Charitable trust's bona fide error in selecting wrong sub-clause of section 80G(5) corrected, appeal allowed

ITAT Ahmedabad allowed the appeal where a charitable trust made a bona fide error in selecting sub-clause (iv) instead of sub-clause (ii) of section 80G(5) in Form 10AB application for tax exemption approval. The tribunal found merit in the trust's submission regarding the mistake and set aside the matter to CIT(E) with directions to consider the application under the correct clause (ii) and grant approval if the trust is otherwise eligible. The appeal was allowed for statistical purposes following precedent from Rotary Charity Trust case.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the Commissioner of Income Tax (Exemption) was correct in rejecting the application for approval under section 80G(5)(iv)(B) of the Income Tax Act, 1961 as non-maintainableRs.
• Whether the assessee's application was erroneously filed under sub-clause (iv) instead of the correct sub-clause (ii) of the first proviso to section 80G(5) of the Act, and if so, whether the application should be considered under the correct provisionRs.
• Whether the delay of 79 days in filing the appeal before the Tribunal should be condoned, considering the reasons provided by the assesseeRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of rejection of application under section 80G(5)(iv)(B)

Relevant legal framework and precedents: Section 80G(5)(iv)(B) of the Income Tax Act prescribes conditions under which approval is granted to charitable trusts for donors to claim deduction. The proviso requires that the activities of the institution or fund must have commenced and no income should have been excluded under sections 10(23C), 11, or 12 for any previous year ending on or before the date of application after commencement of activities.

Court's interpretation and reasoning: The CIT(Exemption) rejected the application on the ground that the assessee had claimed exemption under section 11 for assessment years 2021-22, 2022-23, and 2023-24. This fact was verified from the CPC portal. Since the proviso to section 80G(5)(iv)(B) disallows approval if any income has been excluded under section 11 for any previous year after commencement of activities, the CIT(Exemption) held the application as non-maintainable.

Key evidence and findings: The assessee's own returns showing exemption claims under section 11 for multiple assessment years were the basis for the rejection.

Application of law to facts: The CIT(Exemption) applied the statutory condition strictly and found that the assessee did not meet the eligibility criteria under clause (iv)(B) due to prior exemption claims.

Treatment of competing arguments: The assessee argued that the application was mistakenly filed under clause (iv) instead of clause (ii), implying that the rejection under clause (iv) was not applicable. The CIT(Exemption) did not consider this argument as the application was rejected based on the stated provision.

Conclusions: The Tribunal found merit in the assessee's submission that the rejection was based on an incorrect application of the provision, as the assessee had made a bona fide error in selecting the sub-clause.

Issue 2: Bona fide error in selecting sub-clause (iv) instead of sub-clause (ii) of section 80G(5)

Relevant legal framework and precedents: Section 80G(5) contains multiple provisos with sub-clauses specifying different eligibility criteria for approval. The Mumbai Bench decision in Rotary Charity Trust vs CIT(E) (2024) was relied upon, where a similar bona fide error in selecting the wrong sub-clause was rectified by remanding the matter for consideration under the correct provision.

Court's interpretation and reasoning: The Tribunal acknowledged the assessee's admission of a bona fide mistake in selecting sub-clause (iv) instead of (ii). The Tribunal noted that the CIT(Exemption) had given an opportunity to clarify but the assessee did not rectify the error at that stage. The Tribunal found that the clause (iv) was not applicable to the assessee's facts and that the application should be considered under clause (ii) as claimed by the assessee.

Key evidence and findings: The assessee's explanation and the nature of activities of the trust supported the claim that clause (ii) was the correct provision for approval.

Application of law to facts: Applying the principle of substantial justice and in line with the precedent, the Tribunal held that the matter should be remitted to the CIT(Exemption) to consider the application under clause (ii) on merits.

Treatment of competing arguments: The Revenue did not oppose remand and agreed that the matter could be reconsidered afresh on the correct provision.

Conclusions: The Tribunal directed the CIT(Exemption) to consider the application under section 80G(5)(ii) and grant approval if the assessee is otherwise eligible.

Issue 3: Condonation of delay in filing appeal

Relevant legal framework: Delay in filing appeals before the Tribunal is governed by the principles of natural justice and discretion vested in the Tribunal to condone delay if sufficient cause is shown.

Court's interpretation and reasoning: The assessee explained that the delay of 79 days was due to lack of familiarity with income tax litigation, inability to operate the Income-tax portal, and late knowledge of the rejection. The Tribunal accepted that the delay was neither intentional nor mala fide.

Key evidence and findings: Affidavit explaining the reasons for delay and absence of any previous litigation or portal access issues.

Application of law to facts: The Tribunal exercised discretion to condone the delay in the interest of justice.

Treatment of competing arguments: No opposition from Revenue on condonation.

Conclusions: Delay of 79 days in filing the appeal was condoned.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"Considering the fact that the assessee is a trust engaged in charitable activities and respectfully following the decision of the Mumbai Bench in the case of Rotary Charity Trust (supra), we deem it proper to set aside the matter to the file of ld. CIT(E), with a direction to consider the application of the assessee as under Clause (ii) to first proviso to section 80G(5) of the Act, and thereafter grant approval accordingly, if assessee is otherwise found eligible."

Core principles established include:

• A bona fide error in selecting the incorrect sub-clause in an application under section 80G(5) can be rectified by remanding the matter for consideration under the correct provision.
• The Tribunal is empowered to condone delay in filing appeals where sufficient cause is shown, particularly where the delay is unintentional and not mala fide.
• The strict conditions under section 80G(5)(iv)(B) regarding prior exemption claims under section 11 must be carefully applied, and applications must be filed under the correct sub-clause to avoid rejection.

Final determinations:

• The appeal was allowed for statistical purposes by condoning the delay and setting aside the rejection order.
• The matter was remitted to the CIT(Exemption) for fresh consideration of the application under section 80G(5)(ii) on merits.

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