Charities Taxation Update No. 9/2023-24 Date: 02/06/2023

Section 12A: Power to DIT(E) restricted to examining charitable nature of objects at the stage of grant of registration

The DIT(E) rejected application for grant of registration under section 12A and section 80G as the assessee had not commenced charitable activities. The High Court held that the powers of the DIT(E) for granting of registration were limited to examining the charitable nature of objects. Since the revenue had not disputed the charitable nature of the objects, registration had to be granted.

[DIT(E) v. She Foundation, (2023) 149 taxmann.com 341 (Calcutta)]

Charities Taxation Update No. 9/2023-24 Date: 02/06/2023

Section 10(23C)(iiiad): Applicable when the assessee was engaged solely for running school in which no fee was being charged from students and had accumulated surplus for purpose of future application to set up school

The assessee was running a school in a very remote and backward area with the sole intention of education and did not charge any fees. It derived gross income by way of dividend, interest income and capital gain on sale of shares on mutual fund and incurred expenses for running the school and had surplus of Rs. 58,92,648. The CIT(E) observed that the expenses were incurred to the extent of 38% on the educational activities by the trust while the surplus was 53.65% of total receipt and therefore held that society was not existing solely for the purpose of education.

The Tribunal observed as follows:

(i) the trust deed of the assessee showed that the assessee was solely formed for the purpose of establishing schools and educational institutions;

(ii) there was no dispute that it had engaged in running an educational institution;

(iii) As a matter of fact the assessee was engaged in running a school in which no fee was being charged from the students due to severe poverty and backwardness and the local residents were not sending their children to schools;

(iv) the assessee had also incurred a sum of Rs. 41, 83,982 on various expenses connected with running and maintenance of the school.

It held that

(i) the assessee was engaged in solely for educational purposes and not for the purpose of profit;

(ii) the mere fact that the receipt of the assessee from sources other than the educational activities was more than Rs. 1 crore was not relevant and material;

(iii) though the assessee trust had total receipt of Rs. 1,09,82,810 by way of dividend, interest and capital gain on sale of shares on mutual fund but the funds were being accumulated in order to improve the infrastructure of the school and also to construct the new schools in accordance with the aims and objectives of the assessee trust

(iv) the case of the assessee was covered by section 10(23C)(iiiad) and its income was exempt.

[Shri Venkateshwara Educational Institute v. ITO (E), (2023) 149 taxmann.com 229 (Kolkata - Trib.)]

Charities Taxation Update No. 8/2023-24 Date: 26/05/2023

CBDT Circular 6/2023:

1. Condonation of delay in filing Form no. 10A and 10AB

The due date for application in Form No. 10A by existing charitable institutions for registration or approval under sections 10(23C), 12AB and 80G(5) of the Act was earlier extended till 25^th November 2022. Also, the due date for application in Form 10AB by provisionally registered charitable institutions for regular registration / approval was earlier extended till 30^th September 2022.

Charitable institutions not applying for registration in Form 10A / 10AB within the specified due date were subject to provisions of section 115TD from AY 2023-24 onwards.

In this regard, the CBDT has clarified as follows:

(a) the due date for filing Form 10A and 10AB has been extended till 30^th September 2023.

(b) the extension shall also apply in case of all pending applications which have already been filed but were so filed after the due date i.e., 25^th November 2022 or  30^th September 2022 as the case may be.

(c) where applications in Form 10AB were rejected on account of filing of such applications after the due date, the charitable institutions may furnish a fresh application within the extended due date of 30^th September 2023

(d) the existing trusts which did not make an application for registration/approval (valid for 5 years) in Form no. 10A by 25^th November2022 and subsequently opted for provisional registration/approval (valid for 3 years) in Form 10AB, then the relevant functionality on e-filing portal may be used to surrender Form no.10ABseeking provisional registration/approval and instead make a new application in Form No.10A for registration/ approval by 30^th

2. Extension of due date in filing Form no. 10BD and 10BE

Form 10BD (statement of donations) and Form 10BE (certificate of such donations) were required to be filed by the donee on or before 31^st May immediately following the financial year in which the donation is received. The said due date to file Form 10BD and 10BE has been extended to 30^th June 2023 for financial year 2022-23

3. Clarification regarding applicability of provisional registration

With a view to bring consistency, it has been clarified that the provisional approval / registration shall be effective from the assessment year relevant to the previous year in which the application is made.

4. Clarification in case where Form no.9A and Form no. 10 is not filed by the due date

Finance Act, 2023 amended section 10(23C) and 11 to provide that Form no.9A [deemed application] and Form no. 10 [secondary accumulation]  should  be furnished at least two months prior to the due date of furnishing return of income.

The Circular has clarified that deemed application/secondary accumulation will be allowed as long as Form no.9A and 10 are furnished on or before the due date of filing return of income.

5. Clarification regarding audit report to be furnished in Form no. 10B/10BB

The audit report in Form no.10B/10BB requires the auditor to bifurcate certain payments or application in electronic modes and non electronic modes.

Notes to the said forms provide that electronic modes shall be the following modes referred to in Rule 6BBA:

(a) Credit Card;

(b) Debit Card;

(c) Net Banking;

(d) IMPS (Immediate Payment Service);

(e) UPI (Unified Payment Interface);

(f) RTGS (Real Time Gross Settlement);

(g) NEFT (National Electronic Funds Transfer); and

(h) BHIM (Bharat Interface for Money) Aadhar Pay;

The circular has clarified that the following are also to be regarded as electronic modes

(a) account payee cheque,

(b) account payee bank draft and

(c) use of electronic clearing system through a bank account

[Please click here to access the circular]

Charities Taxation Update No. 7 / 2023-24 Date: 19/05/2023

Section 2(15): Prospective application of the New Noble judgment is for the meaning of the term ‘solely’ and not for the term ‘education’

The assessee was promoted by Gujarat Government for the purpose of advancement of science and technology. The AO rejected the exemption under section 11 based on the SC judgement in New Noble Education Society [(2022) 143 taxmann.com 276 (SC)] and held that the assessee was not imparting ‘education’ but engaged in ‘advancement of general public utility’.

The Tribunal made the following observations:

(i) Establishing and maintaining a museum did not constitute ‘education’ as used in the definition of charitable purpose;

(ii) In T.M.A Pai Foundation, referred to in ACIT(E) v. Ahmedabad Urban Development Authority and Others, (2022) 143 taxmann.com 278 (SC); the meaning of       the word “education” as scholastic structured learning was derived from the Article 21-A, Articles 29 & 30 and Articles 45 & 46 of the Constitution;

(iii) In the New Noble judgement, the Supreme Court had categorically held that education meant ‘imparting formal scholastic education’;

(iv) The interpretation of the term ‘education’ based on the said judgement could not be restricted to section 10(23C)(vi) but also applied to section 11;

(v) The prospective application of the judgement was restricted to the term ‘solely’ and not ‘education’;

(vi) Even if the activities of the assessee had been consistently held to be to be imparting education in the past, the judgement would still apply;

(vii) The past position could be disturbed since the nature of the activity being carried out had been determined in accordance with the interpretation by the Supreme Court whose interpretation of law was to be read as the law always was.

Thus, the denial of exemption was justified.

[Gujarat Council of Science City [TS-129-ITAT-2023(Ahd)]

Charities Taxation Update No. 7 / 2023-24 Date: 19/05/2023

Proviso to 2(15): Earning profit of 40% of total receipts is ‘significant’ markup

The assessee was a registered engaged in education by organizing historical educational dramas. The AO denied exemption under section 11 on the ground that the assessee was covered under ‘advancement of general public utility’ and the activity of organising shows for payer institutions who were exploiting it commercially was a business.

The Tribunal observed as follows:

(i) The assessee was not developing any knowledge of students by normal schooling and the activity of organising shows was not ‘education’ but ‘advancement of general public utility’

(ii) the activity of drama was done in a uniform way by charging ‘significant’ mark up which was 40% of gross receipts

(iii) hence, it was not directly organising the drama for education but for earning profit

(iv) in view of the decision in ACIT(E) v. Ahmedabad Urban Development Authority, the activity of the assessee was hit by the proviso to section 2(15) and had to be considered as a ‘business’.

Hence, the denial of exemption under section 11 was justified.

[Maharaja Shivchatrapati Pratishthan v. ITO, 2023 (1) TMI 861- ITAT Pune]

Charities Taxation Update No. 6 / 2023-24 Date: 12/05/2023

Section10(23C)(iiiab): In case of multiple institutions run by a single entity, the exemption is available as a whole and not to specific institutions

The assessee ran different educational institutions and filed its return of income after claiming exemption under section 10(23C)(iiiab). The AO noticed that not all the institutions were financed by the government and could not be covered under section 10(23C)(iiiab). Further, a significant amount of donations were ‘voluntary donations’ from relatives of students. Hence, he denied the exemption on the ground that the assessee was charging capitation fees and brought to tax the entire receipts.

The Tribunal restored the matter to CIT(A) for fresh adjudication after observing as follows:

(i)      the exemption under section 10(23C)(iiiab) was not available to specific institutions but as a whole

(ii)     whether the institution was wholly or substantially financed by the Government was a question of fact

(iii)    if the donations received had a direct nexus with admissions of students in the institutions run by the assessee, then such donations would not be exempt

[JCIT (OSD) (E) v. Deccan Education Society, (2023) 147 taxmann.com 395 (Pune - Trib.)]

Charities Taxation Update No. 6 / 2023-24 Date: 12/05/2023

Proviso to section 2(15): AO must scrutinize records to discern if activity is the nature of trade, commerce or business

The assessee ran a Suvidha centre engaged in organising awareness campaigns against drug abuse and addiction, traffic related awareness, facilitation charges for passport and visa related services etc. for general public and claimed exemption under section 11. The AO rejected the claim for exemption on the ground that the activities of the assessee were in the nature of trade, commerce or business and taxed the whole of income. The assessee contended that it charged minimum amount for community work and was doing charitable work

The Tribunal observed that in view of the decision in ACIT(E) v. Ahmedabad Urban Development Authority and Others [[2022] 144 taxmann.com 78 (SC)], the AO had to scrutinize records based on its receipts and income to discern if the amounts charged were on a cost basis or significantly higher and then decide if the activity was in the nature of trade commerce or business. Hence, the matter was remanded to the AO for de novo adjudication.

[In Sub Division Sannjh (Community Policing) Society v. ITO, (2023) 149 taxmann.com 135 (Amritsar - Trib.)]

Charities Taxation Update No. 6 / 2023-24   Date: 12/05/2023

Section 10(23C)(vi): No provision for condonation of delay in filing application for exemption

The assessee was an educational society and filed a belated application for approval on 25.4.2019 for assessment year 2018-19. The CIT(E) rejected the application since it was filed after the prescribed time limit.

The Tribunal held that the CIT(E) was not vested with any power to condone the delay involved in filing of the application by the assessee society under Sec. 10(23C)(vi), therefore, the same had rightly been rejected by him.

[Manav Rachana Education Society v. CIT (E), (2023) 148 taxmann.com 24 (Raipur - Trib.)]

Charities Taxation Update No. 5 / 2023-24 Date: 04/05/2023

Section 12A(1)(b): Although submission of audit report is mandatory, exemption under section 11 can not be denied merely on the bar of limitation

The assessee trust was denied exemption under section 11 for assessment year 2016-17 as it inadvertently failed to upload the audit report along with the return of income. The tax authorities also rejected the rectification application under section 154 and application of condonation of delay filed under section 119.

The Tribunal observed as follows:

(i) furnishing of audit report along with return of income was a mandatory procedural requirement

(ii) the tax authorities were expected to be equitable, balancing and judicious

(iii) the assessee was a public charitable trust which had been in existence for past 30 years

Hence, it held that the exemption under section 11 could not be denied merely on the bar of limitation, more so, when the legislature had conferred wide discretionary powers to condone such a delay.

[Social Security Scheme of GICEA v. CIT (E), (2023) 147 taxmann.com 283 (Guj)]

Charities Taxation Update No. 5 / 2023-24 Date: 04/05/2023

Section 12A: Meaning of ‘genuine activities

The PCIT(E) rejected assessee’s application for grant of registration under section 12A on the ground that the activities of the assessee were not genuine and funds were being misused by diverting them in the hands of trustees/members. The assessee contended that the PCIT(E) had not fully considered the information brought on record.

The Tribunal observed as follows:

(i) the assessee had undertaken activities which were contrary to the objects of the trust

(ii) it was evident that an arrangement had been made whereby it was not only laundering its income but also diverting the same in the hands of the    trustee/members

(iii) funds of the trust were misused by trustee/members

(iv) the assessee had failed to file corroborative documentary evidence to rebut the arguments of PCIT(E)

Hence, the rejection by PCIT(E) was justified.

[Sh. Gurudwara Sahib Parbhandhan Committee v. CIT(E), 2023 (3) TMI 403 – ITAT Amritsar]

Charities Taxation Update No. 5 / 2023-24 Date: 04/05/2023

Section 10(23C)(vi)- Profit of 67.81% before depreciation and 44.48% after depreciation cannot be regarded as ‘solely for education’ and ‘not for purposes of profit’

The assessee was engaged in the activity of imparting the education and it claimed exemption under section 10(23C)(vi). The CIT found that the assessee had been earning systematic profits year after year and, in the year in question, earned profit to the extent of 67.81% before depreciation and 44.48% after depreciation. Hence, he held that the activity of the assessee cannot be said to be solely for imparting education and that the assessee was indulging in profit.

The High Court decided the matter in favour of the assessee.

The Supreme Court quashed the judgment of the High Court relying on New Noble Educational Society v. CCIT, (2022) 143 taxmann.com 276 (SC).

[Note: The Supreme Court has accepted that the assessee was not “solely” engaged in the activity of education. With respect, it is submitted as follows:

(a) In New Noble, the Supreme Court held that assessee can be said to be existing “solely” for the purpose of education only if all its objects are related to education. There is no discussion on this aspect.

(b) Even from activities perspective, there is no discussion as to whether the

assessee was engaged in any activity other than education]

[UOI v. Baba Banda Singh Bahadur Education Trust, TS-223-SC-2023]

Charities Taxation Update No. 4 / 2023-24      Date: 28/04/2023

Section 11(1)(a): 15% accumulation is available on net profits and not gross receipts

The assessee was a registered charitable trust and had claimed 15% basic accumulation on gross receipts of its pharmacy business. The CIT(A) disallowed excess accumulation on the ground that the amount liable to be set apart had to be calculated on the net profits and gains of the pharmacy business and not on its gross receipts.

The Tribunal upheld that under section 11(1)(a) it was only the profits and gains derived from the incidental business which would qualify as income for the purpose of computing basic accumulation @ 15%.

[Shree Bhartimaiya Memorial Foundation v. ACIT, 2023 (2) TMI 525 - ITAT Ahmedabad]

Charities Taxation Update No. 4 / 2023-24      Date: 28/04/2023

Section 11(1) r.w section 11(3): Deemed income under section 11(3) cannot be regarded as income for section 11(1)(a)

The assessee was a public charitable trust and filed its original return of income declaring nil taxable income. The tax authorities disallowed the amount of income to the extent of deemed income under section 11(3) on the ground that it was not income for the purposes of section 11(1) and section 11(2).

The Tribunal held as follows:

• when the unapplied amount was deemed to be the income of the assessee under section 11(3) of the Act, then the benefit of section 11(1)(a) of the Act would be lost
• CBDT Circular No. 29 [F. No. 20/22/69-IT(A-I)], dated 23-8-1969 was introduced to ensure that double deduction in respect of the same unapplied income could not be claimed
• if exemption under section 11(1)(a) and 11(2) were to be allowed in respect of the “deemed income” under section 11(3), then it would result in unintended benefits to the assessee

[Shri Prabhas Patan Jain Swetambermurti Pujak Sangh v. ITO (E), 2023 (2) TMI 963 - ITAT Rajkot]

Charities Taxation Update No. 4 / 2023-24      Date: 28/04/2023

Proviso to 2(15): Running a guesthouse or marriage hall will be considered ‘business’ if assessee is engaged in education, medical relief and relief to the poor

The assessee used income from renting of guesthouse and marriage hall to fund its main object of education, medical relief and relief to the poor. The CIT(A) denied exemption under section 11 on the ground that the activity of running a guesthouse and marriage hall was a business activity which was not ‘integral’ to the main objects. The assessee contended that its main objects did not have ‘advancement of general public utility’ and hence, it was not hit by the proviso to section 2(15). Further, the renting of guesthouse and marriage hall was undertaken on a charitable basis without any intention to earn profits.

The Tribunal, in view of the decision in New Noble Educational Society vs. CCIT, held running a guesthouse or marriage hall and events including various types of arrangement like catering, decoration, running of guesthouse by charging room-wise rent could not be considered ‘charitable’. Consequently, it was an activity in the nature of business and the denial of exemption was justified.

[Shree Mahesh Seva Samiti v. ITO, ITA No.403/NAG/2017]

Charities Taxation Update No. 3 / 2023-24 Date: 21/04/2023

Section 10(23C)(iiiab): Holding huge investments cannot be ground for re-opening of assessment

The assessee was a deemed university in existence from 1957. For assessment year 2015-16, the tax authorities proceeded to re-open assessment under section 147 on the ground that the assessee had failed to prove it was substantially financed by the government and income had escaped assessment in view of the huge fixed deposits held by the assessee.

The Tribunal held that being an old institution with lakhs of students, the assessee required huge investment for infrastructure and holding fixed deposits running to several crores of rupees could not be a ground for re-opening the assessment. Further, the tax authorities had accepted that it was section 10(23C)(iiiab) institution entitled for exemption in respect of the subsequent assessment years 2016-17, 2017-18 and 2018-19. Hence, the re-opening of assessment was unjustified.

[Avinashilingam Institute For Home Science And Higher Education For Women Represented By Its Registrar S. Kowsalya v. ACIT(E), 2023 (3) TMI 52 – Madras High Court]

Charities Taxation Update No. 3 / 2023-24 Date: 21/04/2023

Section 2(24): Expenditure incurred to earn income is to be deducted in computing ‘income’

The assessee was a registered trust running an educational institution. It filed a belated return of income showing excess of income over expenditure on 19.03.2019. The AO denied exemption under section 11 as the due date for filing return of income was on 30.09.2018 and proceeded to tax the entire receipts without allowing any expenditure.

The Tribunal made the following observations:

• the assessee was required to file return of income within the due date for getting exemption under sections 11 and 12. if the assessee had filed the return of income belatedly under section 139(4), then it would not get the benefit of carry forward & setting off of loss for the subsequent year as prescribed under section 139(3)

• the term ‘income’ had been defined in section 2(24) and if the assessee had incurred any expenditure to earn such income, then it was an allowable expenditure

• once such expenditure was allowed, it was evident that the assessee had suffered a loss and the claim for deduction did not arise.

Hence, it held that even though the assessee had filed its return belatedly, the income was below threshold limit and no tax could be charged on the receipts.

[HMV Educational Cultural & Social Trust v. ITO [E], 2023 (3) TMI 1151 - ITAT Bangalore]

Charities Taxation Update No. 3 / 2023-24 Date: 21/04/2023

Proviso to section 2(15): Income hit by proviso to section 2(15) will be computed under the head “profits and gains of business” after allowing  statutory deductions

The assessee was a society established for welfare of bus operators. The AO, in view of the decision in ACIT(E) v. Ahmedabad Urban Development Authority and Others, (2022) 143 taxmann.com 278 (SC) denied the claim under section 11 as the assessee was hit by the proviso to section 2(15). He also brought to tax entire capital funds without allowing any statutory deductions.

The Tribunal held as follows:

(i)      The assessee was hit by the proviso to section 2(15) and not entitled to exemption under section 11

(ii)     the assessment had be made as an ‘AOP’ and all normal business expenditure had to be allowed

(iii)    capital receipts, if not taxable, could not be added to the income.

[ITO v. Tiruchirapalli District Bus Operators Association, ITA No. 2819/CHNY/2018]

Charities Taxation Update No. 2 / 2023-24  Date: 14/04/2023

Section 80G(5B): Requirements of section 80G(5B) are independent of registration under section 12A

The CIT(E) rejected assessee’s application for approval under section 80G(5B) on the ground that the assessee was spending more than 5% of receipts for religious purposes. The Tribunal and the High Court held that since the assessee was already granted exemption under section 12AA, which was still in existence and if there would be any violation, that would be subject to variation/withdrawal by the CIT(E), there was no logic in denying approval under section 80G5(vi).

However, the Supreme Court held that for obtaining the benefit under section 80G(5B), the requirements of the said provision had to be satisfied separately; and exemption under section 12AA would not suffice. Further, if the assessee was a recipient of the benefit under section 80G(5B) for a subsequent period, it was open to the assessee to rely on that aspect.

