2025 (6) TMI 394 - AT - Income Tax

Rejecting the approval u/s 80G(5)(iii) and grant of registration u/s 12A (1) (ac)(iii) - assessee failed to prove that activities for charitable purpose as mentioned in section 2(15) of the Act were actually undertaken by it - whether charitable activities as defined u/s 2(15) of the Act has been carried out by the Trust is to ascertain the purpose of organizing the seminar and conferences on which the major expenses of the trust has been incurred? HELD THAT - Main object of the assessee Trust as per the trust deed of the society is to run hospital /nursing home other medical relief education other relief of the poor and for such other purposes as mentioned thereafter in the Trust deed. Chandigarh Bench of the Tribunal 2015 (1) TMI 1423 - ITAT CHANDIGARH in arriving at the above decision for granting of registration to the society inter-alia noted that expenses were incurred for conferences and medicines for poor patients which were directly connected to achieve the aims and objects of the assessee trust. However the ld. CIT(E) has not made any such examination /verification of the details filed by the assessee before the Ld. CIT(E) and such verification is required before the decision relied by the assessee can be applied to the facts of the case of the assessee. Rejection given by CIT(E) was that the trustees as per submission made by the assessee are medical practitioners and doctors and at the same time donors are all pharmaceuticals companies and they have deducted TDS u/s 194C on the payment made to the assessee trust. - The purpose of the seminars and conferences held by the assessee and assessee s claim on medical relief expenditure and donation to similar trust as per the details submitted in the written submission and the paper book has also not been examined by the ld. CIT(E) which requires factual verification by the Ld. CIT(E). Therefore we are of the considered view that the order of the ld. CIT(E) dated 29.08.2024 rejecting the application of the assessee in Form No. 10 for grant of registration u/s 12A(1)(ac)(iii) cannot be sustained and the same is set aside to his file to pass a fresh order after giving a reasonable opportunity of being heard to the assessee and also keeping in view the above observations as made above and as per law.

Summary

The core legal questions considered in this judgment are:

1. Whether the assessee trust's activities qualify as charitable purposes under section 2(15) of the Income Tax Act, 1961, thereby entitling it to registration under section 12A(1)(ac)(iii) of the Act.

2. Whether the rejection of the application for approval under section 80G(5)(iii) of the Act was justified, given the findings on charitable activities.

3. Whether the nature of expenses incurred by the trust, particularly on seminars and conferences, and the deduction of TDS by donors under section 194C, impact the eligibility for registration and approval under the relevant sections of the Act.

Issue-wise Detailed Analysis:

Issue 1: Eligibility for Registration under Section 12A(1)(ac)(iii) - Charitable Purpose under Section 2(15)

Relevant Legal Framework and Precedents: Section 2(15) defines charitable purpose to include relief of the poor, education, medical relief, and advancement of any other object of general public utility. Registration under section 12A(1)(ac)(iii) requires proof that the trust is engaged in charitable activities as defined. The Tribunal relied on the precedent from Paediatric Pulmonology Programme Trust vs. CIT, where expenses on conferences and medical relief were held to be charitable and eligible for registration. Additionally, the Delhi High Court decision in Aroh Foundation vs. CIT(Exemption) clarified that deduction of TDS by donors under sections 194C or 194J does not affect the charitable status of receipts unless specifically hit by proviso to section 2(15).

Court's Interpretation and Reasoning: The Tribunal noted that the main objects of the trust, as per the trust deed, include running hospitals, medical relief, education, and organizing seminars and conferences for continuing medical education. Clause 26 of the trust deed explicitly includes conferences and seminars as objects undertaken in furtherance of the trust's charitable purposes.

The Court observed that the CIT(E) rejected the application primarily on the ground that the main expenses were on seminars and camps not mentioned in objects or not charitable, and that bills were mainly from hotels/resorts for food and accommodation, which were not charitable in nature. The CIT(E) also noted that donors were pharmaceutical companies deducting TDS under section 194C, suggesting a commercial nature.

The Tribunal found that the CIT(E) failed to verify or examine the detailed submissions and financials filed by the assessee regarding the purpose of seminars and conferences, which were argued to be integral to medical relief and education. The seminars were for educating doctors on latest techniques, which is directly linked to medical relief and welfare of patients, thus falling within charitable purposes under section 2(15).

The Tribunal emphasized that the expenses on hotel and fooding were incidental and necessary for organizing such seminars and conferences and not for personal benefit of trustees or others.

