2015 (1) TMI 237 - AT - Income Tax

Tribunal orders renewal of exemption and registration for charitable trust

Ashoka Education Foundation Versus The Commissioner of Income Tax

Ashoka Education Foundation Versus The Commissioner of Income Tax - TMI Issues Involved:1. Rejection of the application for renewal of the certificate under section 80G(5)(vi) of the Income Tax Act, 1961.2. Invocation of the provisions of section 13(1)(c) of the Income Tax Act, 1961.3. Cancellation of the certificate issued under section 12AA(1) without specific Show Cause Notice and violation of principles of natural justice.4. Applicability of provisions under section 13(1)(c) read with section 13(2)(b) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Rejection of the Application for Renewal of the Certificate under Section 80G(5)(vi):The assessee trust had filed an application under section 80G of the Income Tax Act seeking extension of exemption. The CIT, Nashik observed that the trust had given its land to M/s. Ashoka Buildcon Ltd. (ABL), where several trustees of the assessee foundation held positions. The CIT found that the land was used for setting up a Ready Mix Concrete (RMC) Plant, which supplied materials for construction projects, including those not related to the trust's educational purposes. The CIT concluded that the trust's activities did not align with its stated educational objectives, thus denying the renewal under section 80G(5)(vi).2. Invocation of the Provisions of Section 13(1)(c):The CIT invoked section 13(1)(c) of the Income Tax Act, stating that the trust's property was used for the benefit of specified persons, violating the conditions for exemption. The CIT highlighted that the trust did not obtain necessary permissions from the charity commissioner or municipal authorities, and there was no mention of such activities in the trust's Memorandum of Association. The CIT concluded that the trust had suppressed income and did not maintain proper accounting records, further justifying the denial of exemption.3. Cancellation of the Certificate Issued under Section 12AA(1) Without Specific Show Cause Notice:The assessee contended that the CIT cancelled the certificate under section 12AA(1) without issuing a specific Show Cause Notice and without considering the trust's reply. The assessee argued that this action violated the principles of natural justice. The tribunal noted that the CIT's role was limited to verifying the genuineness of the trust's activities and not assessing compliance with section 13(1)(c) at the stage of granting or renewing registration.4. Applicability of Provisions under Section 13(1)(c) Read with Section 13(2)(b):The tribunal examined whether the agreement between the trust and ABL violated section 13(1)(c). The assessee argued that the arrangement with ABL, which provided RMC at concessional rates for constructing school buildings, benefited the trust. The tribunal found that the trust's activities were charitable, focusing on education, and the arrangement with ABL did not violate section 13(1)(c). The tribunal held that the CIT's role was to ensure the charitable nature of activities and not to evaluate potential violations of section 13(1)(c) at the registration stage.Conclusion:The tribunal concluded that the CIT erred in denying the renewal of exemption under section 80G(5)(vi) and cancelling the registration under section 12AA(1). The tribunal directed the CIT to grant the renewal of exemption and registration, emphasizing that the CIT's role was limited to verifying the charitable nature of the trust's activities and not assessing potential violations of section 13(1)(c) at the registration stage. The appeals filed by the assessee were allowed.