[CIT (E) v. Sant Girdhar Anand Parmhans Sant Ashram, TS-87-SC-2023]

Charities Taxation Update No. 2 / 2023-24  Date: 14/04/2023

Section 13(3): Merely because the vehicle is a luxury car should not be a reason for invoking section 13(3)

The assessee was a society engaged in the activity of education. It had an old luxury car which was replaced by a higher model. The AO disallowed the expenses treating the same as not for charitable purposes.

The Tribunal observed as follows:

(a) The expenditure was to be allowed if it was incurred for the purposes of running the school

(b) The assessee had brought on record material to show that the vehicle was being used by the principal and staff of the school and not by trustees, members or the board of the society.

(c) The AO had not brought any material to rebut the claim of the assessee that the vehicle was being used by persons specified by section 13(3).

Hence, it was held that the AO was unjustified to disallow expenses merely because the vehicle happened to be a luxury car.

[Manohar Education Society v. ITO (E), 2023 (3) TMI 410 - ITAT DELHI]

Charities Taxation Update No. 2 / 2023-24  Date: 14/04/2023

Proviso to section 2(15): Activities undertaken by government organisations under legal obligation cannot be considered in the nature of trade, commerce or business

The assessee was constituted under the Gujarat Maritime Board Act, 1981 and was engaged in the activity of administering, controlling and managing minor ports in the State of Gujarat. The AO opined that the activities undertaken by the assessee was engaged in advancement of general public utility and the consideration charged by the assessee was hit by proviso to section 2(15).

The Tribunal made the following observations:

(a) the activities carried out by the assessee were for advancement of any other object of general public utility without any profit motive

(b) the assessee was under a legal obligation to apply the income for the

development of minor ports in the state of Gujarat

Hence, it held that the activities carried out by the assessee were not in the nature of trade, commerce or business, more so in view of earlier decision of the jurisdictional High Court where in it was held that the activity of the assessee was for advancement of any other object of general public utility and was not hit by the proviso to section 2(15)

[Gujarat Maritime Board, v. DCIT (E), AND ACIT (E) v. Gujarat Maritime Board, 2023 (4) TMI 32 - ITAT AHMEDABAD]

[Note: The Tribunal followed the decision of Gujarat High Court in its own case; it did not discuss the test laid down by the Supreme Court in ACIT(E) v. Ahmedabad Urban Development Authority and Others, (2022) 143 taxmann.com 278 (SC)]

Charities Taxation Update No. 1 / 2023-24  Date: 12/04/2023

Section 148: Notice and consequent order under section 148 on mere change of opinion is liable to be set aside

Where AO reopened assessment in case of assessee-trust on ground that assessee was not entitled to claim carry forward and set off of deficit after claiming exemption under section11(1) and thus such exemption was allowed in excess during original assessment, it was held that the impugned notice was issued under section 148 on mere change of opinion and hence, consequent order passed was liable to be set-aside

[Framji Dinshaw Petit Parsee Sanatorium v. ITO (E), (2023) 148 taxmann.com 225 (Bom)]

Charities Taxation Update No. 1 / 2023-24  Date: 12/04/2023

Section 69A: Not applicable in case of incorrect claim of deduction under section 80G

The AO noticed on verification of the computation of income that the appellant has claimed deduction of Rs. 97,995 under section 80G. Since the appellant did not furnish any proof or details in this regard, the AO disallowed the same and added it as unexplained money under section 69A.

The Tribunal observed that section 69A can be invoked only in a case where the assessee is found to be owner of any money, bullion, jewellery or other valuable article which is not recorded in the books of account and the assessee offers no explanation about the nature and source of acquisition of such money, bullion, jewellery or other valuable articles . In this case, the donation was entered in the books of account; therefore, the AO erred in invoking section 69A in respect of incorrect claim of deduction under section 80G.

[Batuk Vithalabhai Donga v. ITO, [2023] 147 taxmann.com 480 (Rajkot - Trib.)]

Charities Taxation Update No. 1 / 2023-24  Date: 12/04/2023

Section 13(9): Impact is restricted to section 11(2) and does not extend to the whole of section 11.

The assessee was denied exemption under section 11 since it had filed its return of income beyond the due date prescribed under section 139(1) and there was also a delay in furnishing the audit report in Form no. 10B. Further, the tax authorities claimed that section 13(9) also disentitled the assessee from claiming the exemption. The assessee contended that exemption was available since return had been filed within time prescribed under section 139(4).

The Tribunal observed as follows:

(i)    the impact of section 13(9) was restricted to section 11(2) relating to amount set aside for accumulation and did not extend to the whole of section 11.

(iii) the delay in filing Form no. 10B was condoned by CIT(E). Hence, it would not have an impact on the assessee’s claim for exemption under section 11

(iii)  the return had been filed within the time prescribed under section 139(4) and exemption was available under 12A(1)(ba)

Hence, it held that the denial of exemption was not justified.

[Shri Rajkot Vishashrimali Jain Samaj v. ITO, 2023 (3) TMI 765 - ITAT Rajkot]

Charities Taxation Update No. 60 / 2022-23 Date: 31/03/2023

Section 12A and section 80G: A public religious trust, not meant for the benefit of a particular community, caste or section, will be entitled to claim exemption

The assessee was engaged in the activity of teaching recital of Vedas. It applied for registration as a charitable organisation under section 12A and approval under section 80G. The CIT(E) rejected the application on the ground that the assessee was engaged in a religious activity and was not eligible for approval under section 80G under Explanation 3 to said section. He then proceeded to register the assessee as a religious trust.

The Tribunal made the following observations:

• (i) The assessee taught its students to recite the Vedas, with the correct method of pronunciation of Vedas with Swaras attached to it. In that sense, it was akin to teaching Sanskrit literature.
• The assessee had carried on other charitable activities in the nature of relief of poor such as financial assistance to needy irrespective of their caste, creed or religion
• The assessee had provided financial assistance and distributed food kit, clothes, medicines for the needy Vedic scholars irrespective of their caste, religion or gender. It had also felicitated Vedic Scholars irrespective of caste, creed or religion
• section 80G(5)(iii) made a distinction in cases of institutions or funds, which were for the benefit of any particular religious community or caste such as Hindus, Muslims, Christians or for Brahmins, etc. Donors to such trusts were debarred from claiming benefit of deduction from income for donations made to such trusts.
• Conversely, it followed that for donations made to religious bodies, which did not fall in the category mentioned in section 80G(5)(iii), then the benefit of exemption under section 80G could be claimed.

Consequently, it held that the assessee was eligible for registration as a charitable trust under section 12A and approval under section 80G.

[Shruthiparampara Gurukalam v. ITO, 2023 (1) TMI 412 – ITAT Bangalore]

Charities Taxation Update No. 60 / 2022-23 Date: 31/03/2023

Section 2(24)(iia): Tied up grant is income

The assessee had received government grants for specific purposes. The AO added the amount of the grant as income of the assessee on the ground that earmarked grants are in the nature of voluntary contribution. The assessee contended that the grant received was not a voluntary contribution since it had no discretion to utilise the grant as per its own requirements and any unutilised amount had to be refunded to the funding agency.

The Tribunal observed that the conditions attached to the grant could not alter the voluntary nature of the contribution and restrictions merely facilitated utilisation of the grant for specific and intended purpose. Hence, it held that tied up grants were to be treated as income.

[Anusandhan Trust v. ITO (E), 2021 (11) TMI 315 - ITAT MUMBAI]

FCRAR Update No. 07 / 2022-23 (Date: 27/03/2023)

Extension of FCRA registration up to 30^th September 2023

In continuation of the Public Notice dated 23^rd September 2022, the Ministry of Home Affairs (‘MHA’) has extended the validity of FCRA registration certificates of the following entities till 30^th September 2023:

(i) entities whose validity was extended till 31^st March 2023 or whose renewal application is pending;

(ii) entities whose five-year validity period will expire within the period 1^st April 2023 to 30^th September 2023 and they have applied/will apply for the renewal before the expiry of five years

The validity of registration of entities falling in either of the above cases is extended up to 30^th September 2023 or till the date of disposal of the renewal application, whichever is earlier.

As a natural corollary, such entities will be allowed to receive and utilise the foreign contribution up to 30^th September 2023 or till the date of disposal of the renewal application, whichever is earlier.

However, if the application for renewal of registration certificate is rejected, the validity of the certificate shall be deemed to have expired on the date of refusal of the application and the association will not be able to receive or utilise foreign contribution, thereafter.

[Please click here to access copy of the Public Notice dated 24^th March 2023]

Charities Taxation Update No. 59 / 2022-23 Date: 03/03/2023

Section 13: Only the amount of benefit to interested party is to be taxed and not the whole surplus

The assessee was an educational society engaged in educational activities and paid land rent to the trustees. The tax authorities denied exemption under section 11 proceeded to tax the whole surplus at maximum marginal rate on the ground that undue benefit had been passed on by the assessee to specified persons under section 13(3) in the form excess rent for the land taken on lease.

The Tribunal observed that in the earlier years, the AO had only taxed the excess of rent and not the whole surplus. Consequently, it held that only the amount of excess rent had to be disallowed and taxed at maximum marginal rate and not the whole surplus.

[J.K. Educational Society v. DCIT (E), 2023 (2) TMI 200 - ITAT Chandigarh]

Charities Taxation Update No. 59 / 2022-23  Date: 03/03/2023

Section 10(23C)(iv): Approval cannot be withdrawn retrospectively

The assessee was a registered society aimed to promote, distribute and sale contraceptives, family welfare and/or family planning devices and drugs etc. It had also received approval under section 80G and registered under 12A. The CIT retrospectively withdrew the approval granted under 10(23C)(iv) on the ground that the assessee was carrying on ‘commercial activities’ which were hit by the proviso to section 2(15) and had also violated other approval conditions.

The Tribunal made as the following observations:

• (i) the activities of the assessee were in the field of medical relief to the poor and proviso to section 2(15) did not apply

• (ii) the assessee had produced scrutiny assessment orders of earlier years to prove that exemption under section 10(23C)(iv) had been allowed in the earlier years and there had been no change in the objects of the assessee

• (iii) the approval under section 80G and 12A had not been cancelled

Consequently, it held as under:

• (i) For withdrawing the approval, the revenue had not brought on record cogent material to demonstrate that the assessee had deviated from the core objects based on which approval under section 10(23C)(iv) was initially granted to the assessee.

• (ii) The tax authorities had failed to differentiate between the threshold conditions and compliance conditions. The compliance conditions had to be examined in each assessment year and, in case, there was any violation in compliance conditions in any assessment year, assessee’s claim of exemption for the said assessment year could be rejected. However, it was not a reason to revoke the approval which was granted earlier.

• (iii) It was evident that the assessee was a charitable organisation and the approval under section 10(23C)(iv) could not be revoked retrospectively, more so when the approval under section 80G and 12A subsisted.

[Population Services International, TS-1033-ITAT-2022(DEL)]

Charities Taxation Update No. 58 / 2022-23 Date: 24/02/2022

Section 13(2)(c): Adequacy of payment under a construction contract

The assessee ran an educational institution. It filed its return  of income for assessment year 2010-11 declaring nil total income. The AO denied exemption under section 11 on the ground that the assessee had violated section 13(1)(c) by awarding a civil contract to a firm where the managing trustee was the proprietor. He opined that due procedure while awarding tender had not been followed and the substantial profits earned by the firm had resulted in the direct benefit to specified persons under section 13(3).

The Tribunal made the following observations:

• (i) the construction contract was awarded to the firm on the basis of an open bid
• the firm had quoted the lowest rates
• profit earned by the firm was only 4.28% of its total turnover

It held that this showed that due procedure was followed while awarding the tender and the profits earned by the firm were reasonable and not substantial as claimed by the AO. Consequently, there was no violation of section 13(1)(c) and the denial of exemption was unjustified.

[DDIT (E) v. Sri Vekkaliamman Educational And Charitable Trust, 2023 (2) TMI 249 - ITAT Chennai]

Charities Taxation Update No. 58 / 2022-23 Date: 24/02/2022

Section 12A and section 80G: Meaning of ‘genuine activities’

The assessee was engaged in imparting education in the field of mountaineering, rafting, high altitude trekking, wilderness medicine and wilderness first aid. It  received consultancy charges from a US based company. The CIT(E) rejected the application for registration under section 12A and approval under section 80G. He opined that the assessee was engaged in rendering services to US based company and its activities could not be covered under ‘education’.

The Tribunal observed as follows:

(i) while disposing an application under section 12AA, the CIT(E) was required to see if the objects of the assessee were charitable and also verify if the activities undertaken were genuine or not.

(ii) genuineness of activities would mean to see that the activities are not camouflage, bogus, artificial and in accordance with the objects of the institution

(iii) the assessee had produced materials to show that it had trained many students including para military forces and BSF officers since its inception

(iv) the objects clause specifically prohibited the assessee to carry out any activity on a commercial basis

Hence, it was held that the denial of registration/approval was not justified.

[Nanda Devi Outdoor Leadership School India v ITO, 2023 (2) TMI 59 - ITAT Delhi]

Charities Taxation Update No. 58 / 2022-23 Date: 24/02/2022

CBDT Notification No. 7/2023: New Format of audit report in Form no. 10B/10BB

In order to avail of exemption under section 11, a charitable/religious institution registered under section 10(23C) or section 12A must file its audit report within the specified due date. In this regard, the CBDT vide notification no. 7/2023 has notified Form no.10B/10BB.

In brief, the notifications states as follows:

(1) Form no. 10B will be filed by the following charitable institutions:

• (i) the total income of such institution, without giving effect to the provisions of sections 11 and 12 of the Act, exceeds rupees five crores during the previous year; or
• (ii) such institution has received any foreign contribution during the previous year; or
• (iii) such institution has applied any part of its income outside India during the previous year.

(2) Form no. 10BB in other cases.

Please click here to access the notification and the new format.

[CBDT Notification 7/2023 dated 21/02/2023]

Charities Taxation Update No. 57 / 2022-23    Date: 17/02/2022

Unregistered charitable trust to be taxed as an AOP after allowing deduction of expenses incurred wholly and exclusively on objects

The assessee, an unregistered trust, filed a nil return of income for assessment year 2019-20 which was disallowed by the AO on the ground that it did not have 12A registration. He further invoked the proviso to section 164(2) and taxed the income at MMR after partly disallowing the expenses incurred to the run the trust.

The Tribunal held as follows:

(i) the assessee was not entitled to the benefit of exemption under section 11 in the absence of registration under section 12A

(ii) the proviso to section 164(2) could be invoked only in case of violation of section 13(1)(c) or 13(1)(d). None of the receipts fell within the ambit of section 164(2) and hence, assessment at MMR was unjustified

(iii) beneficiaries of the trust were the public at large and section 167B could not be applied for such trusts

(iv) the expenditure incurred wholly and exclusively for the purpose of carrying on charitable activities and earning income or raising more revenue had to be allowed as deduction

(v) expenses such as repairs and maintenance, insurance expense, establishment expense, audit fees, depreciation had to be allowed as a deduction

(vi) Post such deduction, the surplus had to be taxed at rates applicable to an AOP

[Parab Maratha Samaj v. NFAC, ITA No. 1821, Mum, 2022]

Charities Taxation Update No. 57 / 2022-23    Date: 17/02/2022

Section 80G: Whether income is being used for charitable purposes has to be considered during assessment and not during renewal of application

The assessee was registered under section 12A and section 80G(5)(vi). It sought renewal of approval under section 80G(5)(vi) which was rejected by the CIT on the ground that very miniscule amount was used towards the object of the trust.

It was held that whether the income was being used for charitable purpose or not had to be seen at the time of assessment and not during renewal of approval. Hence, the rejection of application was unjustified.

[DIT(E) v. D.R. Ranka, Charitable Trust, [2019] 101 taxmann.com 124 (Karnataka), appeal filed by revenue dismissed in (2022) 144 taxmann.com 11 (SC)]

Charities Taxation Update No. 57 / 2022-23    Date: 17/02/2022

Section 2(15) r.w Section 11(4A): If the primary object of education is fulfilled then incidental rental income will be exempt

The assessee ran a school and let out its auditorium for promotion of fine arts, educational purposes etc., for which the assessee received rent. Separate books of accounts and proper records regarding rental income were maintained. The CIT(A) denied exemption for exceeding the threshold under the proviso to section 2(15). The assessee contended that the rental receipts were ‘incidental’ to its primary object of education and the proviso would not be attracted.

The Tribunal observed as follows:

(a) the assessee trust existed for the purpose of education and the auditorium was let out for purposes which were incidental to education

(b) it was let out only for 134 days in assessment year 2010-11, for 144 days in assessment year 11-12, for 140 days in assessment year 2012-13 and 141 days in assessment year 2013-14.

(c) the rental income was only to the extent of 12.5% of total receipts.

(d)the revenue authorities had not controverted the fact that the auditorium was used for the school as well as letting out to general public.

Hence, it held that the assessee was eligible for exemption and letting out of auditorium was incidental to the its main object of education.

[M.Ct.M. Chidambaram Chettiar Foundation v. DDIT(E), TS-11-ITAT-2023 (Chennai)]

Charities Taxation Update No. 56 / 2022-23    Date: 10/02/2022

Section 80G: Eligibility of approval under section 80G depends on continuance of registration under section 12A

The assessee applied for registration under section 80G which was rejected by CIT on the ground that the assessee was collecting capitation fees for allotment of a medical seat. It challenged the rejection at the Tribunal which held that the assessee was entitled for registration under 80G. However, in the meanwhile, a show cause notice was issued for cancellation of registration of the assessee under section 12A.

The High Court held that the issue as to whether assessee was eligible for deduction under section 80G would depend on continuance of registration granted to assessee under section 12A and since the 12A registration was subject matter of a show cause proceeding pending before the CIT, the order of the Tribunal was to be quashed.

[CIT v. Madras Medical Mission, [2022] 145 taxmann.com 586 (Madras)]

Charities Taxation Update No. 56 / 2022-23    Date: 10/02/2022

Section 12A: CIT(E) has to give due opportunity to the assessee to place on record any document/material and thereafter pass a speaking order

The assessee was granted provisional registration on 28.05.2021. It thereafter applied for final registration which was denied and as a consequence, the provisional registration got cancelled. The assessee submitted that it had registration since 2016. Further, it was evident from the order passed by the AO under 143(3) that it had been allowed exemption under section 11 as a charitable institution prior to denial of permanent registration.

The High Court observed that CIT(E) had failed to notice the order under section 143(3) wherein the exemption under section 11 had been granted by the tax authorities and it was a crucial aspect that could not be ignored. Hence, it directed the CIT(E) to give due opportunity to the assessee to place on record the relevant document/material and thereafter, to pass a speaking order.

[Hunger Heroes v. CIT(E), TS-1012-HC-2022 (Delhi)]

Charities Taxation Update No. 56 / 2022-23    Date: 10/02/2022

Section 12A: Registration can be granted from the date of application and not earlier

The assessee filed an application for registration under section 12AA on 13/12/2018 and was granted registration vide order dated 19/06/2019 w.e.f. 13/12/2018 i.e. from the date of application. The assessee claimed to have filed in the past, an application for registration under section 12AA in the year 2011 and also furnished copy of such application. However, it failed to furnish any evidence of actual filing of such application in the office of the CIT(E) or of any query raised by the CIT(E). The Tribunal observed that one sided correspondence, unless it is acknowledged by other party would not be considered as the application of assessee actually pending for registration. Hence, the assessee was rightly allowed registration under section 12AA from the date of application.

[Domadia Raiyaben Muljibhai Charitable Trust v. CIT (E), 2022 (12) TMI 879 - ITAT Surat]

Charities Taxation Update No. 56 / 2022-23    Date: 10/02/2022

Section 10(23C)- An analysis of the recent SC judgement in New Noble Educational Society v. Ors

Section 10(23C) of the Income-tax Act 1961 provides for exemption to income of certain institutions / funds, including any university or other educational institution existing solely for educational purposes and not for purposes of profit

There has been a huge controversy on what constitutes, ‘solely for educational purposes and not for purposes of profit’, for the purpose of section 10(23C).

Recently, in New Noble Educational Society and Others v. CCIT, (2022) 143 taxmann.com 276 (SC), the Supreme Court has pronounced a judgment interpreting the said expressions and some other provisions. A detailed paper covering the observations of the Supreme Court and the Author’s analysis, including practical way forward for assessees is now included in CIR.

[New Noble Educational Society and Others v. CCIT, (2022) 143 taxmann.com 276 (SC)]

Charities Taxation Update No. 55 / 2022-23    Date: 03/02/2022

Section 11(1)(a): Consultancy fees received in pursuance of UGC and AICTE guidelines is exempt-

The assessee was deemed university engaged in the field of chemical engineering. It received consultancy fees from major companies after deduction of TDS. The AO concluded that the assessee was engaged in business and revenue earned from consultancy was not eligible for exemption under section 11. Further, no separate books had been maintained for receipts from such consultancy services and hence, he disallowed the exemption on consultancy fees.

The Tribunal observed that UGC and AICTE guidelines encouraged universities to provide consultancy to industries and other bodies. This proved that the assessee was mandated to provide such services and hence, eligible for exemption under section 11.