Key Evidence and Findings: The assessee submitted detailed financial statements showing significant expenditure on seminars and conferences, medical relief, and donations to similar trusts. The Tribunal noted the absence of any verification by CIT(E) of these claims. The Tribunal also relied on the precedent where similar expenses were held charitable.

Application of Law to Facts: The Tribunal applied the legal principles from section 2(15) and relevant case law to conclude that the activities of organizing seminars and conferences for continuing medical education are charitable as they directly advance medical relief. The incidental expenses on accommodation and fooding were part of these activities and not disqualifying.

Treatment of Competing Arguments: The CIT(E)'s contention that seminars and conferences were not charitable and that hotel bills were not charitable was rejected due to lack of detailed examination and verification. The Tribunal also rejected the argument that TDS deduction by donors under section 194C disqualified the trust from registration, relying on the Delhi High Court ruling in Aroh Foundation.

Conclusions: The Tribunal held that the CIT(E)'s rejection of registration under section 12A(1)(ac)(iii) was unsustainable. The matter was remanded to CIT(E) for fresh consideration after proper verification and opportunity to the assessee.

Issue 2: Approval under Section 80G(5)(iii)

Relevant Legal Framework: Approval under section 80G(5)(iii) is contingent upon registration under section 12A and the trust carrying out charitable activities as defined under section 2(15).

Court's Interpretation and Reasoning: The CIT(E) rejected the application for approval under section 80G(5)(iii) on the same grounds as the rejection of registration under section 12A(1)(ac)(iii). The Tribunal observed that since the registration issue was remanded, the approval issue must also be remanded for fresh consideration.

Conclusions: The appeal against rejection of approval under section 80G(5)(iii) was allowed for statistical purposes and remanded to CIT(E) for fresh consideration.

Issue 3: Impact of TDS Deduction by Donors under Section 194C

Relevant Legal Framework and Precedents: Section 194C relates to TDS on payments to contractors. The Delhi High Court in Aroh Foundation vs. CIT(Exemption) clarified that TDS deduction under sections 194C or 194J on donations does not alter the charitable nature of the receipts unless the proviso to section 2(15) applies.

Court's Interpretation and Reasoning: The CIT(E) rejected the registration partly because donors deducted TDS under section 194C, implying a commercial nature of receipts. The Tribunal noted that the CIT(E) did not examine the facts or purpose behind the TDS deduction. The Tribunal held that mere deduction of TDS under section 194C by donors cannot be a ground to deny registration or approval.

Application of Law to Facts: The Tribunal found that without factual inquiry into the nature of payments and purpose of TDS deduction, the CIT(E)'s conclusion was premature and unsustainable.

Conclusions: The Tribunal set aside the CIT(E)'s order on this ground and remanded for fresh consideration.

Significant Holdings:

"The main object of the assessee Trust as per the trust deed of the society is to run hospital /nursing home, other medical relief, education, other relief of the poor and for such other purposes as mentioned thereafter in the Trust deed."

"Clause 26 of the Trust deed is reproduced for ready reference as under: ... undertake, execute, support and assist any programme(s) or project(s) with no profit motive designed to provide: research and studies into the problems of the marginalized, publishing of books, magazines, periodicals, pamphlets, brochures etc, in furtherance of the object of the society, study circles, conferences and seminars."

"Seminars are for continuing education of doctors for educating them for better treatment and welfare of patients with latest techniques and researches and medical relief."

"The expenses on hotel and fooding are part and parcel of conference expenses and necessary to organize conferences in reasonable hotels etc., hence an integral part for obtaining the objects."

"Deduction of TDS u/s. 194C by the donor do not change the character of donation in the hands of assessee."

"If the deductor in its Income-tax Return, under misconception, deducts TDS under sections 194C and 194J of the Act, the same would not disentitle the assessee to claim benefit under sections 11 and 12 of the Act unless the case of assessee is specifically hit by the Proviso of Section 2(15) of the Act."

"The order of the ld. CIT(E) dated 29.08.2024 rejecting the application of the assessee in Form No. 10 for grant of registration u/s 12A(1)(ac)(iii) cannot be sustained and the same is set aside to his file to pass a fresh order after giving a reasonable opportunity of being heard to the assessee and also keeping in view the above observations as made above and as per law."

"The rejection of the application filed in Form 10AB seeking approval u/s 80G(5)(iii) is consequential in nature and is remanded for fresh consideration."

The Tribunal's final determinations are that both the appeals against rejection of registration under section 12A(1)(ac)(iii) and approval under section 80G(5)(iii) are allowed for statistical purposes and remanded to the CIT(E) for fresh consideration after proper verification and opportunity to the assessee, in accordance with law and consistent with the observations made in the order.