2018 (11) TMI 1919 - HC - Income Tax

Renewal of approval u/s 80G - Commissioner held that there is an absence of charitable activity - revenue contends that what is being used by the assessee towards the object of the Trust is very miniscule and most of the income that is used is only as a result of letting-out of the building, for business purposes, thus it is not the object of the Trust at all. - HELD THAT - The consideration of these factors when an application for renewal has been made cannot be the considerations before the authority. The only condition that requires to be fulfilled for the purposes of seeking renewal are as specified under Section 80-G(5)(ii) and the clauses narrated therein. That none of the clauses in Section 80-G(5)(ii) would be said to be applicable herein. It only postulates that any income derived from the charitable trust may be used for charitable purpose. Therefore, the rejection of the application is inappropriate. However, we are of the considered view that this consideration can only be made, during the assessment proceedings. The question whether renewal is justified or not, is not necessary to be considered at this stage. The applicability of the income of the assessee whether it is for charitable purposes or not are all questions of fact and necessarily can be gone into by the assessing authority at the time of assessing the income of the assessee. Therefore, it is needless to state that the assessing authority shall look into all the material placed in order to ensure that the income is used for a charitable purpose in accordance with law. Substantial question of law is answered by holding that the Tribunal was not right in law in holding that the appellant Trust was not eligible for renewal for approval under Section 80-G - order of the Tribunal is set aside - Decided in favour of assessee.

Summary

Issues:
- Eligibility for renewal of approval under Section 80G
- Interpretation of conditions under Section 80-G(5)(ii)
- Consideration of income usage for charitable purposes
- Applicability of clauses under Section 80-G(5)(ii)

Eligibility for renewal of approval under Section 80G:
The case involved a charitable Trust seeking renewal of recognition under Section 80-G of the Income Tax Act. The Trust had previously been granted registration under Section 12-A and recognition under Section 80-G for specific years. The issue arose when the Commissioner rejected the renewal application, citing concerns about the Trust's charitable activities and income usage. The Tribunal initially expressed doubts regarding the Trust's eligibility, leading to subsequent appeals and the framing of substantial questions of law.

Interpretation of conditions under Section 80-G(5)(ii):
The Commissioner based the rejection on Section 80-G(5)(ii), highlighting that the income was not entirely used for charitable purposes, questioning the Trust's activities. The revenue contended that the income used for charitable purposes was minimal compared to business-related income from property letting. However, the Trust argued that the conditions specified in the section allowed income usage for charitable purposes, emphasizing the repayment of loans and interest as part of their charitable activities.

Consideration of income usage for charitable purposes:
The Trust's counsel argued that the Commissioner's decision did not consider all relevant facts, such as loan repayments and interest payments, which were integral to their charitable objectives. The court noted that the assessment of income usage for charitable purposes should be a part of the assessment proceedings, not the renewal application stage. The court emphasized that the assessing authority should review all materials to ensure compliance with charitable usage requirements under the law.

Applicability of clauses under Section 80-G(5)(ii):
The court concluded that the Trust's renewal application should not have been rejected based on the Commissioner's considerations, as the conditions specified under Section 80-G(5)(ii) were not violated. The court highlighted that the assessment of income usage for charitable purposes should be conducted during assessment proceedings, rather than at the renewal stage. Therefore, the Tribunal's decision was deemed incorrect, and the Trust was found eligible for renewal of approval under Section 80-G. The Tribunal's order was set aside, and the substantial question of law was answered in favor of the appellant Trust.

In conclusion, the judgment clarified the interpretation of Section 80-G conditions, emphasizing the importance of assessing income usage for charitable purposes during assessment proceedings and not during the renewal application stage. The Trust's eligibility for renewal of approval under Section 80-G was upheld, overturning the Tribunal's decision.