[Institute of Chemical Technology v. National Faceless Assessment Centre(NFAC), ITA Nos. 1082/Mum/2022 to 1086/Mum/2022]

Charities Taxation Update No. 55 / 2022-23    Date: 03/02/2022

Section 10(23C) and section 11: Hospital not charitable if it is run on commercial lines

The assessee was a private company running a hospital till 02.08.2018 and converted into a section 8 company engaged in medical relief from 03.08.2018. It submitted applications for registration under section 10(23C)/section 12A and section 80G which were rejected by CIT(A). He opined that the assessee is involved in activities which are in the nature of trade and provided services at market rates. He also noted that revenue and profits were increasing year on year and huge remunerations had been paid to the directors. The assessee contended that only period after 2018 had to be considered since the conversion happened in that year.

The Tribunal made the following observations:

• (i) the assessee had not reduced its charges or fees for giving treatment at a subsidized rate after conversion to a section 8 company
• (ii) no evidence was brought forward by the assessee to prove that it had been charging lesser fee or extending free medical facilities to the poor. The cost of free treatment/concessional fees was very less as compared to the profits and amount spent was less than 1% of its revenue
• (iii) the amount charged by the assessee was far more than the amount charged by other diagnostic centers/hospitals and hence, it was evident that the assessee was charging fees at market rates
• (iv) the CIT(E) was justified in relying upon last three years’ financials filed by the assessee, including the years before conversion
• (v) the year on year increase in surplus proved that it had been charging unreasonable markup on its services
• (vi) it was evident that the hospital was being run on commercial lines and could not be considered as pursuing a charitable objective

The Tribunal noted that the assessee could do charity by either bringing down its profit by providing services at reasonable rate or by utilizing the surplus for helping medical aid / facilities to the poor / needy persons at free of cost. Hence, the denial of registration was justified.

[Fernandez Foundation v. CIT (E), 2022 (12) TMI 635 – ITAT Hyderabad]

Charities Taxation Update No. 55 / 2022-23    Date: 03/02/2022

Section 10(23C)(iiiab): Meaning of ‘wholly and substantially’ financed by Government

The assessee institute was established, promoted and its management was fully owned and controlled by the Government of Punjab. As it was meeting its expenditure from its internal resources, grant in cash was not given regularly to it by the Government of Punjab. The tax authorities denied the benefit under section 10(23C)(iiiab) since the essential condition of ‘wholly and substantially’ financed by the government was missing.

The Tribunal observed as follows:

• (i) the ownership of the land and building from where the education was imparted was with the Government of Punjab. The annual rent towards the same was made exempt on a year to year basis and was in the nature of grant to the Institutional society;
• (ii) the fees structure and courses of the Institution were prescribed by Government of Punjab and reviewed on an annual basis and decided by the Committee of the Department of Technical Education and Industrial Training Punjab and Chandigarh;
• (iii) the revenue generated by the Institute belonged to the Consolidated fund of the Government and the same has been permitted to be retained by the Institute for achieving the objectives of the Society;
• (iv) the receipts were paid into Consolidated fund of the Government;
• (v) the accounts of the Institute were subject to audit by the office of the Controller and Auditor General, Punjab.

Thus, it was evident that the assessee was wholly and substantially funded by the Government and eligible for exemption under section 10(23C)(iiiab)

[Baba Hira Singh Bhattal Institute of Engineering and Technology v. DCIT, 2022-TIOL-1423-ITAT-CHD]

Charities Taxation Update No. 55 / 2022-23    Date: 03/02/2022

Proviso to section 2(15): An analysis of ACIT(E) v. Ahmedabad Urban Development Authority & Others

The proviso to section 2(15) of the Income-tax Act 1961 which defines “charitable purpose” provides that if the object of advancement of general public utility (“GPU”) involves carrying on business, trade or commerce, it will not be a charitable purpose unless the conditions (i) and (ii) mentioned in the proviso are satisfied. There has been a huge controversy on what constitutes “business” for the purpose of the said proviso. Recently, in ACIT(E) v. Ahmedabad Urban Development Authority and Others, (2022) 143 taxmann.com 278 (SC), the Supreme Court has pronounced a path breaking judgment interpreting the proviso and some other provisions, and especially what constitutes “business”. A detailed analysis including suggested way forward for assessees is now included in CIR as a separate chapter.

[ACIT(E) v. Ahmedabad Urban Development Authority and Others, (2022) 143 taxmann.com 278 (SC)]

Charities Taxation Update No. 54 / 2022-23 Date: 27/1/2022

Section 69: Building not constructed by the assessee but used without consideration cannot be regarded as ‘unexplained investment’

A building was constructed by the trustees of the assessee and not by the assessee itself. It was used without consideration by the assessee to run its institution. The tax authorities added the value of the building as unexplained investment in building under section 69.

The Tribunal held that since the building was not constructed by the assessee, there was no question of any addition on account of unexplained investment by the assessee-trust. Further, merely because the building was used by assessee without consideration was not enough to justify the addition under section 69.

[Abhodh Memorial Trust v. ACIT, 2022 (11) TMI 814 - ITAT Kolkata]

Charities Taxation Update No. 54 / 2022-23 Date: 27/1/2022

Section 12A: If the original registration is misplaced by the trust, the assessee may file application for re-registration and obtain it with retrospective effect

The assessee misplaced its original certificate of registration issued in the year 1973 and submitted a request for duplicate copy with the CIT(E). The CIT(E) granted registration prospectively from assessment year 2019-20 even though the assessee had been regularly assessed as a registered charitable trust since 1973.

The Tribunal observed that the tax department did not have old records and hence the duplicate copy could not be issued. Further, the tax authorities had consistently accepted the assessee as a charitable trust in previous years and the assessee had submitted enough evidence to prove the claim of being registered under section 12A since 1973. Hence, grant of registration was to be effective from the year 1973 and not 2019-20.

[Shri Jain Shwetamber Murtipujak Sukrat Fund Kapda Committee v. CIT (E), 2020-TIOL-1240-ITAT-Indore]

Charities Taxation Update No. 54 / 2022-23 Date: 27/1/2022

Section 11 r.w section 10(20): Benefit of exemption under section 11 to be allowed where assessee had not claimed benefit under section 10(20)

Where Tribunal allowed benefit of exemption under sections 11 and 12 to assessee by treating it as a charitable institution, since assessee never claimed benefit under section 10(20), High Court was unjustified in dismissing appeals preferred by revenue by granting the assessee benefit under section 10(20)

[CIT (E) v. Jaipur Development Authority, (2022) 145 taxmann.com 119 (SC)]

FCRAR Update No. 06 / 2022-23 (Date: 25/01/2023)

Condonation of delay in opening of FCRA A/c and belated filing of FC-4 by NGO if no foreign funds were received till opening of A/c

The petitioner was an NGO registered under FCRA since 2015. It did not receive any foreign contributions in financial years 2019-20 and 2020-21. The FCRA (Amendment) Act, 2020 was notified in September 2020 and it brought about substantial changes, one of which required the petitioner open an FCRA account in the designated bank by 31^st March 2021, extended to 30^th June 2021. However, Form no. FC-4 required for submission of annual returns required the petitioner to provide the FCRA Bank details. Since the account had not been opened, the petitioner could not file the returns for financial year 2019-20 and financial year 2020-21.

The petitioner contended that the amendments had been introduced only in September, 2020 and details of such a bank account could not sought in a retrospective manner. Further, online portal had been designed in a manner such that it was impossible to submit the Form FC-4 online for a period prior to September, 2020.

The High Court held that belated opening of FCRA A/c and belated filing of FC-4 was to be condoned on the following grounds:

• (i) The language used in Form no. FC-4 required the petitioner to give details on foreign contribution "as on 31st March of the year ending…"
• (ii) The petitioner had not received any foreign contributions in the financial years 2019-20 and 2020-21
• The FCRA (Amendment) Act had not come into effect as on 31^st March 2020
• The petitioner had opened its FCRA Account in the designated bank in August 2021.

Accordingly, the Court allowed the petitioner to submit its return within one month without any penalty being imposed.

[WNS Cares Foundation v. Union of India, (2023) 146 taxmann.com 386 (Delhi)]

Charities Taxation Update No. 53 / 2022-23     Date: 23/1/2022

Section 11: Exemption cannot be denied merely because revised return filed is defective

The assessee was an arm of Government of India set up to encourage information technology. The AO denied exemption under section 11 since it was not claimed in the original return filed by the assessee and the revised return filed thereafter was defective. The AO questioned the charitable nature of activities and disallowed the following:

(i) depreciation under section 11(6) since the assessee had already claimed capital expenditure in the year of acquisition

(ii) Taxed paid could not be regarded as application of income

(iii) earmarked funds could not be application of income since they were made out of previous years’ income

The Tribunal held exemption could not be denied on the following grounds:

(1) Revised return can be filed by a charitable institution:

The Tribunal held that merely because the exemption was never claimed by the assessee in the original ITR and the revised ROI filed was defective, it was not a valid reason to deny the benefit of exemption.

(2) Charitable nature of assessee

The AO had recorded a finding that the assessee had established that the prime objective of the assessee was encouraging information technology and charges received for certification could not be regarded as business. Further, the income generated had been applied for the benefit of public at large. This proved that he had accepted the charitable status of the assessee society and hence, income had to be computed under section 11 to 13.

(3) Observations on application of income:

• Section 11(6) was prospective in nature applicable from assessment years 2015-16 onwards and hence, could not apply to the assessment year 2012-13 and consequently, depreciation was to be allowed
• Taxes paid out of current year’s income were application for charitable purposes
• It was proved that earmarked funds were made out of income of the current year and not out of accumulated income of previous years and hence, the disallowance was not justified

[ACIT (E), v. Software Technology Parks Of India, 2022 (12) TMI 397 - ITAT Delhi]

Charities Taxation Update No. 53 / 2022-23     Date: 23/1/2022

Section 10(23C): It is not permissible to disallow expenses on an adhoc basis

The assessee was an educational institution and ran a school. According to the AO, the total receipts were over Rs. 1 crore and hence, denied exemption under section 10(23C)(iiiad). However, he also made an adhoc disallowance of 10% of total expenses under different heads including van rent and EPF on salaries to staff.

The Tribunal observed that the AO had not

(i) verified proper documents;

(ii) mentioned the specific lacuna for disallowance of expenditure;

(ii) noticed that the EPF on salary payments had been deducted and paid;

(iv) considered that the van rent was a contra entry and after deduction from both sides of income and expenditure, the total receipts would be below Rs. 1 crore

It held that ad hoc disallowance of expenditure was incorrect and the assessee was entitled to the benefit of section 10(23C)(iiiad)

[Baba Farid Public Welfare Society v. ITO (E), (2022) 145 taxmann.com 233 (Amritsar - Trib.)]

Charities taxation Update No. 52 / 2022-23  Date: 20/1/2022

Section 154: Non-disclosure of section 12A registration is mistake apparent from record  and can be corrected without revising the return

The assessee is a government board registered under section 12A. While filing its return of income, inadvertently, the assessee filed ‘No’ in in the column in point B to Part A-GEN of the Return, meant to disclose date of approval/ registrations etc. The AO opined that it had to file a revised return and the time for revising the return had also elapsed. Hence, exemption under section 11 was denied.

The Tribunal held that the denial of exemption was not justified on the following grounds:

(a) the tax authorities below had fallen in error in not taking into consideration the rectification application.

(b) the nature of mistake was one which fell into the definition of mistake apparent from the record and was liable to corrected without any requirement of a revised return.

[Grih Kalyan Kendra Board v. ITO, TS-938-ITAT-2022 (Del)]

Charities taxation Update No. 52 / 2022-23  Date: 20/1/2022

Section 11: Exemption cannot be denied merely because of delay in filing audit report provided the assessee can justify the reasonable cause for delay

For assessment year 2014-15, the assessee inadvertently, did not file the audit report in Form no. 10B along with the return of income and the same was not filed till the completion of the assessment order as well as appellate order by the CIT(A). The CIT(A) passed his order on 30^th November 2017 and the audit report was uploaded on 25^th December 2017. However, it was signed and dated 5^th September 2014. Thus, it appeared that it was prepared well in time but filed belatedly.

The Tribunal held that the appeal was pending before it at the time when the audit report was filed which meant that assessment had not reached finality. Further, the filing of audit report was a procedural requirement and the assessee had submitted reasonable cause for the delay. Hence, exemption could not be denied.

[Shardaben Education Trust v. ITO (E), 2022 (11) TMI 844 - ITAT Ahmedabad]

Charities taxation Update No. 52 / 2022-23  Date: 20/1/2022

Proviso to section 2(15): Imparting managerial training under an MOU not aimed at enhancing workmanship is not ‘education’

The AO denied exemption under section 11 to the assessee on the ground the training programs conducted by the assessee were a commercial activity taxable as business income under section 11(4A) since TDS had been deducted under 194J (professional services) and service tax had also been paid on those receipts. The assessee contended that its main object was education and activity of training was incidental to education, if not part of education itself.

The Tribunal upheld the denial of exemption on the following grounds:

(i) the programs were intended to cater to the industrial and management trainees recruited by the two hotels and were not in any way enhancing workmanship

(ii) The beneficiaries were identified by the said hotels and the beneficiaries were to continue providing services to the two hotels consequent to their recruitment with the two hotels only

(iii) The intention of the objects seemed to be to give some sort of technical training of workmanship to those who were seeking employment and could not be extended to give on the job training to those persons who had been recruited by some organization

(iv) It was evident that that assessee was only providing trainers and not using its own infrastructure to give any sort of training of workmanship at its premises and resources. Merely because at the end of training of the recruit, they were to be given a certificate by the assessee; it did not change the nature of its activity from commercial to charitable.

(v) There was no force in the claim of assessee that these training programs were incidental to the main activities. The terms of the MOU made it appear that the assessee’s main activity was to give training of managerial nature to the two hotels and this was far beyond the objects of the assessee.

[UMAK Education Trust v. JCIT(E), TS-854-ITAT 2022(Del)]

Charities Taxation Update No. 51 / 2022-23    Date: 16/1/2022

Section 2(15) read with section 12A: Collection of illegal capitation fee by educational institutions cannot be a ‘charitable activity’ and can lead to cancellation of registration

The AO denied exemption under section 11 to the assessee trust on the ground that it was collecting illegal capitation fee for admitting students which was being routed as voluntary contributions given by relatives of the students to other trusts. The other trusts would, after receipt of such capitation fees, transfer the same as corpus donations to the assessee. All the trusts had common trustees. The AO also recorded statements from students/parents that the contributions to sister trusts were a quid pro quo for admission to the college run by the assessee.

The assessee contended that its main object was education and to support other institutions by donating money. The donated money was also applied for charitable purposes, in line with the objects of the assessee. Hence, the trustees had not benefitted in any manner and half the persons, who had given statements against the assessee had retracted the same.

The High Court made the following observations:

1. Meaning of ‘voluntary contribution’:

• Where a person gives money to another without material returns, he donates that sum. An act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another, without any consideration, is a donation. A gift or gratuitous payment is in simple English a donation
• Unless a contribution is made gratuitously and without consideration, it cannot be treated as “voluntary contribution”
• A donation made in order to gain advantage or benefit cannot be called as voluntary contribution
• Membership fees and subscription amounts paid by the members of a society or trust are not voluntary contributions
• Capitation fees charged for giving admission to students are not voluntary contributions

2. Collection of capitation fees cannot be regarded as ‘education’

Education would remain as a charity only in a case where it is imparted systematically in a fee prescribed by the Government. When capitation fees are collected, the activity ceases to be education. It is neither voluntary contribution nor can it be treated as applied for charitable purpose.

3. Observations on objects and application of income

• The utilization of voluntary contribution/donation received by trust/institution has to be for such purposes as are intra-vires to its object clause and it cannot be extended to cover object which is charitable or religious in nature but ultra-vires its object clause
• Objects clause in a trust deed, memorandum etc. have to be clearly stated. If what is to be done with the money so collected is not provided in the trust deed and there is no mandate in the trust deed that the income derived from the trust property is to be spent on religious or charitable purposes, the definition of charitable purpose is not satisfied
• If the activities are not genuine or not being carried out in accordance with the objects of the trust, the claim of exemption under section 11 is liable to be rejected. In fact, the objects are irrelevant, when the activities are not genuine
• The application of funds is also subject to scrutiny by the Commissioner

4. Corpus Donations are income

All donations received by a charitable trust are income, including corpus donations. Section 11(1)(d) exempts corpus donations. However, if an institution loses the exemption under section 11, corpus donation will be included in the income of the institution and be assessed accordingly.

5. Conclusion

• The High Court held that the assessee trust had violated law while using corporate veil of distinct entities that receive funds for charitable purposes. On lifting of corporate veil, it was evident that the assessee was collecting capitation fees as quid pro quo for allotment of seats which was illegal.
• Hence, the denial of benefit under section 11 was justified
• It further directed the tax authorities to cancel the registration and re-open previous assessments of the assessee and other trusts involved in the case.

[CIT v. MAC Public Charitable Trust, TS-837-HC-2022(MAD)]

Charities Taxation Update No. 50 / 2022-23 Date: 13/1/2022

Proviso to section 2(15): Letting out space for commercial exhibitions would be considered as ‘business income’ and taxed at MMR

The assessee, a registered society was involved in promotion of trade in granite, marble, natural stone etc. It filed a nil return after claiming exemption under section 11 on its activities such as letting out spaces for commercial exhibitions, sponsorship receipts, advertisement charges, subscription fees etc. The AO opined that proviso under section 2(15) was attracted since the activities were purely commercial in nature and could not be given the benefit of exemption under section 11.

The assessee contended as follows:

(i) Proviso to section 2(15) could not apply as the main object of the assessee was charitable and receipts earned from incidental activities could not be hit by proviso to section 2(15)

(ii) Without prejudice to the above, stall rental receipts fell under the head ‘income from house property’ and not under ‘profit and gains from business and profession’

(iii) Capital expenditure had to be allowed while computing income of the assessee

(iv) The assessee was eligible to accumulate income under section 11(2)

The Tribunal held that denial of exemption under section 11 was justified on the following grounds:

1. Meaning of the term ‘business’

The proviso to section 2(15) covered any activity in the nature of business and under section 2(13), “business” included any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.

2. Activities of the assessee constituted trade, commerce or business

(i) The assessee had earned huge rental income from letting out the space to the industry for organizing exhibition related events on license fee/rental basis and organizing of exhibitions and related events. The Tribunal observed that these receipts were not within the objects of the assessee.

Hence, it was an adventure in the nature of trade to be assessed as ‘business income’ and could not be considered as ‘income from house property’.

(ii) It also earned significant amount from admission fees, subscription fees, sponsorship receipts and advertisement charges. These activities carried on by assessee were undertaken for profit and could not be called charitable activities.

3. Taxation at MMR

Since the assessee was hit by the proviso to section 2(15), it did not satisfy the definition of charitable purpose and hence, was liable to be taxed at maximum marginal rate under section 164(1)

4. Other Aspects:

Since the assessee was assessed on its business income, capital expenditure could not be allowed and only revenue expenditure under section 28 to 38 was to be deducted.

Further, benefit of accumulation under section 11(2) was not available on business income.

[All India Granites & Stone Association, TS-774-ITAT-2022(Bang)]

Charities Taxation Update No. 49 / 2022-23    Date: 9/1/2022

Proviso to section 12A(2): Applicability of exemption under section 11 to preceding years

The assessee had applied for registration on 31/8/2019 and it was granted registration w.e.f from assessment 2019-20. The assessee claimed that as per the proviso to section 12A(2), exemption should also be available for assessment 2018-19 since the assessment proceedings for that year were pending before the AO as on date of grant of registration.

The Tribunal observed that the benefit of the proviso was not restricted to cases where the application for registration under section 12A was unduly delayed by the revenue authority and such a condition for claiming the benefits of the proviso had not been laid down therein.

Hence, the benefit of the exemption was available for assessment 2018-19.

[Arya Samaj v. ITO (E), 2022 (11) TMI 1210 - ITAT BANGALORE]

Charities Taxation Update No. 49 / 2022-23    Date: 9/1/2022

 Section 11(1A): AO cannot ignore valuation report of a registered valuer

The assessee claimed exemption under section 11(1A) on capital gains arising from compulsory acquisition of its land. The AO rejected the valuation report on the ground that it was based on assumptions and taxed the additional capital gains.

The Tribunal held that where the assessee had determined fair market value of property according to valuation report of a registered government valuer, AO was not justified in arriving at 'fair market value' of property ignoring valuation report on record.

[Dera Baba Bhai Gurdas Ji Udasin Trust (Regd) (Mansa) v. ITO, (2022) 145 taxmann.com 278 (Amritsar-Trib)]

Charities Taxation Update No. 49 / 2022-23       Date: 9/1/2022

Section 11(1)(a): Income to be understood in its commercial sense

The assessee leased out two of its properties to specified persons under section 13(3). The rental income charged was lower than the prevailing market rent. The AO denied exemption under section 11 since the assessee had violated provisions of section 13(1)(c) and section 13(2)(b) and taxed the difference between income at prevailing market rate and the actual rent charged.

