2025 (9) TMI 743 - AT - Income Tax

Assessee wins; denial of approval under s.80G(5)(iii) set aside for lack of material on genuineness

Academy of General Education Versus CIT (Exemptions), Bangalore

ITAT allowed the assessee's appeal and set aside the denial of approval under s.80G(5)(iii). The Tribunal held that the relevant authority must satisfy ... Denying the approval u/s 80G(5)(iii) - appellant had not furnished sufficient details or proof of the activities of the trust/Institution within the meaning of section 2(15) - as per CIT(A) assessee trust reported surplus every year which is not utilized towards charitable purposes and they had been accumulated in FDs and received interest income. HELD THAT:- We are of the clear opinion that, for the purpose of granting approval u/s 80G of the Act, the only relevant section is sub-sections (5). Commissioner (Exemptions) after receiving the application for granting approval u/s 80G shall call for such document or information and make such enquiry as he/she thinks necessary in order to satisfy himself/herself about the genuineness of the activity of such institution or fund and the fulfillment of all the conditions laid down in clause (i) to (v). We are of the opinion that at the time of granting of approval u/s 80G of the Act, the authority has to satisfy herself that the chartable institution is established in India for charitable purposes and the activities of the assessee trust are genuine and the assessee trust also fulfilled all the conditions as mentioned above. CIT(Exemptions) in our view has also not brought any material on record to show that the activities of the assessee trust are not genuine or the conditions as specified above are not fulfilled by the assessee trust. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the authority empowered under section 80G(5) may refuse permanent approval under section 80G where the trust/institution is already registered under section 12A and/or has been granted provisional approval under the first proviso to section 80G(5). 2. Whether fee receipts (tuition, hostel, management fees) that form part of total receipts preclude grant of approval under section 80G, i.e., whether the presence of fee receipts is a ground to deny 80G approval. 3. Whether findings as to recurring annual surpluses, accumulation in fixed deposits and interest receipts-without specific evidence of non-application for charitable purposes-justify denial of approval under section 80G(5), and what the required scope and standard of enquiry is for the approving authority. 4. Whether application of income by way of capital expenditure in the relevant year and permissible accumulation under section 11(1)(a) are matters that must be examined at the stage of deciding an 80G approval application. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of authority under section 80G(5) and effect of prior registration under section 12A / provisional 80G Legal framework: Section 80G(5) prescribes conditions (clauses (i)-(v)) which must be satisfied for donations to an institution to qualify for deduction; the approving authority is empowered to call for documents and make enquiries to satisfy itself about genuineness of activity and fulfillment of those conditions. Section 12A registration concerns tax-exemption of income of charitable trusts and requires satisfaction as to genuineness and compliance. Precedent treatment: The Tribunal noted no binding contrary precedent relied upon by the assessing authority in its order; the judgment treats statutory text and administrative practice as determinative. Interpretation and reasoning: The Tribunal reasoned that registration under section 12A and provisional approval under the proviso to section 80G(5) are outcomes reached after enquiry into genuineness; accordingly, at the stage of permanent approval the scope of enquiry under section 80G(5) is limited to satisfying the authority about genuineness of activities and fulfillment of clauses (i)-(v) rather than re-opening detailed examinations of application of funds under sections 11, 12 and 13. The Tribunal emphasised that detailed scrutiny of application of funds, surplus computation and other such matters are to be left for assessment proceedings rather than the administrative approval process under section 80G. Ratio vs. Obiter: Ratio - The approving authority's enquiry under section 80G(5) is confined to satisfaction about genuineness and conditions (i)-(v); registration under section 12A and provisional 80G are material and weigh strongly in favour of granting permanent approval. Obiter - Observations about administrative practice of calling documents for 12A registration. Conclusion: Approval under section 80G ought not to be refused where the authority has already granted section 12A registration and provisional 80G absent specific material showing failure to meet clauses (i)-(v); the Tribunal directed grant of permanent 80G approval in the facts of the case. Issue 2 - Status of fee receipts and whether their existence precludes 80G approval Legal framework: Section 80G deals with donations eligible for deduction; it does not, in its approval stage, require exclusion of institutions that receive fees per se, provided the institution is established for charitable purposes under section 2(15) and fulfills clauses (i)-(v) of section 80G(5). Precedent treatment: No authority was cited by the assessing authority to establish a blanket rule that fee receipts automatically disqualify an institution; the Tribunal treated the point as fact-sensitive and reliant on satisfaction under section 80G(5). Interpretation and reasoning: The Tribunal held