ITAT holds existing charitable trust need not seek provisional 80G(5) approval; directs fresh consideration under first proviso

ITAT Kolkata held that the assessee, an old charitable trust, was not required to seek provisional approval under section 80G(5) but ought to have applied under clause (i) of the first proviso. Relying on Nitdaa Foundation, it observed that the trust already enjoyed approval under the pre-amended provisions and was an existing trust. The order of the CIT(E) cancelling the provisional certificate due to non-response to queries was set aside. ITAT directed CIT(E) to treat the application as filed under clause (i) of the first proviso to section 80G(5), provide proper opportunity of hearing, and grant approval in accordance with law.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an application for approval under section 80G(5) filed by an existing trust, already enjoying approval under the pre-amended provisions, but wrongly mentioning clause (iii) instead of clause (i) of the first proviso to section 80G(5), could be treated as non-maintainable and lead to cancellation of provisional approval.

1.2 Whether the order rejecting the application under section 80G(5)(iii) and cancelling the provisional approval under section 80G(5) on the ground of non-compliance with notices was legally sustainable in the facts of an existing registered trust.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Characterisation of the assessee's application under section 80G(5) and effect of mentioning the wrong clause

Legal framework

2.1 The judgment examines the scheme of section 80G(5), in particular the first proviso and its clauses (i) and (iii), and the second proviso. The first proviso mandates different modes of application for approval: clause (i) for existing trusts already enjoying approval and clause (iii) for new trusts. The second proviso provides that, in the case of an application under clause (i), the Principal Commissioner or Commissioner shall pass an order in writing granting approval for a period of five years; provisional approval is contemplated only for new trusts.

Interpretation and reasoning

2.2 The Tribunal records that the assessee is an "old trust" which already had registration under section 12AA and approval under section 80G(5)(vi) under the pre-amended provisions. Thus, in terms of the statutory scheme, it "should have applied under clause (i) of the 1st proviso to section 80G(5), and there was no need for seeking any provisional approval."

2.3 The Tribunal notes that the assessee instead applied under section 80G(5)(iii) by selecting clause (iii) of the first proviso in Form 10AB, treating itself as a new trust. This resulted in the grant of provisional approval and, subsequently, in the controversy over rejection and cancellation.

2.4 Relying on the decision in Nitdaa Foundation v. Commissioner of Income Tax (Exemption), the Tribunal adopts the reasoning that where an existing trust mistakenly applies under clause (iii) instead of clause (i) of the first proviso to section 80G(5), the incorrect mention of the clause is a "curable defect". The application is to be treated as if filed under the correct clause, provided it was otherwise filed within time and in the prescribed form.

2.5 The Tribunal treats the ratio in Nitdaa Foundation as squarely applicable: the entire controversy arose due to the "incorrect mention of the clause" in Form 10AB; since the form was filed in time, the error is deemed curable and the application is deemed to be under clause (i) of the first proviso to section 80G(5).

Conclusions

2.6 The Tribunal holds that the assessee, being an existing trust already granted approval under the pre-amended provisions, ought to have been treated as having applied under clause (i) of the first proviso to section 80G(5), not as a new trust under clause (iii).

2.7 The incorrect selection of clause (iii) in the application is held to be a curable defect. The application in Form 10AB is deemed to have been filed under clause (i) of the first proviso to section 80G(5).

Issue 2: Validity of treating the application as non-maintainable and cancelling the provisional approval for non-compliance with notices

Interpretation and reasoning

2.8 The Commissioner (Exemption) had treated the application as non-maintainable and rejected it, also cancelling the provisional certificate, on the basis that the assessee had failed to furnish replies to the queries raised. The Tribunal, however, focuses on the nature and status of the assessee as an existing trust with prior registration and approval.

2.9 In light of the legal position that the assessee should have been treated as an existing trust applying under clause (i), and that the provisional approval regime is not applicable to such a case, the Tribunal views the rejection and cancellation founded on the procedural posture (as if it were a new trust under clause (iii)) as misplaced.

2.10 Adopting the approach in Nitdaa Foundation, the Tribunal holds that once the application is properly understood as one under clause (i), the Commissioner (Exemption) is required to consider and dispose of it on merits in accordance with law, instead of treating it as non-maintainable and cancelling the earlier approval/certificate on technical or procedural grounds arising from the wrong clause selection.

Conclusions

2.11 The order of the Commissioner (Exemption) treating the application as non-maintainable and cancelling the provisional certificate/approval is set aside.

2.12 The Tribunal directs that the application be treated as filed under clause (i) of the first proviso to section 80G(5) and remands the matter to the Commissioner (Exemption) with instructions to:

(a) provide an opportunity to the assessee; and

(b) consider the application afresh and grant approval under section 80G in accordance with law.

2.13 The appeal is allowed for statistical purposes, the substantive effect being the setting aside of the impugned order and restoration of the application to be decided on merits under the correct statutory provision.

---