The Tribunal held that denial of exemption under section 11 was justified. However, the assessee could not be assessed on notional rental income, that is, difference between income at prevailing market rate and actual rent and directed the tax authorities to tax the actual rent charged at maximum marginal rate.

[TVS Charities v. ITO (E), 2022 (12) TMI 1088 – ITAT CHENNAI]

Charities Taxation Update No. 48 / 2022-23       Date: 6/1/2022

Proviso to section 12A(2): Applicability of exemption under section 11 to preceding years

The assessee filed an application seeking registration under section 12A during the previous year relevant to the assessment year 2009-10 which was rejected by the CIT. However, pursuant to the Tribunal order in favour of the assessee, CIT granted registration under section 12A on 26-03-2013 w.e.f assessment year 2009-10. The assessee claimed exemption under section 11 was available for previous assessment year 2008-09 which was pending before the AO as per proviso to section 12A(2).

The Tribunal observed that the proviso to section12A(2) was introduced by the Finance Act, 2014 w.e.f assessment year 2015-16 and could not apply for assessment year 2008-09. Hence, the denial of exemption under section 11 for assessment year 2008-09 was justified.

[Vishwabharati Academy v. DCIT, 2022 (11) TMI 1103 - ITAT PUNE]

Charities Taxation Update No. 48 / 2022-23       Date: 6/1/2022

Section 12AA-  Irrelevant factors for grant of registration

The assessee was engaged in imparting education and ran a school. It filed an application for registration under section 12AA which was rejected by revenue authorities on the ground that there was inadequate documentation regarding certain cash deposits and raised doubts on the genuineness of the activities of the assessee.

The High Court upheld the following observations of the Tribunal:

(i) CIT had to examine the genuineness of charitable objects and activities of the assessee at the stage of grant of registration

(ii) Mere non production of books did not mean that genuineness of charitable activities of the assessee had not been established

(iii) Application of income had to be examined by the AO on an yearly basis to decide exemption under section 11 but was it was not necessary during grant for registration, more so because there was nothing on record to show that the activities were not genuine

(iv) Revenue authorities did not being on record any adverse finding with respect that the cash deposits and how the objects were not charitable

Hence, the grant of registration was justified by the Tribunal.

[CIT (E) v. Mata Parvati Educational And Innovative Society, 2022-TIOL-1463-HC-DEL-IT]

Charities Taxation Update No. 48 / 2022-23       Date: 6/1/2022

Proviso to section 2(15): Sponsorship fees by itself cannot constitute trade, commerce or business

The assessee was the apex sports body for selecting athletes to represent India at Olympic Games, Asian Games and other international athlete meets at these events. The activities of the assessee included organizing sports activities under the aegis of Ministry of Youth Affairs and Sports, Government. The assessee received significant revenue from sponsorship agreements, which according to the AO were commercial transactions since income due to such sponsorship exceeded expenditure by Rs.25 lakhs. Hence, he denied exemption under section 11.

The Tribunal observed that

(i) in an earlier assessment year, it had dismissed revenue’s appeal on identical facts in the assessee’s own case and it had been held that receipt of sponsorship fees could not be by itself amount to carrying on of any business, trade or commerce

(ii) the earlier judgement was also upheld by the High Court

It held that since there was no change in facts, the denial of exemption was not justified.

[ITO (E), v. Indian Olympic Association, 2022 (11) TMI 584 - ITAT DELHI]

Charities Taxation Update No. 47 / 2022-23 Date: 30/12/2022

Section 12AA- Mandatory to pass a speaking order when accepting or rejection an application for grant of registration

The CIT(E) rejected application for grant of registration on the grounds that the donations received by the assessee were diverted to corpus fund and treated as exempt prior to grant of registration. He opined that the receipts should have been disclosed as income and due tax on such income should have been paid by the assessee.

The Tribunal observed as follows:

(i) while examining an application for grant of registration, the CIT(E) had to satisfy himself about the charitable nature of objects and the genuineness of activities undertaken by the assessee;

(ii) Once satisfied, he had to pass a speaking order recording a specific finding about the charitable nature of objects or genuineness of activities;

(iii) incorrect treatment of voluntary donations prior to grant of registration where remedial action was available to the jurisdictional AO was not a reason to deny registration.

Hence, the denial was registration was unjustified.

[Shri Shwetamber Jain Education Society v. CIT (E), (2022) 145 taxmann.com 144]

Charities Taxation Update No. 47 / 2022-23 Date: 30/12/2022

Section 12AA-  Opportunity of being heard is mandatory before rejection of application for grant of registration

The assessee provided coaching and training to students and acted as an intermediary between students and a specialized group of teachers. The PCIT rejected the application for registration on the ground that the assessee was simply collecting fees and passing it to the group of teachers and no charitable activity was being carried out. The assessee submitted it had not been accorded an opportunity for hearing before rejection of application and it was undertaking charitable activity by providing the required infrastructure for coaching.

The Tribunal observed that it was mandatory to give the assessee sufficient opportunity of being heard before rejection of application for grant of registration and hence, the order of rejection was bad in law.

[Nishan E Sikhi Institute of Science & Training v. CIT (E), (2022) 145 taxmann.com 193 (Amritsar - Trib.)]

Charities Taxation Update No. 47 / 2022-23 Date: 30/12/2022

Section 2(15): Hall hiring charges and royalty from caterers can constitute ‘education’

The assessee was engaged in imparting education. It also earned income from hall hiring charges and royalty from caterers. The AO denied exemption under section 11 on the ground that income from such business was not incidental to the attainment of object of education.

The Tribunal observed that

(i) The charitable nature of activity of the assessee, being education, was not disputed by the AO;

(ii) As long as income from property held under trust was applied for charitable purposes, exemption under section 11 could not be denied;

(iii) Receipt of hall hiring charges and royalty from caterers was income derived from property and had been applied for charitable purposes;

(iv) Separate books of accounts had been maintained.

Hence, the denial of exemption was not justified.

[Nava Samaj Mandal v. National E-Assessment Centre Delhi, 2022-TIOL-1119-ITAT-MUM]

Charities Taxation Update No. 46 / 2022-23 Date: 26/12/2022

Section 119(2)(b): Power of CBDT

The assessee, while filing its return furnished the audit report belatedly, with delay exceeding 365 days. The tax authorities denied the exemption under section 11 due to breach of section 12A(1)(b) which mandated that the audit report had to be filed by the due date of filing return under section 139(1).

The Tribunal held as follows:

(i)      An order under section 119(2)(b) was not an appealable order, much less before the Tribunal

(ii)     The condonation petition had to be accompanied by an affidavit averring the relevant facts by the concerned person/s

(iii)    If the Board had, in any other case, extended the power of the CIT(E) to admit and consider an application for the condonation of delay in submission of Form 10B for AY 2018-19 (and/or subsequent years) beyond 365 days on merits, or deemed it proper to consider it itself, the Board, had to, on being moved by another assessee, consider the same on merits and in accordance with law.

[Satya Sodhan Ashram v. CIT, 2022-TIOL-1294-ITAT-JABALPUR]]

Charities Taxation Update No. 46 / 2022-23 Date: 26/12/2022

Unregistered religious trust shall be taxed at rates applicable to an AOP

An unregistered religious trust where the entire income derived under property is utilised for the deity, then such a trust shall be assessed as an AOP and taxed at slab rates and not at maximum marginal rate.

[Shree Vyadeshwar Devasthan Fund v. DCIT, 2022-TIOL-1339-ITAT-PUNE]

Charities Taxation Update No. 46 / 2022-23 Date: 26/12/2022

Section 12AA- Registration once granted cannot be cancelled subsequently on the same set of provisions of the trust

The property of the assessee was encroached by local inhabitants. In order to save the property from encroachment, the assessee reconstituted the trust by a fresh trust deed and cancelled the original deed since the original deed did not allow for sale of property and applied for registration. The assessee was granted registration under section 12A. Subsequently, the property was also sold and sale proceeds were utilized for the purposes of the assessee. The CIT(E) proceeded to cancel the registration on the basis of the original trust deed, which was upheld by the Tribunal.

The High Court held as follows:

(i) Once registration had been granted to the assessee after satisfying about the genuineness of its activities, the same could not be cancelled on the basis of the same set of provisions of the trust which were examined earlier

(ii) The Tribunal could not hold that the activity of the assessee was not genuine and bona fide, in the teeth of the judgment of the Supreme Court in the case of the assessee trust itself and such an order was not sustainable in the eyes of law

[Sri Ramjanki Tapovan Mandir v. CIT (E), ITO (E), 2022 (11) TMI 320 - Jharkhand High Court]

Charities Taxation Update No. 46 / 2022-23 Date: 26/12/2022

Proviso to section 2(15)- Hostel and transportation services by an educational institute to its students cannot be regarded as trade, commerce or business

The assessee ran an educational institute and provided hostel and transportation facilities to its students and staff. The tax authorities regarded receipts from hostel and transport services as a business activity and since no separate books were maintained, the exemption under section 11 was denied on the surplus of hostel and transport income.

The Tribunal observed as follows:

(i)    Hostel and transport facilities were provided by the assessee to its students. It was not a case that services were provided to persons other than students or staff

(ii)   These activities were an integral part and necessary for the attainment of the main object of education

Hence, hostel and transport facilities provided to students did not amount to ‘commercial activities’ and the denial of exemption was not justified.

[Akash Education Society v. CIT, 2022-TIOL-1365-ITAT-DEL]

Charities Taxation Update No. 45 / 2022-23 Date: 23/12/2022

Section 80G: Provisional approval is applicable from the beginning of the assessment year in which the application was made and not the order date

Proviso (vi) of section 80G (5) clearly provides that the registration is to be granted from the first of the assessment years for which the institution or fund was provisionally approved, that is, from the assessment year and not from the middle of the year. Hence, if the assessee was granted approval on 23.09.2021, then the approval will take effect from 01.04.2021.

[NSR Charitable Trust v. PCIT (E), TS-847-ITAT-2022, ITAT Chennai]

Charities Taxation Update No. 45 / 2022-23 Date: 23/12/2022

Section 12A- Factors to be examined by CIT for grant of registration

The assessee was a registered society running a school and applied for registration under section 12A. The CIT(E) rejected application for registration on the ground that the assessee was showing lower tuition fee and not disclosing the bus fee collected in books of accounts, and the trustees were misutilising the property of the trust.

The Tribunal observed as follows:

(i)    while granting registration under section 12A, only the genuineness of the trust was to be examined. Genuineness would mean that the activities were not camouflage but real, pure and sincere and were within the scope of objects of the institution

(ii)   no examination of the application of funds or ethical background of settlors was needed at the time of grant of registration but arose only at the time of assessment

(iii)  income not being fully recorded in books would not mean that activities were not carried on as per the objects and was not sufficient ground to deny registration

(iv) the material collected behind the back of the assessee could not be utilized unless a copy of the same was given to the assessee and an opportunity to rebut the same was also presented

Hence, the denial of registration was not justified.

[Sunrise Shikshan Sansthan v. CIT (E), 2022 (10) TMI 411 - ITAT JAIPUR]

Charities Taxation Update No. 45 / 2022-23 Date: 23/12/2022

Section 2(15) r.w. section 11: Onus to prove charitable activities were carried out is on the assessee & exemption not available if no charitable activities were carried out

The activities of the assessee involved running two kalayana mandapams, working women’s hostel, letting out buildings to various organisations. The AO opined that these activities were not charitable and not in accordance with the objects. He therefore denied exemption under section 11.

The Tribunal observed as follows:

(i)    The assessee had 12A registration but that did not mean that exemption under section 11 was automatically available. The assessee had to prove to the AO                    that it had carried out charitable activities

(ii)   No charitable activity was involved in running working women’s hostel for the reason that the assessee was charging for each and every services and there                    was nothing on record to prove that the assessee had been providing hostel facility to poor students

(iii) Buildings were given on rent to various organization for which the assessee was receiving rent and such an activity could not be said to be charitable

(iv)  The activities of the assessee of running kalyana mandapams, letting out working women’s hostel and construction and letting out of building were outside                  the scope of the object clause and not in accordance with the trust deed.

Hence, the denial of exemption was justified.

[DCIT (E) v. The Willingdon Charitable Trust, ITA No. 587, Chny, 2015]

Charities Taxation Update No. 44 / 2022-23 Date: 19/12/2022

Section 145: Method of accounting for non-corporate entities not having business income

Section 145 dealing with method of accounting provides that income chargeable under the head profits and gains of business or income from other sources shall be computed in accordance with either cash or mercantile system of accounting regularly employed by an assessee. In a case of a charitable institution entitled to exemption under section 11 and not having business income, its income is not computed under the above referred heads. Hence, strictly speaking, section 145 does not apply to such a charitable institution. In the circumstances, in the absence of any express prohibition, it appears that it could adopt cash basis of accounting, subject to the provisions of the statute, if any, under which it is otherwise governed.

[Prajatantra Prachar Samity Beharibag v. ACIT, (2022) 143 taxmann.com 311 (Cuttack - Trib.)]

Charities Taxation Update No. 44 / 2022-23 Date: 19/12/2022

Section 13(2)(c): Relevant factors in determining adequacy of rent

The AO denied exemption under section 11 to the assessee on the ground that the property of the assessee was given on rent at much lower than market rent, to a company in which the trustees were interested. The AO opined that since trustees were an interested party under section 13(3), the income of the trust had been diverted by charging inadequate rent and invoked section 13(1)(c)(ii) read with section 13(2)(g).

The Tribunal observed as follows:

(i) the trust was eligible to only standard rent from the statutory tenants. Hence, any comparison in respect of the rent received by the assessee from interested party could only be made with the rent charged to other tenants, who were also statutory tenants, of the building

(ii)   the tax authorities had not taken into consideration a premium of Rs. 41 lakh paid by the interested party over and above the rent in respect of the tenancy and only considered the rent paid, which was incorrect

(iii) the premises, area, location, access, amenities, inter alia, also had to be taken into consideration while determining the adequacy of rent

(iv) exemption under section 11 had been granted in respect of subsequent assessment years and there had been no change in facts

Hence, the denial of exemption was not justified.

[Mehta Charity Trust v. DDIT(E), (2022) 143 taxmann.com 321 (Mumbai - Trib.)]

Charities Taxation Update No. 44 / 2022-23 Date: 19/12/2022

Section 2(15): Activities regarded as relief to the poor

The term ‘relief to the poor’ encompasses a wide range of objects for the welfare of the economically and socially disadvantaged and includes the following:

(i)    Relief to destitute

(ii)  Relief to disadvantaged and orphan children

(iii) Relieving a person from indigence

(iv) Relief to handicapped in need of aid

(v)   Relief to disadvantaged women

(vi) Relief to small and marginal farmers in need of aid

(vii) Relief to senior citizens in need of aid

[Slum Rehabilitation Authority Finance Controller v. DDIT, 2022 (10) TMI 27 - ITAT MUMBAI]

Charities Taxation Update No. 43 / 2022-23 Date: 16/12/2022

Proviso to section 12A- Applicability of exemption under section 11 to preceding years

The assessee was constituted as a major port under the Ministry of Transport and Shipping. It applied for registration under section 12A from assessment years 2003-04, which was granted after a long gap in assessment year 2017-18. The assessee contended that it should be allowed the benefit of exemption for earlier assessment years where assessment was pending.

It was held that if  the original returns of income were filed without claiming benefit of section 11 and subsequently registration was granted and the assessments were pending, the assessee could either revise the returns [subject to the time limit under section 139(5)] or ask the AO to assess after considering the benefit of section 11.

[Paradip Port Trust v. UOI, (2022) 143 taxmann.com 273 (Orissa)]

Charities Taxation Update No. 43 / 2022-23 Date: 16/12/2022

Section 13(1)(c) and 13(1)(d): Exemption lost only to the extent of violation and not the whole income

The entire exemption under section 11 cannot be denied in case of violation of provisions of section 13(1)(c) and 13(1)(d) but would not be available to the extent of benefit given to the specified persons. The maximum marginal rate will only apply to that part of income which has forfeited exemption on account of section 13(1)(c) and 13(1)(d).

It is also necessary for the AO to give proper opportunity of hearing to the assessee before holding the applicability of section 13(1)(c) and 13(1)(d).

[DCIT (E) v. Mumbai Education Trust, 2022 (10) TMI 169 - ITAT Mumbai]

Charities Taxation Update No. 43 / 2022-23 Date: 16/12/2022

Section 12A- Rejection of application for registration for non-commencement of charitable activities is not valid

The CIT/DIT is not required to examine whether the trust has actually commenced and carried out charitable activities. Non-commencement of charitable activities is not a ground for rejection of application for registration under section 12A. However, if the AO finds that no charitable activity was undertaken, set up or established by the trust after the grant of registration, then he can cancel the registration granted.

[DIT (E) v. Meenakshi Amma Endowment Trust Etc., (2022) 143 taxmann.com 240 (SC)]

Charities Taxation update No. 42 / 2022-23  Date: 09/12/2022

Section 143(1): Disallowance not to be made on a debatable issue

The assessee filed its return of income declaring nil income along with Form no. 10. The return was processed under section 143(1) by disallowing amount accumulated under section 11(1) and 11(2). The assessee contended that no disallowance could be made under section 11 in an intimation issued under section 143(1) of the Act.

The Tribunal observed that the first proviso to section 143(1) mandates that no adjustments except for arithmetical mistakes or an incorrect claim apparent from record was allowed under section 143(1). Further, no opportunity was granted to the assessee to put forth its stand before disallowing the deduction claimed. Hence, disallowance could not be made on a debatable issue.

[Rajiv Gandhi University of Health Sciences v. DCIT, ITA Nos. 584 & 563, Bang, 2022]

Charities Taxation update No. 42 / 2022-23  Date: 09/12/2022

Section 12(A)(1)(b): Condonation of delay in filing audit report

The delay in filing of Form 10B Audit Report for assessment years 2016-17 and 2017-18 could be condoned under section 119(2)(b) and Circular F.No. 197/55/2018 - ITA-1 dated 22/05/2019.

[Dharamitra, Bank of India Colony, Nalwadi, Wardha v. DCIT, 2022 (10) TMI 1116 – ITAT Nagpur]

Charities Taxation update No. 42 / 2022-23  Date: 09/12/2022

Section 11(1)(a): Basic exemption of 15% not application where application exceeds income

The exemption of 15% under section 11(1)(a) is not a standard deduction but is available only when the application of income falls short of 85% of income. If the application is more than the income, there is no necessity to accumulate income to the extent of 15% and the revenue is justified in disallowing the such accumulation.

[Larsen And Toubro Public Charitable Trust v. ITO, 2022-TIOL-1155-ITAT-MUM]

Charities taxation update No. 41 / 2022-23 Date: 02/12/2022

Applicability of proviso to section 12A(2)

The provisions of sections 11 and 12 apply in respect of assessment proceedings pending before the AO for the previous assessment years under the proviso to section 12A(2) provided the conditions given therein are fulfilled.

[Dera Baba Bhai Gurdas Ji Udasin Trust (Regd) Mansa v. ITO, 2022 (10) TMI 386 - ITAT AMRITSAR]

Charities taxation update No. 41 / 2022-23 Date: 02/12/2022

Section 12(A)(1)(b): Filing of audit report anytime before assessment will suffice

There had been a delay in filing the audit report and return of income by the assessee. The tax department issued intimation under section 143(1) without taking cognizance of the audit report and exemption under section 11 was denied.

The Tribunal observed that the audit report and the audited financial statements of the assessee were available with the tax department much prior to the intimation under section 143(1). Hence, exemption under section 11 could not be denied merely on account of delay in furnishing auditor’s report when it was available before the tax authorities before the completion of assessment.

[The India Industrial Mission v. DCIT, 2022 (10) TMI 448 - ITAT Kolkata]

Charities taxation update No. 41 / 2022-23 Date: 02/12/2022

Section 11(1)(a): Onus to prove misuse of funds is on the tax department

The assessee was an educational trust approved under 10(23C). There was a search on the assessee and statements of several persons were recorded under section 131 who stated that funds were diverted by the assessee on the pretext of giving donations to other trusts, which in turn, returned cash to the assessee and such cash was converted into share capital or loan etc. in the group companies of the assessee. Based on this, the AO denied exemption under section 10(23C) and treated the donation given to another educational trust as a bogus donation. The AO also opined that provision for gratuity and leave encashment of the staff was not application of income for educational purposes and disallowed the same.

