TMI Blog2020 (9) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... at 27% to 33% for other divisions could be relevant only where it can said to exceed, rather by far, of the normative level, not defined or delineated. The objection of surplus or commercial activity by the ld. CIT(E) is thus not valid. The objection fails. Receipt by way of medical associate share and education associate share - Section 13(2)(a) r/w s. 13(1) shall operate to exclude sections 11 and 12, resulting in contravention of the condition of section 80G(5)(i). Yes, the entity/s using the facility may not be covered u/s. 13(3), for s. 13 to apply, but there is neither any explanation by the assessee nor any finding by the ld. CIT(E) qua this. Further, there is also the angle of genuineness. A more than adequate compensation could, on the other hand, imply routing of perhaps taxable income into the coffers of the assessee for being claimed exempt. That is, non-adequacy is impermissible even in the case of an excess or overcharge where the payer entity is generating taxable income, and irrespective of whether it is covered u/s. 13(3) or not. There being no finding qua this aspect, the matter is set aside to the file of the ld. CIT(E) for the same. Needless to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1994. It is running three separate divisions, as: (a) Hospital Division, i.e., medical relief, income of which is subject to (on application) exemption u/s. 11 of the Act; (b) School division, i.e., education, income from which activity is also (i.e., besides section 11), exempt u/s. 10(23C)(va) of the Act; and (c) Agro Division, yielding agricultural income, exempt u/s. 10(1). 2.2 It had applied for and had been granted approval u/s. 80G(5)(vi) on 20.12.2005, which was effective from 01.4.2005 to 31.03.2008 (PB pg. 45). It sought approval there-under again vide application in the prescribed Form on 04.6.2018. It is the denial of this approval which has led to the instant appeal by it before the Tribunal. The reasons stated in the impugned order for refusing to grant approval u/s. 80G(5)(vi) are as under: (paras 6 7 of the impugned order) (a) The assessee is generating huge surpluses from year to year. Neither any justification for the same has been given, nor, resultantly, is there any need for seeking approval u/s.80G. The surplus from the three principal activities for preceding three years is tabulated as under: (Amount in Rs. lacs) Parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... renewal, unless specifically withdrawn, be valid in perpetuity. That is to say, for cases as a present one, where the approval expires before 01.10.2009, the same shall have to be necessarily renewed. (d) In any case, there being no change in the facts and circumstances of the case, i.e., the law qua the grant of approval or the nature of the assessee s activity, approval could not be validly denied. 3. We have heard the parties, and perused the material on record. 3.1 It is clear that the decision to approve, or not so, by the competent authority, is governed by law, i.e., section 80G(5)(vi) read with rule 11AA, which, in the relevant part, read as under: 80G. Deduction in respect of donations to certain funds, charitable institutions, etc. (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section,- (i) in a case where the aggregate of the sums specified in sub-section (2) includes any sum or sums of the nature specified in sub-clause (i) or . , an amount equal to the whole of the sum or, as the case may be, sums of such nature plus fifty per cent of the balance of such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersity established by law, or is an institution financed wholly or in part by the Government or a local authority; (vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Principal Commissioner or Commissioner; Rule 11AA: Requirements for approval of an institution or fund under section 80G . (1) The application for approval of any institution or fund under clause (vi) of sub-section (5) of section 80G shall be in Form No. 10G and shall be made in triplicate. (2) The application shall be accompanied by the following documents, namely: (i) Copy of registration granted under section 12A or copy of notification issued under section 10(23) or 10(23C); (ii) Notes on activities of institution or fund since its inception or during the last three years, whichever is less; (iii) Copies of accounts of the institution or fund since its inception or during the last three years, whichever is less. (3) The Commissioner may call for such further documents or information from the institution or fund or cause such inquiries to be made as he may deem necessary in order to satisfy himself about the ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity, for the latter not setting out his order in the manner contemplated by law ? We, therefore, examine the impugned order on the basis of the reasons for denial recorded by the ld. CIT(E), with a view to ascertain which of the conditions (set out in s.80G(5)(i) to (v)) are not satisfied, along with reason/s therefor. It was on this basis that the hearing in the matter was proceeded with. 3.3 Toward this, the first reason stated in the impugned order is the generation of huge surpluses, year after year, by the assessee, who claims that there is in fact no surplus if the capital expenditure and repayment of loan/s is taken into account. Without doubt, even as admitted by the assessee in its written submissions, as