2012 (5) TMI 93 - AT - Income Tax

ITAT Extends Approval Under Income Tax Act, Emphasizing Legislative Amendments

Prayatn Versus Director of Income-tax (Exemption), Delhi

The ITAT allowed the appeal, ruling that the rejection of the application for approval under section 80G(5)(vi) of the Income-tax Act by the Director was ... Rejection of the application for grant of approval under section 80G(5)(vi)– Held that:- Prior to amendment to section 80G(5)(vi)of the Act, there was a proviso which provide time limit for the approval - the approval granted on 13.8.2007 under section 80G(5)(vi) of the Act to the assessee was valid up to 31.3.2010 and the moment, the amendment to section 80G(5)(vi) has been effected, the approval available to the assessee under sec. 80G(5)(vi) of the Act would be deemed to have been intact and the assessee was not supposed to file the application for renewal - The learned Director of Income-tax (Exemption) indirectly by rejecting the application of the assessee on merit cannot withdraw the approval which is automatically renewed by virtue of Finance Act, 2009 – in favour of assessee. Issues:1. Rejection of application for grant of approval under section 80G(5)(vi) of the Income-tax Act, 1961 by the Learned Director of Income-tax (Exemption).Analysis:The case involved an appeal by the assessee against the rejection of their application for approval under section 80G(5)(vi) of the Income-tax Act, 1961 by the Learned Director of Income-tax (Exemption). The assessee, a public charitable trust established in 1991, aimed to empower marginalized sections of society and had been granted registration under sec. 12AA. The rejection was based on the grounds that the trust was managing a school charging fees, engaged in commercial activities, and did not qualify as a charitable institution under section 2(15) of the Act. The assessee argued that the approval was perpetual post an amendment in Finance Act, 2009, and cited relevant circulars and previous ITAT judgments supporting their claim. The Revenue contended that the rejection was based on merit due to the trust's income-generating activities like selling pickles, bags, and beauty services, which were deemed non-charitable. The ITAT considered the facts, noting the trust's charitable nature, unchanged circumstances post the previous approval, and the elimination of the time limit proviso in section 80G(5)(vi) by the Finance Act, 2009. The ITAT agreed with the assessee's interpretation, stating that the approval was automatically extended in perpetuity and the rejection by the Director was incorrect. The appeal was allowed, with the application being treated as rejected for statistical purposes while confirming the trust's continued approval under the previous order.This judgment highlights the significance of legislative amendments, circulars, and precedent in interpreting tax laws, emphasizing the automatic extension of approvals under section 80G(5)(vi) post the Finance Act, 2009. It underscores the need for tax authorities to align with legal changes and consider the nature of activities in determining charitable status, ensuring consistency in decision-making and upholding the rights of taxpayers in compliance with the law.