The Tribunal observed as follows:

• (i) during the course of assessment proceedings, the persons who had given statements against the assessee had retracted them. The retraction was confirmed by them before the AO in cross examination.
• (ii) none of the statements recorded by the AO showed that there was any evidence with respect to the donation by assessee being bogus- that donation was returned in cash by the donee
• (iii) donation given by the assessee was supported by a certificate under section 80G issued by the DGIT Mumbai and clearly supported by receipt and confirmation along with bank statements
• (iv) the donee was also questioned under section 133(6) and had replied in favor of the asseesee.
• (v) the AO had neither examined the trustees of donee trust or donor trust on the purpose of the donation
• (vi) there was no enquiry on the donee trust and there was no evidence that the donee’s activities were not genuine
• (vii) the provision for gratuity and leave encashment was an ascertained liability calculated on an actuarial basis and not merely a provision.

Hence, the denial of exemption was not justified and donations given by the assessee to another educational trust could not be said to have been made for non-educational purposes. Further, provision for gratuity and leave encashment was to be treated as application of income.

[DCIT v. Podar Education Trusts , 2022 (10) TMI 894 - ITAT Mumbai]

Charities Taxation update No. 40 / 2022-23 Date: 25/11/2022

Applicability of section 68

Even if the assessee had offered income in its income and expenditure account as voluntary donation, if the assessee has failed to explain the source of such voluntary contributions, then section 68 will be applicable.

[DCIT v. Jayananad Religious Trust, 2022 (10) TMI 119 - ITAT Mumbai]

Charities Taxation update No. 40 / 2022-23 Date: 25/11/2022

Section 13(1)(c): Applicable only when payments made to specified persons are unreasonable and excessive

The assessee ran multiple schools with the object of imparting education. The AO denied exemption under section 11 on the ground that the assessee had given benefit to specified persons under section 13(3) in the form of excessive payment of rent for school building and computer hire rent.

The Tribunal observed that the assessee had submitted following factual data to justify reasonableness:

(i) The school rent was less than the fair market rent paid by governmental/commercial organizations in the area;

(ii) Computer rent included not only renting of computers but also services of qualified teachers and maintenance of the computers;

(iii) The computer rent per student was less than charges approved by the State Government and other entities.

Hence, the denial of exemption was not justified.

[DCIT (E) v. Gyanganga Education Society, 2022 (9) TMI 401 - ITAT RAJKOT]

Charities Taxation update No. 40 / 2022-23 Date: 25/11/2022

Section 11(1)(a): Onus to prove undisclosed income is on the tax department

The assessee was a registered trust engaged in providing free medicines, organising medical camps for poor, operating hospitals, giving medical aid/treatment to the needy etc. It had discarded and disposed off old and worn out machines based on a report submitted by its resident doctor. The AO disallowed expenses incurred for supplying free medicines on the basis of statements recorded under section 131 without giving an opportunity of cross examination to the assessee. Further, he opined that assets could not be discarded by simply deducting the value from assets. According to the AO, the value of such assets had to be considered as income of the assessee for the reason that the assessee had fully claimed the value of assets as deduction at the time of purchase and he accordingly added this amount to the income of the assessee.

The Tribunal observed as follows:

(a) addition as undisclosed income could not be made unless cogent material/evidence was brought on record to show that the asset had been sold for a price higher        than what was claimed by the assessee

(b)  the tax authorities could not add act on surmises and conjectures without any concrete basis

(c)  Any amount could not be disallowed on the basis of statements under section 131(6) if

(i)      the assessee was not allowed cross examination;

(ii)     there was conflict in two statements by the same individual and the first statement was recorded under pressure

Hence, it held that the addition to the income of the assessee was not justified.

[Anandalok v. ACIT (E ), 2022 (10) TMI 980 - ITAT KOLKATA]

Charities Taxation Update No. 39 / 2022-23    Date: 18/11/2022

Section 115BBC: Inapplicable when donors’ identity is disclosed

The assessee had received donations from various donors. It filed its return of income declaring nil income. The CIT(A) disallowed part of the donations on the basis of an adverse statement by one of the donors denying that any donation had been given to the assessee. He proceeded to tax the same under section 115BBC read with section 68 on account of non-genuineness and credit worthiness of the donors.

The Tribunal observed as follows:

(i) The conditions and prerequisite under section 68 and 115BBC are different. Under section 68, the assessee has to prove the identity, genuineness and creditworthiness of the person from whom the monies had been received whereas under section 115BBC, the donation could be treated as anonymous only when the assessee has not maintained a record of identity of the donor indicating name and address.

(ii) The assessee has maintained and furnished the details of the names and addresses of the donors and it has not been proved that the donors had not donated to the assessee

(iii) The onus to enquire and ascertain genuineness of donations and documentary evidence is on the revenue and not the assessee.

Hence, the donations could not be treated as anonymous donations under section 115BBC.

[Gian Sagar Educational & Charitable Trust, TS-833-ITAT-2022(DEL)]

Charities Taxation Update No. 39 / 2022-23   Date: 18/11/2022

Section 11(1)(a) r.w 11(1)(c): Provision applies only if application is out of income

If a grant which is not treated as income is utilised outside India in terms of the grant, there is no question of disallowing the amount of utilisation as application outside India.

[ITO(E) v. Sports Goods Export Promotion Council, 2022 (10) TMI 167 - ITAT Delhi]

Charities Taxation Update No. 39 / 2022-23 Date: 18/11/2022

Section 11(1)(a): Provision for gratuity is application of income (upto assessment year 2021-22)

The assessee was a registered trust and filed its return of income declaring nil income. The AO disallowed the amount of provision for gratuity as it was only a provision and not income actually spent. He opined that provision for gratuity could not be treated as application of income.

The Tribunal observed that the assessee followed mercantile system of accounting and had consistently made the provision for gratuity after complying with required statutory provisions. The assessee was also regular in payment of gratuity to its employees in the year of retirement. It was held that ‘applied’ did not mean ‘spent’ and provision of gratuity was to be allowed as application of income.

[The Hunger Project v. ITO, 2022-TIOL-1153-ITAT-MUM]

Charities Taxation Update No. 38 / 2022-23  Date: 11/11/2022

Section 12A- Cancellation of registration

The assessee was engaged in field of education, relief to poor and other general public charitable objects. On scrutiny, DIT observed that the assessee in collusion with its sister concerns, had hatched a web of bank transactions in order to defraud revenue and to enrich its sister concerns by giving them receipts for bogus earthquake relief donations which had entitled them to claim exemption from their taxable income. On these grounds, the DIT withdrew registration granted to assessee under section 12A. Tribunal did not confirm the order of the DIT but observed that such order was passed solely on basis of activities carried on by assessee during previous year and suggested that the DIT ought to have looked into affairs of the Trust for subsequent year also and without doing so he could not have withdrawn registration.

The High Court held that there was no relevance of events which might have taken place in later year and accordingly restored order of the DIT holding that registration granted to assessee was rightly cancelled since it was not carrying on any charitable activity and was involved in misutilization of bank account.

[SLP filed against said impugned order dismissed in K. Varma Charitable Trust v. DIT(E), (2022) 139 taxmann.com 17 (SC); Review Petition filed against the SC order dismissed- (2022) 139 taxmann.com 18 (SC)]]

Charities Taxation Update No. 38 / 2022-23  Date: 11/11/2022

Section 12A- Receipt of grant from multiple sources or foreign cannot be a ground for denial of registration

The CIT(E) had rejected application for grant of registration on the following grounds:

(i) The assessee received most of its funds from a USA based entity

(ii) The office of the assessee was located in the premises of a sister concern which was a medical college. The assessee had not produced any documentary evidence to prove that it had the permission to use the premises.

(iii) The medical college was paying the salary of the office bearer of the assessee

(iv)Multiple grants from various entities had been received by the assessee which indicated that the assessee was involved in execution of work contracts.

The Tribunal held that the grounds on which registration was denied were irrelevant factors for grant of registration. The CIT(E) had not contested the genuineness of activities or objects of the assessee and hence, the denial of registration was not justified.

[Share India v. CIT, (2022) 140 taxmann.com 8 (Hyderabad - Trib.)]

Charities Taxation Update No. 38 / 2022-23 Date: 11/11/2022

Section 11(1)(a): 15% basic accumulation is to be computed on gross receipts

The assessee had taken 15% basic accumulation on gross receipts. The tax authorities disallowed the same and opined that the 15% basic accumulation was to be computed on the net surplus. The Tribunal held that the provisions of section 11(1)(a) allowed for 15% accumulation on gross receipts and not the net surplus.

Section 11(1)(d): Development fees received from students is a corpus donation
The assessee ran multiple educational institutions in the field of medicine, engineering, law etc. It collected ‘development’ fees for the purposes of capital expenditure. The assessee treated these fees as a capital receipt and added to the corpus. The tax authorities opined that the development fees were not voluntary in nature but compulsory and the specific direction mandated by section 11(1)(d) was absent. Hence, development fees had to be treated as income.

The Tribunal observed as follows:
(i) Income ordinarily excludes capital receipts
(ii) In the absence of a specific direction, the specific direction could be gathered from the accounting followed by the assessee
(iii) The assessee had taken the development fee to its corpus as a capital receipt and had also invested the same in fixed assets.

Hence, it was held that the development fees were a capital receipt exempt under section 11(1)(d).

[Maharishi Markandeshwar Trust v. ACIT, 2022-TIOL-912-ITAT-DEL]

Charities Taxation Update No. 37 / 2022-23      Date: 04/11/2022

Section 10(23C)(vi): Exemption cannot be denied because of change in name

The assessee was autonomous institution of Ministry of Road Transport and Highway, Government of India and exempt under section 10(23C)(vi). It filed an application with CIT(E) for change in name under section 10(23C)(vi) which was rejected by CIT(E). He opined that the change in name was sue to change in objects and since the assessee collected fees for training it was involved in ‘commercial activities’.

The Tribunal held that exemption could not be denied on the following grounds:

(i) The assessee was an autonomous institution of the government and the initial funding was from the government. Even the land for building had been purchased in name of President of India. There could not be a more sacrosanct charitable purpose of an institution than that of the assessee which was to give formal training to professionals such as highway engineers, who otherwise would not have any training or continued learning, from ordinary academic institutions or Universities.

(ii) Mere collection of fees for conducting seminars did not amount to ‘commercial activities’

(iii) Even if the name had been changed due to broadening of objectives, it was not a change in nature of objectives or its functionality and it continued to be an institution to give technical training and necessary professional grounding in the field of highway engineers including bridges, to ensure an efficient, safe, reliable and economic highway system as an integral part of nation's economy.

[Indian Academy of Highway Engineers v. CIT(E), 2022-TIOL-899-ITAT-DEL]

Charities Taxation Update No. 37 / 2022-23      Date: 04/11/2022

Section 2(24)(iia) and Section 32:

1. Section 2(24)(iia): Corpus donations cannot be treated as income

The assessee was registered under Societies Registration Act but not under section 12A. It had received corpus donations which were treated as income by CIT(A) since the assessee did have a 12A registration.

The Tribunal observed that tax authorities had not disputed the nature of the contributions but denied exemption only because the assessee did not have 12A registration. It held that the assessee was registered under Societies registration Act and hence, voluntary contributions towards corpus could not be treated as ‘income of the assessee’.

2. Section 32: Depreciation to be allowed at the rates under section 32

Depreciation had also been denied by CIT(A) on the basis that the assessee was not entitled to benefit under section 32.

The Tribunal held that since the asset had not been claimed as deduction or exemption in the same year or any previous year, depreciation under section 32 had to be allowed.

[Sri Satya Sai Educational and Service Society v. ITO, (2022) 8 TMI 1034 – ITAT Visakhapatnam]

Charities Taxation Update No. 37 / 2022-23      Date: 04/11/2022

Section 2(24)(iia) r.w section 11(1)(d): Corpus donations are income for trust/institution not registered under section 12A

The assessee was running a school but did not have 12A registration. It claimed exemption on corpus donations received towards building fund on the basis that corpus donations were capital receipts and exempt under section 11(1)(d). The CIT(A) disallowed since the assessee was not registered under section 12A and hence, income would include voluntary donations under section 2(24)(iia).

The Tribunal observed that section 11(1)(d) could only apply to a charitable/institution only where registration under section 12A had been granted. The law did not provide for exemption to corpus donation in the absence of registration. Hence, the donation received by the assessee was ‘income’ under section 2(24)(iia) and denial of exemption was justified.

[Gurukul v. ITO (E), (2022) 140 taxmann.com 309 (Patna – Trib.)]

Charities Taxation Update No. 36 / 2022-23  Date:  02/11/2022

Circular 22/2022: Condonation of delay in filing Form No. 10A

The application under Section 10(23C), 12AB, 35(1) and 80G(5) of the Act in Form No. 10A, for registration/ provisional registration/ intimation/ approval/ provisional approval of Trusts/ Institutions/ Research Associations etc., was required to be made on or before 31^st March 2022.

The CBDT has extended the timeline for such registration upto 25^th November 2022. Hence, application in Form No. 10A can be made on or before 25.11.2022.

Click here to access the circular.

[CBDT Circular no. 22/2022 dated 1^st November 2022]

Charities Taxation update No. 35 / 2022-23     Date: 31/10/2022

Section 12AA: Registration cannot be cancelled retrospectively

The assessee was a registered trust and had also been granted approval under section 80G(5). A search and seizure action was carried out where the PCIT found that the activities of the assessee were not genuine and were not carried out as per the objects. It had also ceased activities. Hence, the registration of the assessee was cancelled with retrospective effect.

The Tribunal held as follows:

(i) the activities had to be carried out in accordance with the objects;

(ii) when the assessee has sold all its educational institutions it would amount to cessation of the charitable activities of the assessee trust and once the charitable activity of the assessee had ceased to exist, the same would fall in the category that the activities are not being carried out in accordance with the objects of the trust

(iii) hence, the registration of the assessee was liable to cancellation.

(iv) however, the cancellation of registration under section 12A and withdrawal of approval under section 80G could not be retrospective but only prospective, with effect from the financial year in which the activity ceased to exist.

[Jeevan Jyoti Charitable Trust v. Pr. CIT, 2022 (8) TMI 727 - ITAT Allahabad]

Charities Taxation update No. 35 / 2022-23    Date: 31/10/2022

Section 12AA- Irrelevant factors for grant of registration

The assessee was denied registration on the ground that it was formed to comply with CSR requirements and discharge CSR liability of parent company. The Tribunal observed that the charitable objects or genuineness of activities was not disputed by the tax authorities. Further, in case of conflicting judgements between two tribunals, the decision of the jurisdictional tribunal had to be followed and hence, registration could not be denied.

[KDDL Ethos Foundation v. CIT(E), 2022-TIOL-424-ITAT-CHD]

Charities Taxation update No. 35 / 2022-23    Date: 31/10/2022

Section 11(1)(a): Consistency is to be followed by tax authorities

The assessee in receipt of government grants, claimed 15% basic accumulation under section 11(1)(a) and submitted a return of income showing nil income. PCIT opined that government grants could neither be treated as income under section 11(1)(a) nor as corpus under section 11(1)(d) and proceeded to tax 15% of the receipt.

The Tribunal observed that the assessee was in receipt of government grants in the earlier as well as subsequent years and no additions were made by tax authorities in those years. Hence, it held that the denial of exemption was not justified and tax authorities were bound to follow principle of consistency as there was no change in facts from earlier or subsequent years.

[Gujarat State Lion Conservation Society v. CIT, (2022) 141 taxmann.com 269 (Rajkot- Trib)]

Charities taxation Update No. 34 / 2022-23 Date: 21/10/2022

Section 12AA: Time limit for passing registration order

The assessee had applied for registration under section 12AA and 80G which was rejected by the CIT. On appeal to the Tribunal, the matter was remanded to the CIT for re-consideration. The CIT rejected the application again but with more detailed reasons keeping in mind the judgement of the Tribunal. The assessee filed an appeal again on the subsequent rejection where the Tribunal held that period of six months had lapsed from the date of the initial application and hence the assessee was eligible for exemption under section 12AA and 80G.

The High Court observed that the Tribunal was incorrect. It held that if the application was rejected within the period of six months envisaged in section 12A(2) and if in appeal thereafter and in pursuance to the orders passed in such an appeal, any decision was to be taken afresh, then there was no question of such subsequent decision being hit on account of expiry of period of six months referred in section 12AA. This is because the said period as was evident from the language used therein was to be calculated from the end of the month in which the 'application was received' which is indicative of the fact that legislature intended that the decision had to be taken before expiry of six months from the end of the month in which the application mentioned therein was received.

[CIT v. Raghuraji Devi Foundation Trust, 2022 (9) TMI 40 - ALLAHABAD (HC)]

Charities taxation Update No. 34 / 2022-23 Date: 21/10/2022

Section 10(23C)(v): Denial of exemption

The assessee was a registered Trust and claimed exemption under section 10(23C)(v). The AO denied the same on the ground that the assessee generated surplus of funds of 41% of gross receipts which indicated that the funds were not utilized for the object for which the assessee trust was formed. Further, AO opined that the assessee had not submitted its audit report within due date.

The Tribunal observed as follows:

(i) Exemption could not be denied merely on the basis of bald observation made by the AO that the funds of the trust were not properly utilized, managed and supervised when no material was brought on record in support of the above allegation

(ii) Registration under section 12AA was not necessary for claiming exemption 10(23C)(v)

(iii) The funds of the trust were managed by the member of the trustees headed by the District Collector and hence no mala fide could be attributable to Government authorities in the absence of any evidence.

(iv) Filing of audit report in the prescribed form before completion of the assessment proceedings would constitute a sufficient compliance for grant of exemption.

It held that the denial of exemption was not justified and the AO was incorrect to jump to the conclusion that the assessee trust was not religious and charitable trust merely because it generated surplus income.

[ACIT v. Nanded Sikhgurudwara Sachkhand Hazur Apchalnagar Sahib, (2022)141 taxmann.com 427 (Pune - Trib.)]

Charities taxation Update No. 34 / 2022-23 Date: 21/10/2022

Section 13(2)(g): Denial of exemption- Already checked

The assessee was a registered trust and claimed exemption under section 11. The AO opined that 75% of the total purchases of the trust were made from interested party under section 13(3) at unreasonable rates. Hence, section 13(2)(g) was attracted and disallowed the exemption under section 11.

The High Court made the following observations:

• Mere transaction of sale and purchase between two related persons is not covered under ‘diversion’ of income in the context of section 13(2)(g)
• If the rate paid to a related party is the same as was paid to an unrelated party, then the transaction is on an arm’s length basis
• Diversion of income would arise when a transaction is not at arm’s length and the sale/purchase price is artificially inflated so as to cause undue advantage to the interested party
• In order to establish diversion of income, the AO has to bring material on record and mention valid reasons for invoking section 13(2).

It upheld the decision of the Tribunal that the denial of exemption by the AO was not justified.

[CIT(E) v. Shri Ramdoot Prasad Sewa Samiti Trust, (2022) 140 taxmann.com 451 (Rajasthan)]

Charities taxation Update No. 33 / 2022-23  Date: 14/10/2022

Section 13(1)(d): Entire unapplied income including the basic exempt income of 15% has to be invested in the manner prescribed in section 11(5)

The assessee was a registered society established to promote the game of golf in India. It had applied 85% of its income towards its objects and claimed exemption under section 11. The AO denied it since the assessee had invested its income in shares of company which was not specified under section 11(5). The assessee contended that the provisions of section 11(5) read with section 13(1)(d) were attracted only where application of income was less than 85% and since it had applied 85%, it could use the balance 15% for investment in modes not specified under section 11(5)

The Tribunal observed that section 11(5) applied even where 85% of income had been applied for charitable purposes and all investments had to be made in the modes specified in that section. Hence, section 13(1)(d) was attracted and the denial of exemption under section 11 was justified.

[Indian Golf Union v. ITO (E), (2022) 141 taxmann.com 187 (Delhi - Trib.)]

Charities taxation Update No. 33 / 2022-23      Date: 14/10/2022

Condonation of delay:

The assessee claimed that it was given wrong advice in choosing the forum under law to contest the assessment order. The Tribunal observed that

1. in case of society or other incorporated entities, a decision to contest any order of authorities, has to be examined and decision to contest has taken following a procedure.
2. the stringent laws of limitation require liberal interpretation.
3. the ends of the justice require condonation of delay and giving an opportunity to contest the assessment on merits.

[SPS Educational And Welfare Society v. DCIT-CPC, 2022 (9) TMI 87 - ITAT Delhi]

Charities taxation Update No. 33 / 2022-23      Date: 14/10/2022

Section 10(23C)(vi): Meaning of ‘existing’

The assessee was engaged in running educational institutions and applied for approval under section 10(23C)(vi) which was rejected by the CIT(E) on the following grounds:

1. The objects of the assessee included non-educational objects
2. The trust deed empowered the Trustees to apply ‘any or whole’ of the income to ‘any one or more objects’ of the trustee

Hence, he opined that the assessee was not ‘existing solely for educational purposes and not for the purposes of profit’ as required by section 10(23C)(vi).

The Tribunal observed that the term ‘exist’ meant ‘to be in presence; force, activity, or effect at a given time’.  Further, it was apparent from record that the assessee had not carried out any activity other than education and all income was applied for furtherance of education. Hence, it was held that the mere existence of non-educational objects in the deed of declaration despite undisputed factum that no income was applied on those objects would not render the assessee ineligible for exemption under section 10(23C)(vi).

