2025 (5) TMI 433 - AT - Income Tax

Rejecting the approval u/s 80G - Charitable purposes or not - School Bus Fees Tuition Fees and Exam Fees collected by the appellant for certain financial years do not fall under the definition of donations and therefore provisions of section 80G of the Act are not found applicable - HELD THAT - We are of the considered 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 assessee trust activities are not genuine or the conditions as specified above are not fulfilled by the assessee trust. The mere fact that assessee being an educational institution received school bus fees tuition fees and exam fees the approval u/s 80G of the Act cannot be denied specially when it is establish for the charitable purposes within the meaning of section 2(15) and the registration u/s 12A of the Act has already been granted. Provisions of section 11 12 along with section 13 including application of fund collected by the charitable organization are to be examined during the course of assessment proceedings and not at the time of granting approval u/s 80G of the Act. The issue whether receipts in the form of school bus fees tuition fees and exam fees do not fall under the definition of donation are not at all relevant in the present proceedings as it is not a case of claiming deduction of donation paid u/s 80G of the Act from the Gross total Income by the donor. We allow the appeal of the assessee trust and direct the CIT (Exemptions) to grant approval u/s 80G of the Act to the assessee as applied in form 10AB on 29/06/2024. Assessee appeal allowed.

Summary

The core legal questions considered by the Appellate Tribunal (AT) in this appeal arise from the refusal of approval under section 80G of the Income Tax Act ("the Act") to an assessee trust that is registered under section 12A of the Act. The principal issues examined are:

1. Whether the denial of approval under section 80G on the ground that receipts in the form of school bus fees, tuition fees, and exam fees do not constitute "donations" within the meaning of section 80G(2) of the Act is legally sustainable.

2. Whether the learned Commissioner of Income Tax (Exemptions) ("CIT[E]") erred in applying the provisions of section 80G(1) and 80G(2) from the perspective of a donor claiming deduction, rather than from the perspective of the institution seeking approval under section 80G.

3. Whether the CIT(E) exceeded jurisdiction by considering facts irrelevant to the grant of approval under section 80G.

4. Whether the grant of registration under section 12A of the Act necessarily entitles the assessee trust to approval under section 80G.

5. The scope and applicability of the conditions laid down in section 80G(5) for grant of approval to charitable institutions.

Issue-wise Detailed Analysis

Issue 1: Whether school bus fees, tuition fees, and exam fees constitute "donations" under section 80G(2) of the Act for the purpose of approval under section 80G

Legal framework and precedents: Section 80G provides tax deductions to donors for donations made to certain funds or institutions. The definition of "donation" in section 80G(2) is central to determining eligibility for deduction. Payments made for services, such as school fees, are generally not considered donations for deduction purposes. The Revenue's stand is that fees paid for education are payments for services rendered and not voluntary donations.

Court's interpretation and reasoning: The Tribunal noted that the CIT(E) relied on section 80G(1) and 80G(2) provisions, which are framed from the donor's perspective claiming deduction. However, the assessee trust is seeking approval under section 80G to enable donors to claim deductions, not claiming deduction itself. The Tribunal emphasized that the question of whether certain receipts constitute donations or fees is irrelevant at the stage of grant of approval under section 80G. The focus at this stage is on the genuineness of the institution's charitable activities and compliance with conditions under section 80G(5).

Key findings: The Tribunal found no material to show that the trust's activities were not genuine or that it failed to satisfy the conditions for approval. The mere fact that the trust collects fees for bus, tuition, and exams does not disqualify it from approval under section 80G.

Application of law to facts: The Tribunal held that the CIT(E) erred in rejecting approval solely on the ground that certain receipts were not donations. The issue of classification of receipts is more relevant during assessment proceedings under sections 11, 12, and 13, not at the approval stage.

Treatment of competing arguments: The Revenue's argument that school fees are payments for services and hence not donations was acknowledged but rejected as a basis for denial of approval. The Tribunal distinguished the donor's claim perspective from the institution's approval application.

Conclusion: The Tribunal concluded that denial of approval on this ground was unsustainable.

Issue 2: Whether the CIT(E) erred in applying provisions of section 80G(1) and 80G(2) from the donor's perspective rather than the institution's perspective

Legal framework: Section 80G(1) and (2) relate to deduction in computing total income of the donor. Section 80G(5) prescribes conditions for grant of approval to institutions.

Court's reasoning: The Tribunal observed that the CIT(E) failed to appreciate that the provisions invoked were intended for donors claiming deduction and not for institutions seeking approval. The relevant provisions for approval are contained in section 80G(5), which require the CIT(E) to be satisfied about the genuineness of the institution's activities and fulfillment of specified conditions.

