2017 (8) TMI 1748 - AT - Income Tax

Trust's 80G Approval Reinstated: Charitable Purpose Presumed Valid Under 12A Registration with Clear Statutory Compliance

Seth Vinod Kumar Somani Charitable Trust, Versus CIT (Exemption), Chandigarh.

Seth Vinod Kumar Somani Charitable Trust, Versus CIT (Exemption), Chandigarh. - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:(a) Whether the rejection of approval under Section 80G of the Income Tax Act, 1961, by the CIT (Exemption) was justified, particularly when the assessee/trust already holds registration under Section 12A of the Act.(b) Whether the CIT (Exemption) erred by taking into irrelevant considerations in rejecting the 80G approval application.(c) Whether the CIT (Exemption) erred in concluding that trustees or other persons claimed deductions under Section 80G without verifying such claims from their returns.(d) Whether the assessee/trust is entitled to approval under Section 80G of the Act despite the objections raised.(e) Ancillary reliefs or considerations that may arise during the hearing.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Validity of rejection of approval under Section 80G when registration under Section 12A existsRelevant legal framework and precedents: Section 12A registration is granted to trusts or institutions established for charitable or religious purposes, which exempts their income under certain conditions. Section 80G approval enables donors to claim deductions on donations made to such trusts. The law generally presumes that once Section 12A registration is granted and not withdrawn, the trust is engaged in charitable activities, and approval under Section 80G should follow unless specific disqualifications exist under Section 80G(5)(vi).Court's interpretation and reasoning: The Tribunal noted that the assessee was granted registration under Section 12AA (which corresponds to Section 12A) effective from 1st April 2014, and this registration had not been withdrawn. The Tribunal emphasized that the existence of Section 12A registration implies that the trust is engaged in charitable activities. Therefore, denial of approval under Section 80G on insubstantial or flimsy grounds is not warranted unless there is a violation of conditions specified in Section 80G.Key evidence and findings: The CIT (Exemption) rejected the 80G approval based on observations such as a large portion of donations coming from trustees themselves, lack of documentary evidence for corpus donations, the main expenditure being towards student fees benefiting a single child, and the trust's focus on asset creation rather than charitable objects. The CIT also noted loans taken for building creation and absence of donations in previous years.Application of law to facts: The Tribunal found these reasons insufficient to deny approval under Section 80G once Section 12A registration was valid and subsisting. The Tribunal held that the CIT's scrutiny overstepped the limited scope of enquiry for 80G approval and that the trust's charitable status under Section 12A should suffice to grant 80G approval.Treatment of competing arguments: The assessee argued that the CIT's enquiry was beyond the scope permitted for 80G approval and that registration under 12A presumes charitable purpose. The Revenue defended the CIT's order as well-reasoned and justified. The Tribunal sided with the assessee, emphasizing the limited scope of enquiry for 80G approval and the legal presumption arising from 12A registration.Conclusion: The Tribunal concluded that the approval under Section 80G should not be denied merely on the grounds cited by the CIT, especially when Section 12A registration was valid and subsisting. Accordingly, the Tribunal allowed the appeal and directed grant of approval under Section 80G.Issue (b): Whether irrelevant considerations were taken into account by the CIT (Exemption)Relevant legal framework: The CIT's power to grant or reject approval under Section 80G is circumscribed by the provisions of the Income Tax Act and the rules framed thereunder. The enquiry is generally limited to verifying compliance with statutory conditions, and irrelevant or extraneous considerations should not influence the decision.Court's interpretation and reasoning: The Tribunal observed that the CIT had relied on factors such as the identity of donors (trustees themselves), absence of documentary evidence for corpus donations, and the nature of expenditure benefiting a single child, which were not strictly relevant or sufficient to deny 80G approval.Key findings: The CIT's focus on the source of donations and the specific expenditure pattern was deemed by the Tribunal as beyond the permissible scope of enquiry for approval under Section 80G.Application of law to facts: The Tribunal found that such considerations should not have led to rejection of approval, especially since the trust's registration under Section 12A was intact.Treatment of competing arguments: The assessee argued that these considerations were irrelevant and that the CIT failed to verify claims properly. The Revenue justified the CIT's approach as necessary for ensuring genuine charitable activity. The Tribunal rejected the Revenue's stance, holding that the CIT's approach was inappropriate.Conclusion: The Tribunal held that the CIT took into irrelevant considerations, which vitiated the rejection order under Section 80G.Issue (c): Whether the CIT erred in concluding trustees or others claimed deductions under Section 80G without verificationRelevant legal framework: Verification of claims made by trustees or donors under Section 80G is a procedural aspect that requires scrutiny of returns or documentary evidence to substantiate the claims.Court's interpretation and reasoning: The CIT concluded that trustees or other persons had claimed deductions under Section 80G without verification from their returns. The Tribunal noted that the CIT did not verify such claims adequately before making this finding.Key findings: The Tribunal found the CIT's conclusion to be based on unverified assumptions rather than concrete evidence.Application of law to facts: The Tribunal emphasized that such findings without proper verification cannot justify denial of approval under Section 80G.Treatment of competing arguments: The assessee contended that the CIT's finding was erroneous and unsubstantiated. The Revenue maintained the CIT's observation as valid. The Tribunal favored the assessee's position.Conclusion: The Tribunal held that the CIT erred in making adverse findings without proper verification, which contributed to the wrongful rejection of approval.Issue (d): Entitlement of the assessee to approval under Section 80GRelevant legal framework: Approval under Section 80G is granted to trusts or institutions engaged in charitable activities and registered under Section 12A, subject to compliance with conditions under Section 80G and related rules.Court's interpretation and reasoning: The Tribunal reiterated that since the assessee holds valid registration under Section 12A and no withdrawal or violation of conditions under Section 80G had been established, the assessee was entitled to approval under Section 80G.Key findings: The Tribunal found that the CIT's reasons for rejection were insufficient and that the assessee had fulfilled the statutory requirements.Application of law to facts: The Tribunal applied the legal presumption arising from Section 12A registration and the absence of any disqualifying factors to direct grant of approval under Section 80G.Treatment of competing arguments: The assessee's submissions on entitlement were accepted, while the Revenue's objections were rejected.Conclusion: The Tribunal allowed the appeal and granted approval under Section 80G to the assessee.3. SIGNIFICANT HOLDINGSThe Tribunal held: 'Once the registration U/s 12AA of the Act is in existence then the approval U/s 80G of the Act cannot be denied on flimsy ground until and unless the violation of the Rules specified in Section 80G of the Act occurred.'It was further observed that: 'The scope of enquiry by the Ld. CIT is very limited for grant of approval U/s 80G of the Act and once the registration of an institution U/s 12A of the Act has been granted then it is presumed that trust or institutions concerned is created or established for charitable and religious purposes.'The Tribunal conclusively determined that the CIT (Exemption) had erred in rejecting the approval under Section 80G on irrelevant and unverified grounds, and that the assessee was entitled to such approval as a matter of law and fact.