Corporate Social Responsibility Update No. 03 / 2022-23 (Date: 10/10/2022)

CSR Rules, 2014 amended by CSR Amendment Rules 2022 with effect 20^th September 2022

MCA has notified Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 with effect from 20^th September 2022 [Notification no. G.S.R. 715(E) dated 20^th September 2022]

The amendments are as follows:

1 . A company having any amount in its Unspent Corporate Social Responsibility Account as per section 135(6) shall constitute a CSR Committee and comply with the provisions contained sections 135(2) to 135(6) [second proviso to rule 3(1)]

2. Rule 3(2) reproduced below is omitted:

    (2) Every company which ceases to be a company covered under sub-section (1) of section 135 of the Act for three consecutive financial years shall not be  required to—

              (a) constitute a CSR Committee; and

             (b) comply with the provisions contained in sub-sections (2) to (6) of the said section, till such time it meets the criteria specified in sub-section (1) of   section  135.

3. Rule 4 has been amended to apply to entities registered under section 10(23C)(iv)/(v)/(vi)/(via).

4. The revised limit for impact assessment undertaken by a company shall be higher of the following:

(i) two per cent of the total CSR expenditure for that financial year or

(ii) fifty lakh rupees

5. The Directors are required to disclose the information given in Annexure II (format for the annual report on CSR activities). Certain changes have also been made in Annexure II.

Click here to access the notification.

Charities Taxation Update No. 32 / 2022-23    Date: 7/10/2022

Section 143(3): Scrutiny assessment

In a scrutiny assessment, it is for the petitioner to file all the required documents before the ACIT, in time, and the ACIT is required to consider the same and pass appropriate orders. The petitioner cannot wait for the ACIT to issue a Draft Assessment Order and the Show Cause Notice.

[Dr. D. John Ponnudurai Educational Trust v. ACIT, 2022 (9) TMI 520 – Madras High Court]

Charities Taxation Update No. 32 / 2022-23 Date: 7/10/2022

Section 2(15), section 11 and section 13(1)(c)

The assessee trust was established for the purposes of education and ran various colleges. The AO denied exemption under section 11 on the following grounds:

a) The assessee was collecting fees over and above what was prescribed by the government and hence, it was involved in making profits with no element of charity

b) The assessee had given donations to other charitable institutions which in which the Managing Trustees held controlling interest without necessary       documentation

c) Further, the assessee had advanced loans to an interested party and violated section 13(1)(c) in violation of 13(1)(c)

d) Failure to produce documentary evidence on application of income on objects of the trust

The Tribunal made the following observations:

a) It is the duty of the assessee to show by plausible explanation and sustainable evidence on record that the surplus has been utilised or ploughed back for educational purposes within the scope of its charitable objects.

b) The burden is on the assessee to produce necessary documents to prove that the expenditure incurred was for the purpose of carrying out its objectives.

The assessee may have to produce

1. document/copies of the trust deeds of donee to establish that they were having similar charitable objects and the purpose of donation was to utilise or use the sum for charitable purpose within the objects of the assessee
2. any details or documents for utilisation of money by the donee to substantiate the explanation of the assessee.

c) Loan advanced to managing trustee and his company where ostensibly the accounts showed charging of interest but in fact there was no evidence establishing that the interest was paid by the managing trustee on the loans given by the trust and merely any accounting entry not substantiated was not by actual payment of interest.

Hence, it was held that the denial of exemption was justified.

[Nabadigant Educational Trust v. ITO, ITA No. 03/CTK/2015 & ITA No. 137/CTK/2016]

Charities Taxation Update No. 31 / 2022-23 Date: 30/09/2022

Section 13(1)(b)

1. Denial of exemption if income applied for benefit of particular caste

The AO denied exemption to the assessee under section 11 on account of section 13(1)(b) and opined that it was created for the benefit of only particular caste. The assessee submitted that it was a composite trust having objects to benefit the general public as well as a particular caste.

The Tribunal observed that two of the objects of the assessee were for the exclusive benefit of a particular community and hence, section 13(1)(b) would be applicable.

Hence, it directed the AO to deny exemption only on that part of income which was applied for the benefit of the particular community and allow exemption on the balance.

2. Meaning of ‘caste’

Caste is a division of society based on occupation, wealth etc, with each such strata having its well defined customs and rituals and practicing endogamy, which is prohibiting interaction with other castes. It is thus a rigid stratification of society

3. Meaning of ‘religious community’

The word religious community implies a community which owes its origins to a religion; it is a community /group of people who practice the same religion.

[Shree Maliya Kadva Patel v. ITO, 2022-TIOL-996-ITAT-RAJKOT]

Charities Taxation Update No. 31 / 2022-23 Date: 30/09/2022

Section 12AA-Cancellation of Registration

The assessee society was registered under section 12A. A survey was conducted on another organisation which was engaged in money laundering activities and it was found that it had given donations to the assessee. Further, a statement by the director of that organisation was recorded stating that the assessee was engaged in money laundering activities and was a bogus trust. Accordingly, CIT(E) cancelled the registration of the assessee.

The High Court observed as follows:

(i) Assessee had categorically stated that the donation was received in cheque and duly accounted it in the books;

(ii) It had been applied for charitable purposes;

(iii) The CIT(E) had not brought any evidence to show that activities of the trust were not genuine or not in accordance with the objects;

(iv) No opportunity of cross examination was accorded to the assessee

Hence, it was held cancellation of registration by CIT(E) solely for the reason that assessee received donation from an organisation engaged in money laundering was not justified.

[CIT(E) v. Sanskriti Sagar, (2022) 140 taxmann.com 233 (Calcutta)]

Charities Taxation Update No. 31 / 2022-23 Date: 30/09/2022

Section 11: Payments not allowed as application of income

In financial year 2015-16, the assessee had paid advances against supply of materials in the subsequent financial year. The invoices were received in the financial year 2016-17 and were also accounted and paid in the said financial year. The assessee had also failed to upload Form-10 within the due date prescribed under section 11(2) read with section 139(1). The assessee could not produce any documentary evidences for non-claiming of the same expenditure in the assessment year 2017-18.

In view of the above, the Tribunal held that since the assessee had neither expended the money during the relevant assessment year nor filed Form-10 within the due date prescribed under section 139(1), the exemption claimed by the assessee was not valid.

[Association Of Relief Volunteers v. ITO(E), 2022 (9) TMI 583 - ITAT Visakhapatnam]

FCRAR Update No. 05 / 2022-23 (Date: 26/09/2022)

Extension of FCRA registration

In continuation of the Public Notice dated 22^nd June 2022, the Ministry of Home Affairs (‘MHA’) has once again extended the validity of FCRA registration certificates of:

(i) entities whose validity was extended till 30^th September 2022 or whose renewal application is pending;

(ii) entities whose five-year validity period will expire within the period 1^st October 2022 to 31^st March 2023 and they have applied for the renewal before the expiry of five years

The validity of registration of entities falling in either of the above cases is extended up to 31^st March 2023 or till the date of disposal of the renewal application, whichever is earlier.

As a natural corollary, such entities will be allowed to receive and utilise the foreign contribution up to 31^st March 2023 or till the date of disposal of the renewal application, whichever is earlier.

However, if the application for renewal of registration certificate is rejected, the validity of the certificate shall be deemed to have expired on the date of refusal of the application and the association will not be able to receive or utilise foreign contribution, thereafter.

[Please click here to access copy of the Public Notice dated 23^rd September 2022]

Charities Update No. 30 / 2022-23        Date: 23/09/2022

Proviso to section 12A(2): Benefit of proviso available even if registration certificate is misplaced

The assessee had obtained registration but was unable to produce the registration certificate. It showed circumstantial evidence to suggest that it was having the registration and that it had made sufficient effort to find out the certificate and had also availed of fresh registration which was granted without any adverse observations on the activities of the trust. The assessee claimed that once the registration had been granted and there was no contrary finding on record about the rejection of the trust registration, the benefit of section 11 and 12 was available in respect of income of the trust in any assessment proceeding for an earlier assessment year which was pending before the AO.

The Tribunal held that the denial of benefit under section 11 by the AO for preceding years merely on account non production of registration certificate was incorrect.

[Janjati Mahila Vikas Sansthan v. ITO, 2022 (6) TMI 1112 – ITAT JAIPUR]

Charities Update No. 30 / 2022-23        Date: 23/09/2022

Section 12A: Irrelevant factors for grant of registration

The assessee was a society having charitable and religious objects and applied for registration under section 12A. The CIT(E) rejected the application on the following grounds:

(i) it had made wrong claims under section 10(23)(BBA) and section 10(23C)(v) in the return of income filed;

(ii) it had received corpus donation even before registration under section 12AA

(iii) the donations that were received were utilized for day to day affairs and for making donations to other societies

The Tribunal observed that

(i) At the time of grant of registration, the CIT(E) was required to examine only the objects and activities of the assessee

(i) the objects of the society were of charitable and religious nature and there was no adverse finding regarding the nature of the objects of the society

(ii) There was also no doubt about the genuineness of activities of the assessee

Hence, the rejection of registration by CIT(E) was not justified.

[Sanatan Dharam Sabha v. CIT(E), ITA No. 2468,2469/Del/2017]

Charities Update No. 30 / 2022-23        Date: 23/09/2022

Proviso to section 2(15) and Section 11:

1. Proviso to section 2(15):

The assessee was a trade association registered under section 12A with the objects of promoting gem and jewellery trade. Exemption under section 11 was denied by the AO on the ground that the activities were commercial in nature and attracted provisions of section 2(15) read with section 13(8).

The Tribunal observed that the

(i) the activities of the assessee fell under advancement of general public utility and the activities were not in nature of trade, commerce or business and

(ii) were undertaken in the course of actual carrying out of objects of the assessee.

2. Section 11: Corpus Donations:

The assessee society collected entrance fees and life membership fees as part of its corpus fund.

The Tribunal observed that the rules and regulations of the society indicated that entrance fees and life membership fees were a part of corpus fund. Hence, it held that the fees were a capital receipt in totality and no revenue element was involved.

3. Section 11: Application of income

If exemption under section 11 is allowed, the issue of disallowance on account of late deposit of PF is academic.

[The Jewellers Association v. ACIT, 2022 (8) TMI 126 - ITAT JAIPUR]

Charities Taxation Update No. 29 / 2022-23 Date: 16/09/2022

Section 13(1)(c) r.w section 13(3)(b):

The assessee was a charitable trust registered under section 12A and its main objective was to provide medical relief and facilities by running a hospital. The assessee constructed building on its own property and gave it to another registered charitable hospital. The hospital agreed to arrange all the team of doctors, physicians, medical equipment, furniture and fixtures etc.

The two charitable institutions thought it advisable to achieve their common objective of providing the medical facility/relief and the assessee decided to allow the hospital to use its building for running and managing such hospital.

The AO observed that the hospital had made significant contribution towards corpus of the assessee and denied exemption under section 11 for contravention of provision under section 13(1)(c) read with section 13(3)(b).

The Tribunal upheld the order of the AO and observed that

• Corpus donations are income under section 2(24)(iia)
• The hospital had made substantial contribution to the assessee and hence it was an ‘interested party’ under section 13(3).
• The assessee had given a benefit to the hospital since it was not charging any rent from the hospital on the building and hence it contravened the provisions of section 13(1)(c)

It held the AO was justified in denying exemption to the assessee under section 11.

[Dwarka Charitable Trust v. ITO, 2022-TIOL-805-ITAT-PUNE]

Charities Taxation Update No. 29 / 2022-23 Date: 16/09/2022

Section 12AA- Cancellation of registration

The assessee had been carrying on charitable activities by running, schools, engineering colleges and medical colleges. Evidence against the assessee was collected during search. However, the Tribunal had restored to the PCIT the cancellation order passed by PCIT after the said search. The PCIT considered the seized material collected pursuant to a subsequent search and cancelled the registration

The Tribunal observed that

• The second search was a different proceeding and its materials could not be imported for cancellation of registration granted under section 12A, when the issue was merely restored to the PCIT by order of the Tribunal;
• The PCIT was not expected to place reliance on material gathered in second search and he could not consider it so as to cancel registration

Accordingly, the Tribunal restored the registration granted to the assessee.

The order of the Tribunal allowing the appeal of the assessee was not accepted by the Revenue authorities and the appeal against the same was filed before Karnataka High Court. It was held that

(a) The pendency of appeal before High Court was not a reason to cancel the registration under section 12A

(b) The Tribunal was the higher forum, which had considered the entire issue and deleted various additions and decided issue in favour of assessee.

(c) The PCIT was not to sit in judgement over the order of Tribunal.

(d) The PCIT, being lower in hierarchy, was bound to follow the order of the Tribunal unless the order of the Tribunal had been reversed by due process of law

[Devaraj Urs Educational Trust For Backward Classes v. PCIT, 2022 (7) TMI 1043 - ITAT Bangalore]

Charities Taxation Update No. 29 / 2022-23 Date: 16/09/2022

Section 2(15): Hostel facilities provided to students and staff is covered under ‘education’

The assessee ran various medical colleges and charitable hostels and claimed exemption under section 11. The AO held that income from hostel cannot be treated as a charitable activity since it was not necessary for the functionality of the educational institutions and proceeded to deny exemption on that amount.

The High Court observed that in the absence of any evidence to show that the hostel facilities were provided to anybody other than students and staff, the hostel facilities shall be construed to be an integral part of the educational activities and cannot be considered different from activities of the assessee undertaken for ‘education’. Hence, the denial of exemption by the AO and the CIT(A) was not justified.

[CIT v. Durga Charitable Society, 2022 (7) TMI 801 – Allahabad High Court affirming Durga Charitable Society v. JCIT, 2021 (7) TMI 905 – ITAT Delhi]

Charities Taxation update No. 28 / 2022-23 Date: 09/09/2022

Section 11(1)(a): Expenses incurred outside India is not ‘application of income’

The assessee was registered under section 12A and claimed expenses incurred on foreign travel such as boarding, lodging and transport as application of income. The AO and CIT(A) disallowed the same on lack of evidence to substantiate the claim. The assessee contended that language of section 11(1)(a) allows application of income for charitable purposes outside India as long as the charitable purpose is confined to India.

The Tribunal upheld the order of CIT(A) that section 11(1)(a) requires that application of income must be made for charitable purposes in India and hence, expenditure incurred outside India could not be considered as application of income.

[Church’s Auxiliary For Social Action v. ACIT, (E), 2022 (7) TMI 1215 - ITAT DELHI]

Charities Taxation update No. 28 / 2022-23 Date: 09/09/2022

Section 11(1): Grant cannot be regarded as income

The assessee was created under Himachal Pradesh Nursing Registration Council Act, 1977 and received a one time grant from the Government with specific purpose of upgradation/strengthening of nursing service in assessment year 2010-11. The grant was to be deposited in a separate bank account and the interest earned thereon was also liable to be accounted for and utilized for the same scheme/purpose. The assessee filed a nil return of income after claiming exemption under section 11. The AO treated the unspent amount of grant as income. He further opined that the assessee got registration under section 12AA from assessment year 2011-12 and the grant received was a revenue receipt. Hence, it was chargeable to tax as income.

The High Court observed that the subsidy was a one-time assistance and had to be utilised in a specific manner. It nowhere suggested profit generation or revenue and hence, was a capital receipt. Alternatively, the amendment to include government grant as income under section 2(24) was made effective from 1.4.2016 and did not have a retrospective application. This clearly showed that prior to 2016, legislative intent was that government grant was not income. Hence, the amount received by the assessee by way of grant could not be termed to be revenue receipt and was not chargeable as ‘income’ of the assessee.

[H.P. Nursing Registration Council v. PCIT, (2022) 140 taxmann.com 595 (HP)]

Charities Taxation update No. 28 / 2022-23   Date: 09/09/2022

Section 10(23C)(iiiab)- Activities of an institute should be examined do determine if it exists ‘solely’ for educational purposes

The assessee was engaged in carrying out educational activities through various institutions. It sought exemption under section 10(23C)(vi). CIT(E) denied exemption on the ground that the objects clause contained other non-educational objects in the trust deed and hence, it was not existing ‘solely’ for educational purposes.

The Tribunal observed that the assessee had been engaging solely in educational activities and nothing was brought on record to show that it had undertaken non-educational activities. There was no dispute about the genuineness of activities undertaken by the assessee. Hence, merely because the objects clause contained non-educational objects, the denial of exemption was not justified.

[Shree Sanskar Tirth Educational and Charitable Trust v. CIT (E), (2022) 139 taxmann.com 578 (Rajkot – Trib.)]

Charities Taxation Update No. 27 / 2022-23  Date: 02/09/2022

Proviso to section 12A(2): Applicability of exemption under section 11 to preceding years

The assessee did not have registration under section 12A for assessment year 2016-17. However, the proceedings for the same were pending before CIT(A). The registration was granted subsequently in assessment year 2021-22. The assessee claimed exemption under section 11 in respect of assessment year 2016-17 as per the proviso to section 12A(2) which allowed exemption in respect of year prior to registration if assessment proceedings were pending for that year. The AO and CIT(A) rejected the claim since the assessee was not registered in the relevant assessment year 2016-17.

The Tribunal observed that proceedings before CIT(A) can be termed as ‘pending assessment proceedings’ as per the proviso to section 12A(2). Hence, the assessee was eligible to claim benefit of exemption under section 11 in respect of income derived in assessment year 2016-17.

[Shree Khathu Shyam Jangid Brahman Dharamshala v. ITO, 2022-TIOL-876-ITAT-DEL]

Charities Taxation Update No. 27 / 2022-23   Date: 02/09/2022

Section 12A: Matters to be examined before grant of registration

Where the Tribunal did not properly examine activities carried on by the assessee or utilization of surplus funds received by it, and opined that the purpose of assessee was education, merely in light of documents furnished by assessee and by merely referring to objects of assessee , and, thus, it was eligible to registration under section 12AA, such order of Tribunal without proper verification was to be set aside and matter was to be remanded for fresh consideration.

[CIT v. Shri Venkatachalapathy Education and Charitable Trust, (2022) 139 taxmann.com 545 (Madras)]

Charities Taxation Update No. 27 / 2022-23    Date: 02/09/2022

Section 2(15) and Proviso to section 2(15)

The assessee ran a charitable hospital and its income consisted of receipts from diagnostic tests, sale of medicines, room rent, donations etc. It filed a nil return of income for the assessment year 2012-13 after claiming the benefit of exemption under section 11. The case was selected for scrutiny and the benefit under section 11 was disallowed by the AO since the assessee did not produce books of accounts. He also opined that the assessee was also hit by the proviso to section 2(15) since it was focussed on earning profits and not charitable in nature.

The Tribunal upheld the CIT(A)’s decision and made the following observations:

(i) It was not under dispute that the assessee was running a hospital and the activities of the assessee fell under the limb of ‘medical relief’

(ii) The proviso to section 2(15) did not apply to medical relief. No finding was brought on record by the AO to show that the assessee fell under advancement of general public utility and not medical relief

(iii) The fact of making profit in 7 out of 9 assessment years was not a conclusive contention for treating the trust as non-charitable and commercial entity

(iv) Consistency should be observed by the AO if there no change in objects or facts.

Thus, it held that the denial of exemption by the AO was not justified.

[ITO v. Sondhi Charitable Hospital Society, 2022-TIOL-777-ITAT-DEL]

Charities Taxation Update No. 26 / 2022-23   Date: 26/08/2022

Section 271(1)(c)- Knowingly furnishing inaccurate particulars would amount to concealment of income liable to penalty

The registration of the assessee under section 12A had been cancelled. However, the successive returns filed by the assessee under section 139 claimed exemption as a registered charitable instution. Since the assessee was well aware of fact that this would amount to filing of inaccurate particulars in returns, the tax department was justified in issuing notice under section 274 and penalty under section 271(1)(c).

[Aurolab Trust v. National Faceless Assessment Centre, Delhi ACIT/JCIT/DCIT/ACIT, (2022) 140 taxmann.com 424 (Mad)]

Charities Taxation Update No. 26 / 2022-23  Date: 26/08/2022

Section 11: Irrelevant factors for grant of exemption under section 11

The assessee was registered under section 12A and under the Bombay Charitable Trust Act, 1950.  CIT(A) denied exemption under section 11 due to a search conducted on the premises of the author of the trust and opined that the assessee was not a trust in the real sense.

The Tribunal observed that the assessee regularly submitted returns of income, audited financial statements, statutory audit reports for exemption under section 11 to the tax department and also to various statutory authorities like Charity Commissioner. It had applied 85% of its income on charitable objects and no violation under section 13 was found. Further, no adverse material was found against the assessee during a search on the premises of the author of the trust. Hence, it held that the denial of exemption under section 11 was not justified.