Evidence and findings: The Tribunal reviewed the application, trust deed, registration under section 12A, provisional approval under section 80G, and other documents submitted by the assessee. No adverse material was found indicating non-compliance with conditions under section 80G(5).

Application of law to facts: The Tribunal held that the CIT(E) misdirected herself by applying donor-centric provisions and ignoring the statutory mandate under section 80G(5) for approval.

Treatment of competing arguments: The Revenue's reliance on donor-related provisions was rejected as misplaced in the context of approval.

Conclusion: The Tribunal found the CIT(E)'s approach legally erroneous.

Issue 3: Whether the CIT(E) exceeded jurisdiction by considering irrelevant facts

Legal framework: The CIT(E) is empowered to grant or refuse approval under section 80G(5) after satisfying herself about genuineness and compliance with conditions.

Court's reasoning: The Tribunal noted that the CIT(E) considered facts alien to the approval process, such as classifying receipts as donations or fees, which is not relevant to the approval stage.

Findings: No material was produced to show that the trust's activities were not genuine or that it failed to comply with the conditions prescribed under section 80G(5).

Application of law to facts: The Tribunal held that the CIT(E) acted without proper application of mind and exceeded jurisdiction by relying on irrelevant facts.

Conclusion: The impugned order was held to be passed in excess of jurisdiction and liable to be set aside.

Issue 4: Whether registration under section 12A entitles the trust to approval under section 80G

Legal framework: Section 12A registration is a prerequisite for exemption under sections 11 and 12. Approval under section 80G is a separate process requiring satisfaction of additional conditions under section 80G(5).

Court's reasoning: The Tribunal acknowledged that registration under section 12A indicates genuineness of the trust and its charitable purpose. The CIT(E) had granted provisional approval under section 80G earlier, indicating satisfaction of conditions.

Findings: The Tribunal found no reason to deny permanent approval under section 80G when the trust was registered under section 12A and had provisional approval, and no adverse material was placed on record.

Application of law to facts: The Tribunal held that registration under section 12A supports the grant of approval under section 80G, subject to fulfillment of conditions.

Conclusion: The Tribunal directed grant of approval under section 80G.

Issue 5: Scope of conditions under section 80G(5) for grant of approval

Legal framework: Section 80G(5) prescribes conditions including that the institution must be established in India for charitable purposes, income should not be liable to tax under sections 11 and 12, the instrument constituting the trust must not allow transfer of income/assets for non-charitable purposes, the institution must maintain regular accounts, and must be constituted as a public charitable trust or registered under specified laws.

Court's reasoning: The Tribunal emphasized that the CIT(E) must be satisfied about these conditions before granting approval. The Tribunal found that the assessee trust met these conditions as evidenced by the trust deed, registration, audit reports, and other documents.

Findings: No material was brought on record to show non-compliance with these conditions.

Application of law to facts: The Tribunal held that the CIT(E) should have granted approval after being satisfied about these conditions.

Conclusion: The Tribunal allowed the appeal and directed the CIT(E) to grant approval under section 80G.

Significant Holdings

"The provisions of section 80G(1) and 80G(2) of the Act are applicable for claim of deduction of the sum paid by way of donation to the charitable organization. However, for the purpose of granting approval under section 80G of the Act, the relevant section is sub-section (5)."

"The learned CIT(Exemptions) has on a wrong standpoint relied upon the provisions of section 80G(1) and 80G(2) which are from the perspective of donor claiming deduction and not from the perspective of the institution seeking approval."

"The mere fact that the assessee being an educational institution received school bus fees, tuition fees and exam fees, the approval under section 80G of the Act cannot be denied, especially when it is established for charitable purposes within the meaning of section 2(15) of the Act and registration under section 12A of the Act has already been granted."

"The provisions of sections 11, 12, and 13 including application of funds collected by the charitable organization are to be examined during the course of assessment proceedings and not at the time of granting approval under section 80G."

"The learned CIT(Exemptions) has not brought any material on record to show that the assessee trust activities are not genuine or the conditions as specified in section 80G(5) are not fulfilled."

"The impugned order refusing recognition under section 80G was passed in excess of jurisdiction by considering facts alien to the consideration for grant of recognition."

"The appeal of the assessee trust is allowed and the learned CIT(Exemptions) is directed to grant approval under section 80G of the Act as applied in Form 10AB dated 29/06/2024."