2016 (12) TMI 1415 - HC - Income Tax

High Court affirms ITAT decision on Section 80G approval for charitable assessee

Commissioner of Income Tax, Jalandhar-I, Jalandhar Versus Gulab Devi Memorial Hospital, Trust, Jalandhar

The High Court upheld the ITAT's decision to cancel the Commissioner's order denying approval under Section 80G(5)(vi) of the Income Tax Act for the ... Renewal of exemption granted under Section 80G denied - non charitable activities - ITAT allowed the claim - Held that:- It has not been disputed that the respondent-assessee is registered under Section 12A and that it has been held entitled to the grant of exemption under Section 10 (23C)(vi) of the Act. It has further come on record that the respondent-assessee was granted exemption under Section 80G of the Act from the year 1997 till the passing of the impugned order. Further, the finding of the Tribunal, that the assessee has never mis-utilized its funds, has not been assailed before us. The generated surplus having been ploughed back for expansion purposes also remains undisputed by the Revenue as no challenge to the same has been made. The Tribunal had further detailed in its order the receipts, expenditure, capital expenditure, income/surplus of receipts over expenditure, income applied for the charitable purposes and percentage of the income applied in a tabulated form, which clearly depicted utilization of surplus by the respondent-assessee for only charitable purposes. The table as placed clearly shows that the respondent-assessee has utilized its surplus only for charitable purposes. Revenue has also neither argued nor drawn our attention to any material on record to the contrary. The charges for its services were also considered by the Tribunal and were found to be extremely reasonable,concessional, highlighting the charitable character of the respondent assessee. - Decided in favour of assessee Issues Involved:1. Justification of ITAT in canceling the Commissioner's order denying approval under Section 80G(5)(vi) of the Income Tax Act, 1961.2. Non-recording of findings regarding the violation of Section 80G(5)(iii) read with explanation 3 to Section 80G(5C) by ITAT.3. Consideration of observations made by the Commissioner in para 7.1 and 7.2 of his order by ITAT.4. Applicability of the doctrine of res judicata to the provisions of the Income Tax Act.5. Consideration of capital expenditure other than the modes specified in Section 11 of the Income Tax Act.Detailed Analysis:Issue 1: Justification of ITAT in canceling the Commissioner's order denying approval under Section 80G(5)(vi) of the Income Tax Act, 1961The High Court reviewed the case where the Income Tax Appellate Tribunal (ITAT) set aside the order of the Commissioner of Income Tax, Jalandhar-I, which had rejected the renewal of exemption under Section 80G of the Income Tax Act for the respondent-assessee. The Tribunal found no mis-utilization of funds by the assessee and noted that generating surplus was not detrimental to the grant of exemption as the surplus was utilized for large-scale expansion of facilities used for charitable purposes. The hospital charges were nominal compared to other commercial establishments, reinforcing its charitable character.Issue 2: Non-recording of findings regarding the violation of Section 80G(5)(iii) read with explanation 3 to Section 80G(5C) by ITATThe Tribunal's decision did not specifically address the alleged violation of Section 80G(5)(iii) read with explanation 3 to Section 80G(5C). However, it was implied that since the Tribunal found no mis-utilization of funds and deemed the surplus to be used for charitable purposes, the conditions under Section 80G(5) were met.Issue 3: Consideration of observations made by the Commissioner in para 7.1 and 7.2 of his order by ITATThe Tribunal considered the Commissioner's observations that the assessee was generating substantial surplus and spending a small percentage on charitable purposes. However, the Tribunal concluded that the surplus was used for expanding charitable facilities, which aligned with the charitable objectives of the assessee. The Tribunal's findings were supported by detailed financial records showing the application of income towards charitable purposes.Issue 4: Applicability of the doctrine of res judicata to the provisions of the Income Tax ActThe High Court clarified that the doctrine of res judicata is not applicable to the provisions of the Income Tax Act. The Tribunal's reference to previous years was to establish a pattern of charitable conduct and utilization of surplus, not to apply the doctrine of res judicata.Issue 5: Consideration of capital expenditure other than the modes specified in Section 11 of the Income Tax ActThe Tribunal's findings indicated that the capital expenditure incurred by the assessee was for the expansion of charitable facilities, which was considered an application of income for charitable purposes under Section 11. The Tribunal cited precedents where capital expenditure for charitable purposes was deemed as application of funds.Conclusion:The High Court upheld the Tribunal's decision, emphasizing that the surplus generated by the assessee was ploughed back into the charitable activities, thus not deviating from its charitable objectives. The charges for services provided by the assessee were found to be extremely reasonable, further supporting its charitable nature. The appeal was dismissed, affirming that the conditions for exemption under Section 80G were met, and the surplus was utilized for charitable purposes.