[Bhaktvastal Sadguru Yogiraj Vasantrao Gopalrao Ghonge Maharaj Nyas Mukteshwar v.DCIT, (2022) 141 taxmann.com 100 (Nagpur - Trib.)]

Charities Taxation Update No. 26 / 2022-23    Date: 26/08/2022

Proviso to section 2(15): Illustration of activities not regarded as trade, commerce or business

The assessee had objects of general public utility for management, regulation and control of infrastructure falling within Varanasi. The AO denied exemption under section 11 on the ground that the assessee was maximizing profits by selling the properties by auction, where the person offering maximum bid price was sold the property, and hence the assessee was a commercial enterprise existing solely for profits, and was not a charitable entity within the meaning of section 2(15).

The Tribunal observed that the assessee was constituted under the provisions of 1973 State Act, and its activities were same as the activities of Lucknow Development Authority [2013 (9) TMI 570 - ALLAHABAD HIGH COURT]. It held that the assessee was rendering various services which were in discharge of onerous and vast responsibilities entrusted to the assessee under the 1973 State Act, more particularly sub-division of property, plan charges, receipt against map sanction and regularization, compounding charges, strengthening charges, development charges, sewerage charges, water charges, Malwa fees, land use conversion, F.A.R Fees, map charges etc.

It held that the assessee’s predominant purpose was to tackle problems of town planning and urban development in a planned manner, and not otherwise, with no profit motive as its object, while sale of properties etc. was merely ancillary object for attainment of main and predominant objects, and hence, the activities could not be regarded as trade, commerce or business.

[Varanasi Development Authority v. ACIT, 2022 (7) TMI 490 - ITAT VARANASI]

Charities Taxation Update No. 25 / 2022-23 Date: 19/08/2022

Section 12A- Grant of registration cannot be subject to conditions which do not have sanction of law

The assessee applied for registration under section 12(1)(ac)(i). The CIT granted registration and imposed condition regarding conduct of the trust and circumstances which may lead to cancellation of registration.

The Tribunal observed that where an application is received under section 12A(1)(ac)(i), the PCIT/CIT could only call for documents or information to satisfy himself about the -

(i) genuineness of activities of trust or institution

(ii)compliance of laws which were material for the purpose of achieving its objects.

However, once registration was granted, the PCIT/CIT could not impose conditions with respect to conduct of the trust and circumstances in which registration may be cancelled. The law regarding grant of registration did not empower the PCIT/CIT to decide as to when and how cancellation of registration could be made. These were regulated by specific provisions of law. When the scheme of law did not visualize these conditions being part of scheme of registration being granted to a trust, PCIT/CIT could not supplement the law by imposing such conditions.

[Bai Navajbai Tata Zoroastrian Girls School v. CIT(E), 2022 141 taxmann.com 62 (Mumbai - Trib.)]

Charities Taxation Update No. 25 / 2022-23   Date: 19/08/2022

Amendment to Rule 17- Form no. 10

The provisions of section 11(2) and third proviso to section 10(23C) allow a charitable institution which has been unable to apply 85% of income to accumulate the same for a period of 5 years. Rule 17(2) contains the statement to be furnished to the AO to exercise this option. CBDT has amended rule 17 and substituted a new Form no.10 which is more detailed than the earlier form. The said form shall be applicable from 1.4.2023, that is from assessment year 2023-24 onwards.

Click here to access the notification and the form.

[CBDT Notification No. 96/2022 dated 17^th August 2022]

FCRAR Update No. 04 / 2022-23 (Date: 17/08/2022)

Submission of application for revision of orders to be made electronically

Any person/organization who is registered under FCRA and aggrieved by an order of the Central Government may submit an application for revision under section 32 r.w rule 20. MHA has notified that application for revision of orders shall be submitted electronically w.e.f 1^st September 2022. It has also clarified as follows:

• The application for revision of order shall be made to the Secretary, MHA in electronic form only

• The aggrieved party must upload a scanned copy of its application on the FCRA web portal (https://fcraonline.nic.in/) under main heading “Services under FCRA”, sub heading “Revision Application against Section 32, FCRA 2010

• Justification for revision of order must be submitted online along with the supporting documents, if any. A specific format has not been prescribed. Scanned copy of duly signed application in plain paper is acceptable.

• A fee of Rs.3000/- (Three Thousand only) must be paid through the payment gateway specified by the Central Government.

• The application must be made within one year from the date on which the order in question was communicated or the date on which it otherwise came to know of it, whichever is earlier

[Please click here to access copy of FCRA Order No. 21022/23(04)/2021-FCRA-III dated 12.8.2022 and FAQs]

Charities Taxation Update No. 24 / 2022-23  Date: 12/08/2022

Rule 17AA- Books of account & other documents

1. Hitherto, the tenth proviso to section 10(23C) and section 12A(1)(b)(i) required charitable institutions to maintain books of accounts and other documents in the prescribed form and manner. CBDT has issued rule 17AA specifying books of accounts and other documents’ that will have to be maintained by such charitable institutions. The rule also explains the form, manner and time limit to maintain the same.

2. Books of Account:

The following ‘Books of accounts’ shall be maintained:

(i) cash book;

(ii) ledger;

(iii) journal;

(iv) copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the assessee, and copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the assessee;

(v) original bills wherever issued to the person and receipts in respect of payments made by the

person;

(vi) any other book that may be required to be maintained in order to give a true and fair view of the state of the affairs of the person and explain the transactions effected.

3. Other records to be maintained:

The rule also states that detailed separate records of voluntary contributions, investments, application of income, properties of the trust, transaction with interested persons etc as specified in the rules have to be maintained. For details, please see the notification attached.

4. Form & manner in which books of account etc have to be maintained

The books of accounts and other documents may be kept in

• written form or
• in electronic form or
• in digital form or
• as print-outs of data stored in electronic form or in digital form or any other form of electromagnetic data storage device.

5. Place where books of account etc have to be maintained

Further, the books of account and other documents shall be kept and maintained by the fund or institution or trust or any university or other educational institution or any hospital or other medical institution at its registered office.

However, all or any of the books of accounts or other documents may be kept at any other place in India if the following conditions are satisfied

(i) A resolution is passed by the management to this effect

(ii) The charitable institution, within seven days of the resolution, intimates the jurisdictional AO in writing giving the full address of that other place and

(iii) such intimation is duly signed and verified by the person who is authorised to verify the return of income under section 140 of the Act, as applicable to the assessee.

6. Period for which books of account etc to be maintained

The books of account and other documents shall be kept and maintained for a period of ten years from the end of the relevant assessment year.

However, where the assessment in relation to any assessment year has been reopened under section 147 of the Act, the books of account and other documents which were kept and maintained at the time of reopening of the assessment shall be kept and maintained till the assessment so reopened has become final.

Click here to access the notification.

[CBDT Notification No. 94/2022 dated 10^th August 2022]

Charities Taxation Update No. 23 / 2022-23 Date: 12/08/2022

Section 12A- Cancellation of registration

A new ground cannot be relied upon by the PCIT if it does not form part of show cause notice. If any new issue is adopted as a basis to cancel the registration the PCIT is duty bound to issue a second show cause notice to provide opportunity to the assessee to defend itself.

[CIT v. Guru Nanak Educational Trust, (2022) 136 taxmann.com 306 (Cal), CIT v. Guru Nanak Educational Trust, (2022) 140 taxmann.com 104 (Calcutta)]

Charities Taxation Update No. 23 / 2022-23 Date: 12/08/2022

Non applicability of section 11(1)(c)

The assessee had obtained registration under section 12A and approval under section 80G, and filed its return of income through e-mode. The case was selected for scrutiny under CASS to ascertain whether outward foreign remittance was from disclosed sources and necessary withholding and reporting obligations were complied with. The A.O disallowed foreign remittances which were payments against education tour package since it contravened the provisions of section 11(1)(c).

The Tribunal upheld findings of CIT(A) and observed that since the amount of expenditure was applied outside India and incurred for a purpose which did not promote international welfare in which India was interested, the benefit of section 11(1)(c) was not available to the assessee.

[OISCA North India v. ITO (E), 2022-TIOL-709-ITAT-DEL]

Charities Taxation Update No. 23 / 2022-23 Date: 12/08/2022

Section 10(23C)(vi): Meaning of ‘solely’ for educational purposes

The assessee was a registered trust and carried out educational activities through its various institutions such as primary schools, secondary and higher secondary schools. It sought exemption under 10(23C)(vi) which was rejected by CIT(E) on the ground that the assessee had non-educational objects in its trust deed and could not be said to be existing ‘solely’ for educational purposes.

The Tribunal observed that the assessee had placed on record affidavits to prove that it was solely existing for educational activities and had not carried out any other object since its inception. It was held that since the assessee carried out only educational activities, exemption could not be denied merely because the object clause contained objects other than educational activities.

[Shree Sanskar Tirth Educational and Charitable Trust v. CIT (E), 2022 139 taxmann.com 578 (Rajkot – Trib.)]

Charities Taxation Update No. 22 / 2022-23  Date: 05/08/2022

Section 12A/12AA: Date from which registration can be granted

The assessee was founded in year 1861 and it set up two separate schools for boys and girls. It got separate registration for individual educational institution for boys with effect from 1-1-1973 and for girls with effect from 1-4-1999. Thereafter, it filed application in 2004 stating that society, being parent body of both educational institutions, registration ought to be in name of society, which would govern both institutions. The Commissioner granted registration to society with effect from 1-4-2004. On appeal, the Tribunal granted registration to assessee with effect from 1-4-1973. On revenue's appeal, the High Court held that since registration of individual institutions had been prospectively cancelled with consent of the assessee and simultaneously, the society as a whole, had been granted registration, the Tribunal had erred in granting registration to the assessee with effect from 1-4-1973.

[CIT v. Allahabad High School Society, (2017) 82 taxmann.com 111/390 ITR 75 (All.); SLP against the said order dismissed in Allahabad High School Society v. CIT, (2022) 138 taxmann.com 70 (SC)]

Charities Taxation Update No. 22 / 2022-23 Date: 05/08/2022

1. Section 2(15) and section 10(23C)(vi): Staff training college & allied activities for bank employees constitutes education

The assessee was running a staff training college for bank employees. It undertook activities for educational purposes including assisting banking institutions in appraisal programmes, conducting morale and productivity studies etc. The CCIT rejected the application on the grounds that

(i) activities such as assisting in appraisal programmes and conducting moral & productivity studies did not constitute education.

(ii) Some of the objects were not for education

The Tribunal observed that

(i) assisting banking institutions in appraisal programes, conducting morale and productivity studies activities fell within the category of ‘education’ as defined in section 2(15).

(ii) the assessee had already written to the DDIT to permit deletion of objects which were not for education; in such circumstances, the department could not record a finding against the assessee that it was not solely for educational purposes.

(iii) the assessee had also submitted that those activities were not undertaken by it.

Hence, the assessee was eligible for exemption under section 10(23C)(vi).

[Southern India Banks v. ITO, 2022 (7) TMI 746 – Karnataka High Court]

Charities Taxation Update No. 21 / 2022-23 Date: 29/07/2022

Section 11(2): Eligibility for deduction

The assessee filed a NIL return for assessment year 2015-16 and the benefit under section 11(2) was denied since the assessee had not filed Form no. 10. The assessee filed a rectification petition under section 154 and uploaded Form 10. However, the benefit of section 11(2) was still denied.

The Tribunal held that filing of Form no. 10 was made mandatory w.e.f 1-4-2016. Further, if the intimation under section 143(1) did not grant benefit of section 11(2) on the ground that Form. No. 10 was not furnished along with return of income and if the Form was filed before the assessing authority before completion of regular assessment, the assessee was eligible for the deduction.

In such circumstances, the assessee's rectification petition filed under section 154 of the Act had to be admitted.

[Shree Harsaniji Public Trust v. ITO(E), 2022-TIOL-760-ITAT-AHM]

Charities Taxation Update No. 21 / 2022-23 Date: 29/07/2022

Section 2(15): Preparing students by providing coaching constitutes education

The assessee had an agreement with an open university and ran various study centres to offer and carry out study programmes for the university students by way of correspondence classes, evaluation, evolving course material etc. The AO denied benefit of section 11 on the ground that coaching classes do not serve the purpose of education within the meaning of section 2(15).

The Tribunal upheld order of CIT(A) that the activities of the assessee would constitute ‘education’. However, it also directed the AO to verify all evidences and grant exemption only for those courses which are run by the university strictly in tune with the UGC’s guidelines and not the coaching classes which violate the same.

[ITO v. Chanakya Mandal Pariwar & (Vice-Versa),2022 (7) TMI 177- ITAT Pune]

Charities Taxation Update No. 21 / 2022-23 Date: 29/07/2022

CBDT Circular: Condonation of delay in filing form nos. 9A,10,10B,10BB

The CBDT has authorised PCIT/CCIT to admit applications of condonation of delay in filing Form Nos. 9A,10,10B and 10BB for assessment year 2018-19 or any subsequent assessment years.

The application shall be admitted and decided on merits if there is a delay of beyond 365 days up to 3 years in filing such forms. The applicants are required to satisfy that they were prevented by reasonable cause from filing of such forms within the stipulated time. The PCIT/CCIT shall preferably dispose off the application within three months of the receipt of such application.

Earlier, the Board had authorized the CIT to admit an application for condonation of delay up to 365 days under section 119(2). [CBDT Circular no. 3/2020 for Form nos. 9A & 10, Circular no. 2/2020 for Form no. 10B and Circular no.9/2020 amended by circular no. 6/2021 for Form no. 10BB]

Hence, on a combined reading, the CIT can condone a delay up to 365 days and a PCIT/CCIT can condone delay beyond 365 days upto 3 years.

[CBDT Circular nos. 15/2022, 16/2022 & 17/2022 dated 19^th July 2022]

Charities Taxation Update No. 20 / 2022-23  Date: 22/07/2022

Non applicability of section 13(1)(c)

The hospital operation rooms of the assessee were made available for use to specified persons under section 13(1)(c). Similarly, the residential accommodation belonging to the assessee was used by specified persons under section 13(1)(c) by paying rent of Rs.5,000/- per month. The Tribunal observed that the buildings owned by the specified persons were used by the assessee without payment of any rent. Further, the specified persons had been rendering voluntarily professional services to the assessee trust and were available for the patients around the clock.

It held that it cannot be said that the operation rooms owned by the assessee were used by the assessee without any compensation, since there was no rent or fees or any other claim by the specified persons of the trust for utilization of the premises as well rendering the voluntarily profession al services and thus, the assessee saved the cost of running the trust on rent, and salaries.

[Orissa Trust of Technical Education and Training v. CCIT, (2022) 139 taxmann.com 509 (Orissa)]

Charities Taxation Update No. 20 / 2022-23   Date: 22/07/2022

Section 10(23C)(iiiab) – Illustrations of institutions “solely” for education purpose

The assessee had established two educational institutions with intention of providing higher education without any profit motive . It filed an application for grant of exemption under section 10(23C)(vi) . The CCIT rejected the application on the ground that out of the total amount collected for ‘placement and training’, only certain amount was ‘directly incurred’ towards placement and training and the balance amount was spent on food. The Court observed as follows:

(i) The CCIT had taken a rather narrow view of the possible expenses that could be incurred by institution in the process of imparting training

(ii) The essential purpose of the Trust was to run both institutions on non-profit basis; that essential object did not appear to have changed

(iii) The explanation offered for the incidental expenses as part of the imparting of training appeared to be a plausible one

(iv) Too narrow a view could not have been taken of the purposes for which the expenses were incurred even if they were not strictly for educational purposes

(v) The expenditure on food was for purposes incidental to the imparting of training and did not take away from the character of the institutions, which were essentially being run on a non-profit basis

Hence, neither the collection of the amount towards placement and training nor its utilisation by the Petitioner could be said to be in a manner that is not solely for educational purposes.

[Orissa Trust of Technical Education and Training v. CCIT, (2022) 139 taxmann.com 509 (Orissa)]

Charities Taxation Update No. 19 / 2022-23   Date: 15/07/2022

Section 164: Rate of tax on total income of a charitable trust

If the trust is not eligible for exemption under section 11, it cannot be treated and taxed as AOP under section 164(2); it is taxable under section 164(1) at MMR.

[Gujarat Rohit Samaj Trust v. DCIT, 2022-TIOL-603-ITAT-AHM]

Charities Taxation Update No. 19 / 2022-23   Date: 15/07/2022

Non Applicability of section 13(1)(b)

The main object for which the trust was registered was for the benefit of the members of the Daivadnya community. The amended object clause was also for the benefit of members of the Daivadnya community. The AO held that the assessee was formed for benefit of a particular community and thus attracted section 13(1)(b). The Tribunal observed that when the CIT(E) approved the objects of the trust for registration under section 12A and subsequently, took a decision to drop the proceedings initiated for cancellation of the registration, it meant that, he was satisfied that the assessee was not for a particular group, rather, it was for the whole members of the Daivadnya community [which referred to people who carry on profession of “goldsmith” across any religious community or caste]. In such circumstances, the assessment order passed was void.

[Daivadnya Samjonnati Parishad Mahajanwadi Mandal v. ITO (E), (2022) 136 taxmann.com 262 (Mumbai - Trib.)]

Charities Taxation Update No. 18 / 2022-23    Date: 08/07/2022

Section 115BBC- Anonymous donations

The assessee received donations and maintained the list of names of addresses of all donors. However, it failed to furnish the PAN details to the AO. The AO treated the donations as anonymous donations chargeable to tax under section 115BBC and also invoked provisions of section 68. The Tribunal observed that:

(i) The assessee had furnished confirmation letters and names and addresses of all donors. Mere absence of PAN in confirmation documents did not make the donations ‘anonymous’. PAN was not mandatory and maintenance of names and addresses of the donors was sufficient compliance of section 115BBC

(ii) Section 68 had no application as the assessee had disclosed the donation in its income and applied the same for charitable purpose.

The Tribunal held that the said donations could not be categorised as ‘anonymous donations’.

[DCIT v. Flt. Lt. Rajan Dhall Charitable Trust, 2022-TIOL-484-ITAT-DEL, para 11]

Charities Taxation Update No. 18 / 2022-23    Date: 08/07/2022

Section 12AA – Non disposal of registration application within six months will not result in deemed registration

In the absence of a specific provision in the Act, if registration application under section 12AA is not decided by the CIT within a period of six months as stipulated, it will not result in deemed registration.

[Harshit Foundation Sehmalpur Jalalpur Jaunpur v. CIT, [2022] 139 taxmann.com 56 (SC), SLP dismissed against CIT v. Harshit Foundation Sehmalpur Jalalpur Jaunpur, [2022] 139 taxmann.com 55 (All.) ]

Charities Taxation Update No. 18 / 2022-23    Date: 08/07/2022

Section 11(1)(a) – Provision for doubtful debts is application of income

The assessee claimed provision for doubtful debts as application of income and deducted it from income under section 11(1)(a). The AO disallowed the same and opined that provision for doubtful debts was not an ascertained liability and cannot be treated as ‘application of income’. The Tribunal observed that as per the finding by the CIT(A), the provision was an ascertained and quantified liability and was also made in furtherance of objectives of the trust. Hence, the CIT(A) was justified in allowing the same as ‘application of income’ under section 11(1)(a).

[DCIT v. Flt. Lt. Rajan Dhall Charitable Trust, 2022-TIOL-484-ITAT-DEL, para 11]

Charities Taxation Update No. 18 / 2022-23  Date: 08/07/2022

Section 2(15) – Conditions to be fulfilled for being considered a ‘charitable trust’

The assessee had filed for registration under section 12A which was rejected by the CIT(E). The Tribunal observed that:

(i) The constitution/MOA of the assessee did not have a clause that property/funds of the assessee shall be used solely for the charitable objects of the assessee or that the beneficiaries of the assessee shall be public at large, and not specific individuals.

(ii) There was no clause for transfer of funds/property to another charitable trust on winding up/dissolution

(iii) There was no irrevocability clause- that the creation of the charitable entity is irrevocable and all the funds/property which become part of the assessee shall not revert to the contributories/members

(iv) The assessee had not furnished an amended MOA deed

(v) The onus was on the assessee to prove that purpose was charitable

Hence, the CIT(E) was justified to reject the application for registration of the trust.

[Atmanusandhan Kendra v. CIT(E), ITA No. 221/Vns/2019]

FCRAR Update No. 03 / 2022-23 (Date: 06/07/2022)

Amendment to FCRA Rules, 2011

The Central Government has amended the Foreign Contribution (Regulation) Rules 2011 w.e.f 1^st July 2022 vide notification no. G.S.R. 506(E). The following amendments have been made to the rules:

1. These rules will be called as the Foreign Contribution (Regulation) Amendment Rules, 2022.
2. Hitherto, as per Rule 6, any person receiving foreign contribution in excess of one lakh rupees or equivalent thereto in a financial year from any of his relatives shall inform the Central Government in Form FC-1 within thirty days from the date of receipt of such contribution.