that mere receipt of tuition, hostel or other fees does not itself justify refusal of 80G approval. The relevant inquiry is whether the institution is established for charitable purposes and satisfies statutory conditions. The Tribunal noted that the assessee did not issue 80G certificates for fee receipts and that the presence of fees alongside donations/grants does not render the institution ineligible for 80G approval. The Tribunal also observed that the question whether fees are donations is not determinative of the approval application where genuineness and compliance under section 80G(5) are established. Ratio vs. Obiter: Ratio - Presence of fee receipts alone is not a ground to deny approval under section 80G(5) where the institution is otherwise established for charitable purposes and satisfies clauses (i)-(v). Obiter - Remarks that whether particular receipts qualify as donations is not relevant at the approval stage were explanatory. Conclusion: The approving authority cannot deem an institution ineligible for 80G merely because it receives fees; permanent approval should be granted where statutory conditions are met and no material negating genuineness is produced. Issue 3 - Recurrent surpluses, accumulation in FDs and lack of commensurate reinvestment as a basis for denial; evidentiary standard and sufficiency of reasons Legal framework: Section 80G(5) permits enquiry into genuineness and fulfillment of clauses (i)-(v). Application of income and accumulations are governed by sections 11, 12 and 13, which are typically examined in assessment proceedings where computation and facts of application are litigated. Precedent treatment: The Tribunal found that the assessing authority's conclusions were general and unsupported by specific evidence; no binding precedent was cited to justify denial on such non-specific grounds at the approval stage. Interpretation and reasoning: The Tribunal characterised the assessing authority's findings as sweeping statements lacking corroborative evidence - e.g., asserting fees increased without commensurate tangible/intangible benefits but pointing to no specific deficiency or non-genuine activity. The Tribunal held that approving authorities must adduce material to show non-compliance with clauses (i)-(v) or that activities are not genuine before denying approval. Where the record (income & expenditure accounts) showed substantial application towards educational activities and where registration under section 12A had been granted, mere accounting of surpluses and accumulations into FDs was insufficient to justify refusal of 80G approval. Detailed computation of surplus or application of income is a matter for assessment proceedings, not the approval exercise. Ratio vs. Obiter: Ratio - Denial of 80G approval based on generalised observations about surpluses/accumulations is impermissible absent material demonstrating non-fulfillment of section 80G(5) conditions; specific evidence is required. Obiter - Guidance as to separation of functions between approval stage and assessment proceedings. Conclusion: The approving authority's rejection based on unspecific findings of surplus and accumulation was inadequate; in absence of pointed material showing non-genuineness or breach of clauses (i)-(v), approval must be granted. Issue 4 - Treatment of capital expenditure and permissible accumulation under section 11(1)(a) at the 80G approval stage Legal framework: Section 11 governs application of income and permissible accumulations (including section 11(1)(a)); capital expenditure and sanctioned accumulations are normally examined when computing taxable income in assessment proceedings. Precedent treatment: The Tribunal noted the assessee's contention that capital expenditure and the 15% accumulation under section 11(1)(a) ought to be treated as application of income; no binding authority was provided to convert such computation issues into preconditions for 80G approval. Interpretation and reasoning: The Tribunal held that computation issues - such as capital expenditure treated as application of income or statutory accumulation under section 11(1)(a) - are matters for assessment and not for the limited approval enquiry under section 80G(5). The requisite satisfaction for approval is genuineness of activities and fulfillment of clauses (i)-(v); detailed application/computation of income is beyond the purview of the approval process and must await assessment. Ratio vs. Obiter: Ratio - Capital expenditure and statutory accumulation under section 11 are not to be disputed or finally determined in the 80G approval exercise; they are assessment matters. Obiter - Observations explaining separation of inquiries. Conclusion: The approving authority erred in treating alleged failure to apply income (by ignoring capital expenditure and permitted accumulation) as a basis to deny 80G approval; such issues should be addressed in assessment proceedings. Cross-references and Final Disposition Cross-reference: Issues 1-4 interrelate in that the statutory scope of the section 80G(5) enquiry (Issue 1) constrains consideration of fee-related questions (Issue 2), surplus/accumulation allegations (Issue 3) and section 11 computation issues (Issue 4); the Tribunal emphasised this division of function repeatedly. Final conclusion: In the absence of any material demonstrating that the institution's activities were not genuine or that clauses (i)-(v) of section 80G(5) were not fulfilled, and having regard to prior section 12A registration and provisional 80G grant, the authority's refusal was unsustainable; the Tribunal directed grant of permanent approval under section 80G as applied for.