Commissioner denied the renewal on the grounds that the trust did not apply 75% of its income towards its charitable purposes, thereby making its income liable to be included in the taxable income, which contravenes the conditions laid down in section 80G(5)(i). The relevant provision states that the income of the trust should not be liable to inclusion in its total income under sections 11 and 12.3. Scope of enquiry by the Commissioner while granting approval u/s 80G(5):The court clarified that section 80G primarily relates to giving deductions to donors and not to the assessment of the trust's income. The eligibility for deduction should be considered at the time of donation, not based on future assessments. The Commissioner's role is to verify if the trust is registered u/s 12A and if it is wholly for charitable purposes, not to act as an Assessing Officer. The court emphasized that the actual assessment of the trust's income is beyond the Commissioner's jurisdiction when considering approval u/s 80G(5). The Commissioner's refusal based on pending assessments was deemed an overreach of authority.Conclusion:The court quashed the Commissioner's order and directed a fresh order in accordance with the law, stating that the Commissioner's refusal was based on irrelevant considerations and exceeded his jurisdiction. The rule was made absolute with no order as to costs.