2025 (7) TMI 954 - AT - Income Tax

Non grant approval 80G - Receipt in the nature of fee receipts - registration u/s 12A has already been granted - HELD THAT - The fee receipts are nothing but the revenue generated out of the regular activity carried on by the assessee trust and the assessee trust never granted 80G certificates on such fees receipts. We are of the considered opinion that mere fact of the assessee being an educational institution which received tuition other fees along with hostel fees the approval u/s 80G cannot be denied specially when it is established for the charitable purposes within the meaning of section 2(15) of the Act and the registration u/s 12A of the Act has already been granted after verifying the genuineness of the activities carried out by the Assessee trust. The issues whether receipts in the form of tuition and other fees hostel fees do not fall under the definition of donation are not at all relevant in the present case of the assessee trust. 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. 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 trust as applied in form 10AB on 08.08.2024 - Appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the learned Commissioner of Income Tax (Exemptions) was justified in rejecting the application for approval under section 80G(5)(iii) of the Income Tax Act, 1961, despite having granted registration under section 12AB of the Act to the assessee trust.

(b) Whether the assessee trust had furnished sufficient details and proof of its activities within the meaning of section 2(15) of the Income Tax Act, 1961, as required for approval under section 80G.

(c) Whether the learned CIT(Exemptions) erred in holding that the surplus income reported by the trust was not applied towards charitable purposes and was accumulated in fixed deposits earning interest, thus justifying rejection of approval under section 80G.

(d) Whether fee receipts and management fees received by the trust fall within the purview of donations eligible for deduction under section 80G of the Act.

(e) Whether the learned CIT(Exemptions) failed to properly consider capital expenditure and accumulation under section 11(1)(a) of the Act while assessing the application for approval under section 80G.

(f) Whether the scope of enquiry for granting approval under section 80G is limited to satisfaction regarding genuineness of activities and fulfillment of conditions under section 80G(5), or whether detailed scrutiny of income application and surplus is permissible at this stage.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Justification for rejection of approval under section 80G despite registration under section 12AB

The legal framework mandates that registration under section 12AB is a prerequisite for claiming exemption under sections 11 and 12, while approval under section 80G is a separate process requiring satisfaction of conditions under section 80G(5). The Court noted that the assessee trust was granted registration under section 12AB after due verification of genuineness and compliance with applicable laws. Further, provisional approval under section 80G was granted earlier.

The Court reasoned that the learned CIT(Exemptions), having satisfied herself about the genuineness of the trust's activities for registration under section 12AB, ought to have extended approval under section 80G, provided the conditions under section 80G(5) were fulfilled. The Court emphasized that the scope of enquiry for approval under section 80G is limited to satisfaction about genuineness and compliance with conditions (i) to (v) of section 80G(5), not a re-examination of the entire income and expenditure details as in assessment proceedings.

The Court concluded that denial of approval under section 80G on grounds already considered and satisfied during registration under section 12AB was erroneous.

(b) Sufficiency of details and proof of activities under section 2(15)

The assessee was required to demonstrate that its activities fall within the definition of charitable purpose under section 2(15). The Court observed that the learned CIT(Exemptions) did not bring any material on record to show that the activities were not genuine or did not qualify as charitable. The prior grant of registration under section 12AB itself implied satisfaction of genuineness and charitable nature.

Therefore, the Court held that the assessee had furnished sufficient details and proof of its activities within the meaning of section 2(15), and the rejection on this ground was not sustainable.

(c) Treatment of surplus income and its application towards charitable purposes

The learned CIT(Exemptions) rejected approval on the ground that the trust reported surplus income every year which was not applied towards charitable purposes but accumulated in fixed deposits earning interest. The assessee contended that capital expenditure incurred during the year was ignored and that accumulation under section 11(1)(a) (15% of gross receipts) was not allowed as application of income.

The Court analyzed the Income & Expenditure accounts and noted that the trust had applied substantial amounts towards educational activities. It emphasized that the scope of enquiry for approval under section 80G does not extend to detailed scrutiny of application of income or computation of surplus, which is the domain of assessment proceedings under sections 11, 12, and 13.

Hence, the Court held that the learned CIT(Exemptions) erred in rejecting approval on the basis of surplus accumulation without considering capital expenditure and accumulation provisions, and that such matters should be examined during assessment, not at the approval stage.

(d) Nature of fee receipts and their eligibility under section 80G

The learned CIT(Exemptions) held that fee receipts and management fees do not constitute donations eligible for deduction under section 80G. The assessee argued that fee receipts are revenue from regular activities and no certificates under section 80G were issued for such receipts; only donations and grants were eligible for deduction.

The Court observed that the issue whether fee receipts constitute donations is not relevant for the purpose of granting approval under section 80G. The approval depends on genuineness of charitable activities and fulfillment of conditions under section 80G(5), not on the classification of receipts. The Court noted that the assessee trust had never issued 80G certificates for fee receipts and that donations/grants eligible for deduction were also received.

Thus, the Court concluded that mere receipt of fees does not disentitle the trust from approval under section 80G, especially when the trust is established for charitable purposes and registered under section 12AB.

(e) Consideration of capital expenditure and accumulation under section 11(1)(a)

The assessee submitted that capital expenditure incurred during the year should be treated as application of income under section 11(1), and that accumulation of 15% of gross receipts under section 11(1)(a) should also be allowed. The learned CIT(Exemptions) was found to have ignored these aspects.

The Court held that such detailed accounting and application of income provisions are to be examined during assessment proceedings and not at the stage of approval under section 80G. The approval authority's role is limited to satisfaction regarding genuineness and fulfillment of prescribed conditions.

Therefore, the Court found fault with the learned CIT(Exemptions) for ignoring capital expenditure and accumulation provisions while rejecting approval.

(f) Scope of enquiry for approval under section 80G(5)

The Court extensively referred to the statutory provisions of section 80G(5), which require that the institution seeking approval must be established in India for charitable purposes and fulfill conditions including non-transfer of income/assets for non-charitable purposes, no benefit to particular religious community or caste, maintenance of regular accounts, and constitution as a public charitable trust or recognized educational institution.

The Court emphasized that the authority granting approval under section 80G must be satisfied only about the genuineness of the activities and fulfillment of these conditions. It is not the stage for detailed scrutiny of income application, surplus, or fee receipts classification.

The Court observed that the learned CIT(Exemptions) failed to bring any material to show non-fulfillment of these conditions or non-genuineness of activities. The rejection was therefore contrary to law and not sustainable.

3. SIGNIFICANT HOLDINGS

"The scope of enquiry by the learned CIT(Exemptions) while dealing with the application for grant of approval under section 80G of the Act extends only to the satisfaction of the genuineness of the activities of such trust/institutions and the fulfillment of all the conditions laid down in clauses (i) to (v) of Section 80G(5) of the Act and not the actual computation of surplus."

"The provisions of section 11 & 12 along with section 13 including application of fund 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 of the Act."

"The mere fact of the assessee being an educational institution which received tuition and other fees along with hostel fees, the approval under section 80G of the Act cannot be denied specially when it is established for charitable purposes within the meaning of section 2(15) of the Act and the registration under section 12A of the Act has already been granted after verifying the genuineness of the activities carried out by the assessee trust."

"For the purpose of granting approval under section 80G of the Act, the only relevant section is sub-section (5). The learned Commissioner (Exemptions) after receiving the application 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)."

"The learned CIT(Exemptions) 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."

On these grounds, the Court allowed the appeal and directed the learned CIT(Exemptions) to grant approval under section 80G of the Income Tax Act to the assessee trust as applied in Form 10AB dated 08.08.2024.