2012 (7) TMI 174 - AT - Income Tax

Tribunal rules Section 80G approval must continue unless revoked properly. CIT-I order set aside on renewal application.

The Tribunal held that approval under Section 80G should continue in perpetuity unless specifically withdrawn following due process. The Tribunal set ... Validity of approval under section 80G(5) in perpetuity - Effect of omission of the proviso to section 80G(5)(vi) - Requirement of show-cause notice under section 293C before withdrawal of approvalValidity of approval under section 80G(5) in perpetuity - Effect of omission of the proviso to section 80G(5)(vi) - Approval once granted under section 80G(5) continues in perpetuity where the proviso to clause (vi) of sub-section (5) has been omitted. - HELD THAT: - The Tribunal applied the legislative amendment by the Finance (No. 2) Act, 2009 effecting omission of the proviso to clause (vi) of section 80G(5), and the explanatory Circular No. 5 clarifying that existing approvals expiring on or after 1-10-2009 are deemed extended in perpetuity unless specifically withdrawn. Following the reasoning in the cited ITAT Lucknow decision, the Tribunal held that where an approval was granted up to 31.3.2010, the omission makes that approval continue in perpetuity and the Commissioner must act in accordance with the amended law if he seeks to withdraw it. The Tribunal therefore set aside the CIT's order rejecting the renewal and held the earlier approval continues unless lawfully withdrawn. [Paras 7, 8]Approval granted under section 80G(5) shall continue in perpetuity in view of the omission of the proviso, and the CIT's order rejecting the application is set aside.Requirement of show-cause notice under section 293C before withdrawal of approval - Withdrawal of an approval previously granted under section 80G(5) requires issuance of a show-cause notice and recording of reasons under section 293C before the Commissioner may withdraw the approval. - HELD THAT: - The Tribunal examined section 293C as inserted by the Finance (No. 2) Act, 2009, and held that the proviso requires the tax authority to issue a show-cause notice and afford a reasonable opportunity of being heard before withdrawing any approval. The Tribunal found no show-cause notice had been issued in the present case and therefore the CIT's purported withdrawal of approval was not in accordance with the mandatory procedure prescribed by section 293C. [Paras 7, 8]In absence of a show-cause notice and recorded reasons as required by section 293C, the withdrawal of the approval is not justified.Final Conclusion: The impugned order of the Commissioner rejecting the renewal is set aside; the approval under section 80G(5) already granted to the assessee continues in perpetuity unless and until the concerned authority withdraws it after issuing a show-cause notice and recording reasons in accordance with law. Issues Involved:1. Rejection of the application for renewal of exemption under Section 80G of the Income-tax Act, 1961.2. Validity of the rejection against the facts and circumstances of the case.3. Consideration of the appellant society's previous exemption status.4. Impact of Circular No. 5 dated 30.06.2010 on the exemption status.5. Legitimacy of the order passed by CIT-I after the application for renewal was withdrawn.Issue-wise Detailed Analysis:1. Rejection of the Application for Renewal of Exemption under Section 80G of the Income-tax Act, 1961:The assessee filed an application for renewal of exemption under Section 80G on 27.12.2010. The CIT-I, Ludhiana rejected this application, citing several reasons, including the religious nature of some of the society's objectives, expenditure on religious purposes, lack of evidence for permission to receive foreign donations, and the society being controlled by a single individual.2. Validity of the Rejection Against the Facts and Circumstances of the Case:The CIT-I's decision was based on the observation that the society did not fulfill the necessary conditions for exemption under Section 80G(5). Specific reasons included:- The society's objectives included religious clauses.- More than 10% of donations were spent on religious purposes.- No evidence was provided for permission to receive foreign donations.- The society was controlled by a single individual.3. Consideration of the Appellant Society's Previous Exemption Status:The appellant society had previously been granted exemption under Section 80G up to 31.3.2010. The CIT-I did not consider this previous exemption status adequately and rejected the renewal application despite the society's history of exemption.4. Impact of Circular No. 5 Dated 30.06.2010 on the Exemption Status:The appellant argued that according to Circular No. 5 dated 30.06.2010, the exemption under Section 80G is deemed to be in perpetuity. The Tribunal highlighted that the legislative amendment effective from 1st October 2009 omitted the proviso requiring renewal, meaning that once granted, the approval should continue in perpetuity unless specifically withdrawn.5. Legitimacy of the Order Passed by CIT-I After the Application for Renewal was Withdrawn:The appellant society withdrew its renewal application on 4.2.2011, citing the circular that deemed the exemption to be in perpetuity. Despite this withdrawal, the CIT-I proceeded with the rejection. The Tribunal found this action inappropriate, noting that the CIT-I should have considered the amended provisions and the withdrawal of the application.Judgment:The Tribunal, referencing the ITAT Lucknow Bench decision in the case of 'Association for Advocacy and Legal Initiatives v. CIT,' held that the approval under Section 80G(5) once granted should continue in perpetuity unless specifically withdrawn following due process, including issuing a show-cause notice. The Tribunal set aside the CIT-I's order and allowed the appeal, affirming that the exemption under Section 80G(5) should continue unless the concerned authority takes appropriate action in accordance with the law.