2016 (7) TMI 944 - AT - Income Tax

Appeal granted for 80G(5) approval under IT Act - Conditions must be met

The Tribunal allowed the appeal, directing the CIT(Exemption) to grant approval u/s 80G(5) of the IT Act, 1961 to the appellant. The decision emphasized ... Approval under section 80G(5) - registration under section 12AA - Rule 11AA - genuineness of objects - preliminary enquiry into activitiesApproval under section 80G(5) - registration under section 12AA - Rule 11AA - preliminary enquiry into activities - genuineness of objects - Whether the CIT(Exemptions) was justified in rejecting the assessee's application for approval under section 80G(5) after having granted registration under section 12AA, on the ground that only preliminary capital expenditure had been incurred and activities in accordance with objects had not commenced. - HELD THAT: - The Tribunal examined section 80G(5) read with Rule 11AA and held that the threshold inquiry for grant of approval under section 80G(5) includes satisfaction that the institution is established in India for a charitable purpose and the additional conditions in clauses (i)-(v) of section 80G(5). Registration under section 12AA demonstrates satisfaction as to the genuineness of objects and that the institution is established for charitable purposes. Rule 11AA mandates that the CIT record reasons where one or more conditions are not fulfilled. In the present case the assessee had been granted registration under section 12AA, and the CIT did not point to failure to satisfy any specific condition of section 80G(5). The activities relied upon by the CIT (acquisition and conversion of land, appointment of architect, soil testing and other preparatory steps) were accepted as steps towards implementation of the objects for establishing a hospital and medical college; the project is complex and requires multiple approvals. The Tribunal distinguished the Pearls Educational Institute decision (which concerned renewal after long inaction) and relied on the reasoning in Hardayal Charitable and Educational Trust to hold that at a preliminary stage CIT's inquiry should be restricted to genuineness of objects and need not deny approval merely because activities are in progress or limited to preparatory capital expenditure. Consequently, denial of approval on the basis of surmise about insignificant activity was held impermissible, and the CIT was directed to grant approval under section 80G(5). [Paras 2]The Tribunal set aside the CIT's rejection and directed grant of approval under section 80G(5) to the assessee; the appeal is allowed.Final Conclusion: Having found that registration under section 12AA had been granted and that no specific condition of section 80G(5) remained unfulfilled, and that preparatory activities undertaken by the assessee sufficed at the preliminary stage, the Tribunal directed the CIT(Exemptions) to grant approval under section 80G(5) and allowed the appeal. Issues Involved:Appeal against rejection of exemption u/s 80G(5) of the IT Act, 1961 by CIT (Exemptions), Jaipur.Detailed Analysis:Issue 1: Grounds of AppealThe appeal was filed by the assessee against the order of CIT (Exemptions), Jaipur dated 16.07.2015. The grounds of appeal included errors on facts and in law in rejecting the application for exemption u/s 80G(5) of the IT Act, 1961, and holding that the assessee had not started activities as per the object.Issue 2: Background and ApplicationsThe company was incorporated under the Companies Act, 1956, with the main object of establishing a hospital and medical college. The assessee applied multiple times for registration u/s 12A and approval u/s 80G(5)(vi), facing rejections based on various grounds such as not carrying out charitable activities and not being registered u/s 12AA.Issue 3: CIT's Rejection and Assessee's ArgumentsThe CIT rejected the application for exemption u/s 80G(5) citing that no activities had been started as per the objects, with only capital expenditure activities being carried out. The assessee argued that all requirements for approval were fulfilled, steps were taken towards implementing the objects, and the CIT's observation on the lack of activities was incorrect.Issue 4: Tribunal's Analysis and DecisionThe Tribunal noted the appellant's previous applications and the reasons for rejection by the CIT. It emphasized that registration under section 12AA indicated the genuineness of the objects. The Tribunal found that the activities undertaken by the appellant towards establishing the hospital and medical college justified the approval under section 80G(5). It distinguished a previous case and directed the CIT to grant approval under section 80G(5) to the appellant.Conclusion:The Tribunal allowed the appeal filed by the assessee, directing the CIT(Exemption) to grant approval u/s 80G(5) of the IT Act, 1961 to the appellant. The decision highlighted the importance of fulfilling conditions for approval and commencing activities towards the stated objects for charitable purposes.