well as its counsel, Sh. Gupta, during hearing, both the capital expenditure and repayment of loan is only an application of income. In the normal, mercantile or commercial sense, applicable to charitable institutions, income implies excess of revenue receipt over revenue expenditure, and that is what the ld. CIT(E) is referring to when he speaks of surplus . It is this surplus , income by definition, which, upon being applied for capital expenditure incurred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the condition of section 80G(5)(i). Yes, the entity/s using the facility may not be covered u/s. 13(3), for s. 13 to apply, but there is neither any explanation by the assessee nor any finding by the ld. CIT(E) qua this. Further, there is also the angle of genuineness. A more than adequate compensation could, on the other hand, imply routing of perhaps taxable income into the coffers of the assessee for being claimed exempt. That is, non-adequacy is impermissible even in the case of an excess or overcharge where the payer entity is generating taxable income, and irrespective of whether it is covered u/s. 13(3) or not. There being no finding qua this aspect, the matter is set aside to the file of the ld. CIT(E) for the same. Needless to add, he shall do so per a speaking order and after allowing reasonable opportunity of being heard to the assessee. The ld. CIT(E) shall, as explained hereinbefore, record his satisfaction qua each of the conditions specified in clauses (i) to (v) of sec. 80G(5) or, as case may be, specify reason/s for his non-satisfaction of any of the said conditions. 3.5 We may, before closing, also advert to the assessee s argument of the ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 17/7/2020, with the Bench indicating its satisfaction with the untenability of the grounds of surplus and of commercial activity stated in the impugned order, which were claimed to be the only objection/s raised thereby by the ld. CIT(E). On, however, the subsequent discovery of the factum of Medical Associate Share and Education Associate Share forming part of the receipt of the Hospital School Division in no insubstantial sums, as well as of the same being explained to be a charge for the use of the applicant-trust s facilities by its associate concern/s, the matter was put up for hearing the parties thereon. Sh. Gupta would object, stating that no such objection was raised by the ld. CIT-DR when the matter was heard, i.e., on 17/7/2020, so that there was impliedly no other surviving objection, and that the same must be regarded as accepted by the Revenue; the ld. CIT(E) himself having not raised any specific issue with regard to the said receipt, i.e., beyond merely recording the fact of the volume and nature of the said receipts in his order. Though he clarified, on being asked, if he thereby questions the competence of the Tribunal to so inquire, he would s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law obliged to examine the same, and record his finding/s based on satisfaction (or otherwise) in this regard, the same forming the basis of his decision to grant, or not so, the approval, in either case, after hearing the applicant. We may not be construed having in any manner expressed any satisfaction or, as the case may be, dissatisfaction qua the genuineness aspect of the activities in the instant case. We are only stating the clear position of law in the matter, which has not been observed. It is not the satisfaction or otherwise of the Tribunal that the law envisages, but of the competent authority, even as, as an appellant authority, it is to examine the tenability of the factual findings as recorded by the competent authority. Coming to the aspect of the power of the Tribunal to direct the ld. CIT(E) to examine the transactions under reference (from the stand point of the satisfaction or otherwise of the conditions precedent for the grant of approval u/s. 80G(5)(vi)), the Tribunal is the final fact finding authority under the Act. Though the case law in the matter is legion, we may, for authority, refer to the decision in CIT vs. Walchand Co. (P.) Ltd. [1967] 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for carrying medical and educational activities where it was engaged in constructing building and letting it out to educational institutions, and not undertaking charitable activity. There was no whisper of this aspect of the matter, noted by the ld. CIT(E) at para 6.2 of his order, in the pleadings by the parties on 17/7/2020. The same, as apparent from para 7 thereof, among others, weighed in his decision to refuse approval u/s.80G(5)(vi). Sure, he ought to have probed or enquired further in the matter - it having a direct bearing on the satisfaction of the conditions precedent for grant of approval, taking the matter to its logical end. But then there can be no deemed satisfaction and, besides, there is no estoppel against law. Though, in law, it is not the view that the parties may take of their rights in the matter, but the correct legal position that is relevant ( CIT v. C. Parak Co. (India) Ltd . [1956] 29 ITR 661 (SC); Kedernath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)), there is, we find, no clear finding in the absence of examination of facts by the competent authority in the instant case. We are not, we may at the cost of repetition state, expressing any opin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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