Tribunal restores approval for charitable activities under Income-tax Act

The Tribunal ruled in favor of the assessee, holding that the revocation of approval under section 10(23C)(iv) of the Income-tax Act was unsustainable. The Tribunal found that the assessee's activities were charitable in nature, aligned with its objectives, and did not engage in commercial activities. Additionally, it was determined that the retrospective withdrawal of approval was impermissible, citing judicial precedents. The Tribunal set aside the order revoking approval and restored the assessee's status under section 10(23C)(iv), ultimately allowing the appeal.

---

---

Issues Involved:
1. Revocation of approval under section 10(23C)(iv) of the Income-tax Act, 1961.
2. Alleged discrepancies in foreign contributions.
3. Maintenance of separate books of account.
4. Nature of activities - charitable vs. commercial.
5. Retrospective withdrawal of approval.

Issue-wise Detailed Analysis:

1. Revocation of Approval under Section 10(23C)(iv):
The appeal was filed by the assessee against the order revoking the approval under section 10(23C)(iv) of the Income-tax Act, 1961. The revocation was based on the grounds that the assessee violated the conditions of approval by engaging in activities that were not charitable as defined under section 2(15) of the Act.

2. Alleged Discrepancies in Foreign Contributions:
The Assessing Officer found discrepancies between the foreign contributions reported in the FCRA audited accounts and the annual financial statements. The assessee explained that the difference arose because the FCRA accounts were maintained on a receipt basis, while the income and expenditure account was on an accrual basis. The Tribunal accepted this explanation, noting that the statutory audit report confirmed the accrual basis of accounting for donations/grants.

3. Maintenance of Separate Books of Account:
The authorities alleged that the assessee did not maintain separate books of account for its business and charitable activities, violating the 7th proviso to section 10(23C). The assessee contended that it maintained accounts using ERP software, which can segregate financial data for different activities. The Tribunal agreed with the assessee, referencing the decision in Ranbaxy Laboratories Ltd. vs. ACIT, which accepted ERP systems as equivalent to maintaining separate books.

4. Nature of Activities - Charitable vs. Commercial:
The core issue was whether the assessee's activities were charitable or commercial. The authorities argued that the assessee promoted its own contraceptive brands under the guise of charitable projects, thus engaging in commercial activities. The Tribunal found that the assessee's activities, including the 'Pehel Project' and 'NACO Project,' were aligned with its charitable objectives. The Tribunal noted that the assessee followed government pricing regulations and did not generate undue profits. The Tribunal also emphasized that no government or donor agency had alleged misuse of funds or deviation from charitable purposes.

5. Retrospective Withdrawal of Approval:
The Tribunal held that the approval under section 10(23C)(iv) could not be withdrawn retrospectively. The Tribunal cited various judicial precedents supporting the view that retrospective withdrawal of approval is not permissible. The Tribunal noted that the assessee's registration under sections 12A and 80G, which recognize its charitable status, was still valid, highlighting the inconsistency in the revenue's stance.

Conclusion:
The Tribunal concluded that the revocation of approval under section 10(23C)(iv) was unsustainable. The Tribunal set aside the order of the CIT (Exemption), restoring the assessee's approval under section 10(23C)(iv). The appeal was allowed, and the order was pronounced on 30th November 2022.

---