The said rule has been amended to substitute ‘one lakh rupees’ with ‘ten lakh rupees’ and ‘thirty days’ with ‘three months’.

3. Hitherto, as per rule 9(1)(e) a person may open one or more accounts in one or more banks for the purpose of utilising the foreign contribution after it has been received and, in all such cases, intimation in electronic form in Form FC-6D shall be furnished to the Secretary, Ministry of Home Affairs, New Delhi within fifteen days of the opening of any account.

The said rule has been amended to increase the time limit for intimation from 15 days to 45 days.

4. Hitherto, as per rule 9(2)(e) a person seeking prior permission under this rule may open one or more accounts in one or more banks for the purpose of utilising the foreign contribution after it has been received and in all such cases intimation in electronic form in Form FC-6D shall be furnished to the Secretary, Ministry of Home Affairs, New Delhi within fifteen days of the opening of any account.

The said rule has been amended to increase the time limit for intimation from 15 days to 45 days.

5. Hitherto, rule 13(b) required that a person receiving foreign contribution in a quarter of the financial year to place the details of foreign contribution on its official website or on the website as specified by the Central Government within fifteen days following the last day of the quarter in which it has been received and clearly indicate the details of donors, amount received and the date of receipt.

The said rule has been omitted as per the notification.

6. Hitherto, rule 17A required a person who has been granted a certificate of registration under section 12 or prior permission under section 11 of the Act to intimate in electronic form within fifteen days, of any change in the following, namely:

(i) name of the association or its address within the State for which registration/ prior permission has been granted under the Act [in Form FC-6A];

(ii) its nature, aims and objects and registration with local/relevant authorities [in Form FC-6B];

(iii) bank and/or branch of the bank and/or designated foreign contribution account number [in Form FC-6C];

(iiia) bank and/or branch of the bank for the purpose of utilising the foreign contribution after it has been received in Form FC-6D; and

(iv) office bearers or key functionaries or members mentioned in the application for grant of registration or prior permission or renewal of registration, as the case may be, in Form FC-6E.

Provided that the change shall be effective only after final approval by the Central Government.

The said rule has been amended to increase the time limit for intimation from 15 days to 45 days.

7. Hitherto, as per rule 20, an application for revision of an order passed by the competent authority under section 32 of the Act shall be made to the Secretary, Ministry of Home Affairs, Government of India, New Delhi on plain paper and it shall be accompanied by a fee of rupees three thousand only, which shall be paid through the payment gateway specified by the Central Government.

The said rule has been amended to substitute the words ‘on plain paper’ with ‘in such form and manner, including in electronic form as may be specified by the Central Government’

[Please click here to access copy of the notification]

FCRAR Update No. 02 / 2022-23 (Date: 04/07/2022)

Compounding of offences

The Ministry of Home Affairs (‘MHA’) has issued Gazette Notification S.O. 3025 (E) dated 1st July 2022 which supersedes Notification S.O. 2291 (E) dated 5^th June 2018 for compounding of offences before institution of any prosecution under the Act.

[Please click here to access copy of the Notification S.O 3025 (E) dated 1^st July 2022]

Charities Taxation Update No. 17 / 2022-23    Date: 30/06/2022

Section 12A(1)(ab): Effective only from assessment year 2018-19

The assessee modified some objects in 2013. At that time, there was no statutory requirement to intimate the amendment/ modification in the object of the institution for claiming exemption under section 11 of the Act. It was held that section 12A(1)(ab) was not applicable to the amendment in objects made prior to 01.04.2018.

[Zila Paryawarn Sudhar Samiti v. CIT (E), 2022 (3) TMI 670 - ITAT JAIPUR]

Charities Taxation Update No. 17 / 2022-23 Date: 30/06/2022

Section 2(24)(iia) r.w section 11(1)(d):

The assessee received certain amount as life membership fees and contribution to building fund. Both receipts were treated as capital receipts exempt under section 11(1)(d) as corpus donation. The AO was of the view that both receipts were revenue receipts and disallowed the same. The Tribunal observed that

1. Membership Fees cannot be treated as voluntary contribution:

The membership fee was paid in anticipation/in lieu of services rendered by the assessee. Further, the assessee had not furnished any specific direction of the donors/members regarding the amount it had received. Hence, membership fee could not partake character of voluntary contribution so as to qualify being voluntary contribution with a specific direction that it shall form part of corpus of the trust under section 11(1)(d).

2. Donations received towards specific purpose can be treated as corpus donation

The donations received towards building fund were credited to land & building fund account and spent on construction of a building. Looking at the direction given by donors and treatment of the transaction in books, a liberal approach should have been adopted by the tax authorities. Hence, donations received towards specific purpose were to be treated as corpus donation, exempt under section 11(1)(d).

[Adarsh Shiksha Sansthan v. ITO, 2022 (6) TMI 336 – ITAT Delhi]

Charities Taxation Update No. 17 / 2022-23 Date: 30/06/2022

Section 11(1)(d): Substance prevails over form in ascertaining whether a donation is a corpus donation or not

The assessee transferred certain amount from its corpus fund to general reserves and thereafter, purchased land and gave donations to another trust from those funds. The CIT(E) disallowed the amount claimed as application of income under section 11(1)(d) on the ground that it was utilization of corpus fund towards revenue expenditure. The High Court upheld the decision of CIT(A) and ITAT, which had made the following observations:

1. Donations received towards specific purpose (capital expenditure) can be treated as corpus donation
2. In deciding whether a donation is corpus donation or not the substance of the transaction must prevail over the form and, if required, the tax department must examine the nature of the transaction.

[CIT (E), v. Om Prakash Jindal Gramin Jan Kalyan Sansthan , 2022 (4) TMI 1329 - Delhi High Court]

Charities Taxation Update No. 17 / 2022-23 Date: 30/06/2022

Section 11: Deficit of earlier year allowed to be set off against income of subsequent year

If the assessee incurs more expenditure than the income of the trust, the expenditure over and above the income can be carried forward and is allowed to be set off against the income in succeeding year although there is no such specific provision.

[CIT(E) v. Subros Educational Society,(2018) 96 taxmann.com 652 (SC), review petition dismissed in (2022) 136 taxmann.com 236 (SC)]

However, Explanation 5 to section 11 nullifies the impact of this judgement.

Charities Taxation Update No. 17 / 2022-23 Date: 30/06/2022

Section 10(23C) – Explanation 2 to section 10(23C) applies with prospective effect from assessment year 2022-23

Explanation after the twentieth proviso to section 10(23C) has been renumbered as Explanation 1 and Explanation 2 has been inserted to clarify that for the purposes of section 10(23C), the income required to be applied or accumulated during the previous year shall be calculated without any set off or deduction or allowance of any excess application of any preceding previous year. The amendment applies with effect from assessment year 2022-2023.

[DCIT (E) v. UTI Institute of Capital Markets, (2022) 136 taxmann.com 258 (Mumbai-Trib.); 2022-TIOL-162-ITAT-MUM]

Charities Taxation Update No. 16 / 2022-23      Date: 24/06/2022

Section 12AA: Consistency has to be followed by CIT(E) in the grant of registration

The assessee was an educational institution that had applied for registration under section 12A in assessment year 2019-20. The application was rejected on the ground that the assessee had not filed its return of income and had earned income outside India. However, the CIT(E) granted registration in assessment year 2020-21. The High Court upheld the Tribunal’s observation that if for the subsequent year, the assessee had been granted registration, and there had been no change to the objects and activities undertaken by the assessee, then the refusal for registration in the preceding year was not justified.

[PCIT v. Jawaharlal Nehru Technological University, (2022) 136 taxmann.com 43 (Telangana)]

Charities Taxation Update No. 16 / 2022-23      Date: 24/06/2022

Section 11(1)(d): Corpus Donations are exempt even in respect of a trust not registered under section 12A.

The assessee was a religious trust formed with the objects to maintain, administer and manage masjid, dargah, provide funeral facility for muslims, perform Muslim festivals etc. It did not have section 12A registration. The AO disallowed the amount of voluntary contribution received as corpus donation for purchase of immovable property since it was not registered under section 12A. The Tribunal held that the donations received with respect to the corpus of the trust for purchase of property could not be taxed since they were ‘capital receipts’. The matter was remanded to the CIT(A) for de novo adjudication.

[Versova Kokni Sunni Jamat Trust v. Centralised Processing Centre, Bangalore, 2022-TIOL-471-ITAT-MUM]

Charities Taxation Update No. 16 / 2022-23      Date: 24/06/2022

Section 10(23C)(iiiae) – ‘Income’ need not only come from charitable activities

The assessee was running a medical dispensary wherein it was providing free medical treatment to patients. The income of the trust consisted of interest income from investments which had been made out of surplus funds. The CIT(E) disallowed the exemption under section 10(23C)(iiiae) since there was no nexus between income and expenditure and the trust had accumulated 88% of its income and applied only 12% for philanthropic purposes. The Tribunal observed that under section 10(23C)(iiiae), there was no requirement that the income/receipt of the assessee should come from the charitable/philanthropic activity itself. Hence, the exemption will apply on interest income and the disallowance of the same by CIT(E) was not justified.

[Swasthya Sewa Sansthan v. CIT (E), (2022) 137 taxmann.com 311 (Kolkata - Trib.), para 4.1.]

Charities Taxation Update No. 16 / 2022-23      Date: 24/06/2022

Section 10(23C)(vi): Scope of enquiries by CIT

The assessee was an educational institution which requested for grant of approval under section 10(23C)(vi). The CIT(E) required certain details which were not furnished and the application was rejected. On appeal, the Tribunal observed that

It was not for the assessee to determine the queries to be raised by the CIT(E) while passing an order to grant approval. In case there was any query raised which was alleged to be not relatable or relevant, the assessee was duty bound to point it out. In the absence of any such effort, all queries raised were to be deemed as relevant and necessary for determining the issue.

If there was a deficiency in the completeness of information sought, the CIT(E) was supposed to communicate the deficiency and provide an opportunity to make good the shortcoming noticed, if any.

Accordingly, the issue was remanded to the CIT(E) for fresh adjudication.

[Indira Memorial Public School v. CIT(E), (2022) 138 taxmann.com 63 (Chandigarh Trib)]

Charities Taxation Update No. 16 / 2022-23      Date: 24/06/2022

Section 2(15) and Section 12AA:

1. Research & Spiritual activities regarded as education

The assessee with the following objects made an application for registration under section 12AA and approval under section 80G(5)(vi):

1. Research in the region of raising human consciousness and such practices as to aid such activities;
2. Research in the region of collective and community living in harmony, unity and peace and growth of human consciousness to higher levels of spirituality;
3. Education of spiritual activities which are beyond any specific religion

The tax department was of the view that since the assessee is not engaged in systemized schooling, it was not ‘education’ under section 2(15) The High Court observed that the objects would be covered under ‘education’ and had to be considered as ‘charitable purpose’.

1. Proviso to 2(15) is not applicable to activities engaged in ‘education’

The assessee was also involved in erection, construction and maintenance of townships and housing. The CIT(E) rejected the application on the ground that the assessee was involved in commercial activities and subject to the proviso to section 2(15), could not be granted registration. The High Court held that where the purpose of a Trust is education, the first proviso to section 2(15) was not applicable and the definition of ‘charitable purpose’ is satisfied even if an activity of profit is carried on in the course of actual carrying out of the primary purpose.

• Section 12AA: Application of income is an irrelevant factor for grant of registration

Further, the High court also observed that the CIT cannot examine the application of income of the charitable institution at the time of grant of registration.

[PCIT(E) v. Embassy Charitable Trust, (2022) 137 taxmann.com 449 (Karnataka)]

Charities Taxation Update No. 15 / 2022-23 Date: 17/06/2022

Section 11(6) is prospective and applicable from AY 2015-16 onwards

The claim of depreciation on assets, the cost of which was claimed as application of income should be allowed upto assessment year 2014-15 since amendment to section 11(6) is prospective in nature and effective from assessment year 2015-16.

[Miki Memorial Trust v. ACIT, 2022 (5) TMI 48- ITAT Raipur]

Charities Taxation Update No. 15 / 2022-23 Date: 17/06/2022

Section 10(23C)(via):

Exemption under section 10(23C)(via) was not to be granted to the income of a hospital

(a) when remuneration was paid from the earnings of the Indoor Patients Department to doctors, (Some of whom were directors), although they were not working in that department

(b) if the rates charged by the hospital were at par with other hospitals which ran on commercial basis

[Ashwini Sahakari Rugnalaya & Research Centre v. CCIT, (2021) 130 taxmann.com 366 (SC), review petition dismissed in Ashwini Sahakari Rugnalaya & Research Centre v. CCIT, (2022) 137 taxmann.com 483 (SC)]

Charities Taxation Update No. 15 / 2022-23 Date: 17/06/2022

Proviso to section 2(15): Where the object is not a mask to hide true purpose, the first proviso to section 2(15) will not apply

The assessee was a registered under section 12A with the object of promotion of cricket and other sports. Significant amount of the total income was ‘income from other sources’ such as annual maintenance fees, interest on securities, guest fees, ground rent etc. The AO, based on these receipts, held that the assessee was carrying on commercial activities and denied the benefit of section 11. The Tribunal upheld the order of CIT(A) and observed that the where the main and dominant objective was promotion of sports and not profit making, then the first proviso to section 2(15) will not apply since no activity in the nature of trade, commerce or business was being carried on by the assessee.

[ACIT(E) v. The Surat District Cricket Association, 2022 (5) TMI 540-ITAT Surat]

Charities Taxation Update No. 15 / 2022-23 Date: 17/06/2022

Section 2(15): Printing of newspapers to educate toiling masses is a charitable purpose under ‘advancement of any other object of general public utility’

The assessee was a registered charitable trust and claimed the exemption under section 11 in its return of income. The AO opined that the amount pertaining to running of a newspaper aimed at educating the daily wage earners was a ‘commercial activity’ and could not be covered under the definition of ‘charitable purpose’. The High Court observed that the activity of publishing a newspaper to educate toiling masses was an activity covered under last limb of definition of charitable purpose, that is, advancement of general public utility and hence, the denial of exemption under section 11 was incorrect.

[Toiling Masses Welfare Trust v. DCIT, 2022-TIOL-738-HC-Mad]

Charities Taxation Update No. 14/2022-23     Date: 13/06/2022

Section 12A/12AA – Irrelevant factors for grant of registration

The assessee’s application for registration was denied by the CIT on the ground that the trust deed did not contain any clause as to what treatment would be given to its net assets/income in the case of any dissolution of the trust

The CIT also opined that since the objects of the trust included running of a coaching centre, technical and professional institute which is outside the ambit of charitable purpose under section 2(15), the proviso to section 2(15) could apply to the assessee.

The Tribunal observed that

• The assessee trust was registered with the sub-registrar as a charitable trust
• the trust was an irrevocable trust
• in the event of the failure of the trust the net assets/income would be taken over by the Charity Commissioner

In these circumstances, it held that the rejection of the registration of the trust by the CIT was not appropriate.

Further, no coaching centre was ever run by the assessee and it was not possible to do so since the assessee ran a CBSE school and the Board guidelines prohibited running of a coaching centre. Hence, the rejection of registration on the basis of an ancillary object (running a coaching centre) was unwarranted.

[CIT v. Guru Nanak Educational Trust, (2022) 136 taxmann.com 306 (Cal)]

Charities Taxation Update No. 14/2022-23   Date: 13/06/2022

Section 13

1. Section 13(2)(a): Illustration of amounts/assets not regarded as ‘loans’

The assessee had given advances to a research agency to carry out research and market survey. The amounts were shown as advances because the reports were not yet dispatched to the subscribers. The advances were given to provide funds for extensive and expensive exercise involved in market research and survey by the research agencies. However, the AO was of the opinion that this is a ‘loan’. The Tribunal held that the said advances given against pending research assignments, did not it fall within the meaning of loan.

2. Section 13(3): Lifting of corporate veil is permissible to determine if the transaction is with a ‘related party’

S was director in the assessee company, and his family members, held 100% shares in a company called "TIPL". TIPL, in turn, held 64.19% shares in HRG. The Tribunal, on facts, observed that to determine whether a party is interested or not, the corporate veil can be lifted, depending on facts. It lifted the corporate veil and held that HRG was a related party for the assessee.

[Media Research Users Council v. ADIT(E), 2022 (5) TMI 880 - ITAT MUMBAI]

Charities Taxation Update No. 13 / 2022-23   Date: 08/06/2022

CBDT Circular no.11/2022 dated 3.6.2022:

1. Clarification regarding Form No. 10AC:

Hitherto, the registration under section 12AB granted to a charitable institution seeking registration was liable to cancellation if any of the condition mentioned at Sr. No. 10 in the order for registration granted in Form No.10AC was not complied with. Some of these conditions were onerous and difficult to comply with. Further, they were totally different from the violations for cancellation of registration in Explanation to section 12AB(4). The CBDT has now amended Form No. 10AC to broadly align the conditions in the said form with specified violations for cancellation of registration mentioned in Explanation to section 12AB(4) and other amendments of the Finance Act, 2022.

The circular clarifies that the conditions listed in Form No. 10AC issued before 3^rd June 2022 shall be read as if the said conditions had been substituted with the revised conditions provided in the circular. Thus, the amendment is with retrospective effect from the date of issue of Form No. 10AC. This is a salutary clarification and will eliminate unnecessary confusion/litigation.

Similar amendments have been carried out in respect of grant of approval under section 10(23C) and section 80G.

2. The circular also clarifies that

• Where due to technical glitches, Form No. 10AC has been issued during FY 2021- 2022 with the heading “Order for provisional registration” or “Order for provisional approval” instead of “Order for registration” or “Order for approval”, then all such Form No. 10AC shall be considered as an “Order for registration or approval”

• In case of applications seeking re-registration, the words “provisional registration” shall be read as “registration” and the word “provisionally registered” shall be read as “registered”. [This is in line with the Tribunal judgement in Saifee Burhani Upliftment Trust v. CIT(E), (2022) 138 taxmann.com 322 (Mumbai - Trib.)

• In case of applications seeking re-approval under section 10(23C) or section 80G, the words “provisional approval” shall be read as “approval” and the word “provisionally approved” shall be read as “approved”;

• The relevant field in Form No. 10AC shall be read as “Unique Registration Number” instead of “Provisional Approval/ Approval Number” or “Provisional Registration/ Registration Number”, as the case maybe.

Click here to view a specimen of the earlier order for provisional registration

Click here to view the CBDT circular and updated conditions.

[CBDT Circular no.11/2022, F. No.370142/4/2021-TPL]

Charities Taxation Update No. 12 / 2022-23 Date: 06/06/2022

Section 13: Denial of exemption under section 11

The assessee had given an advertisement in an urdu newspaper and paid most of the scholarship amount to students of a particular religious community for AY 2011-12. This was considered a violation under section 13(1)(b) by the AO.

On facts, the Delhi High Court held that

(i) Merely because advertisement was published in Urdu language and that too in one newspaper, it cannot be presumed that it was targeted at the students belonging to a particular community only.

Further, both CIT(A) and the Tribunal had given concurrent finding of fact that the benefit was granted to students of all communities without discrimination.

(ii) Consistency has to be observed by the AO in relation to non-applicability of section 13(1)(b) since the same was accepted by the department for the previous year (AY 2010-11).

[CIT(E) v. Hamdard National Foundation (India), 2022 (4) TMI 595 - Delhi High Court]

Charities Taxation Update No. 12 / 2022-23 Date: 06/06/2022

Section 12AA(3): Cancellation of registration

The assessee should be given a fair and reasonable opportunity before any order cancelling the registration is passed. The opportunity should include the following:

(a) the assessee should be made privy to the tangible evidences in corroboration of statement sought to be relied upon

(b) an opportunity for cross examination. If the said opportunity is not provided the assessee, one more opportunity cannot be given to the CIT to rectify the defects

Further, the Tribunal also held that cancellation of registration is warranted only when the activities of the assessee are not genuine or activities are ultra vires the objects.

[CIT v. Balaram Hanumandas Charitable Trust, (2022) 138 taxmann.com 13 (Cal)]

Charities Taxation Update No. 12 / 2022-23 Date: 06/06/2022

Section 10(23C)(vi): Delay in application cannot be condoned

The prescribed authority, being a creature of the statute, cannot travel beyond the statutory provisions and does not have the jurisdiction to entertain an application filed under section 10(23C)(vi) beyond the statutory period of limitation or to condone the delay in presenting the said application.

[Bishnupur Public Education Institute, v. CIT, ITA no. 585/KOL/2020]

Charities Taxation Update No. 12 / 2022-23    Date: 06/06/2022

Section 2(15): A mutual association can be a charitable institution

The assessee was a trade association engaged in promotion of trade and commerce related to pharma business and protecting the rights and interests of its members. It made an application for registration under section 12AA to avail the benefits of section 11 and section 12. The CIT(E) rejected application for registration on the grounds that a mutual concern operating on the principles of mutuality cannot be registered and the benefit was not meant for the public at large but only the members of the association.

The Tribunal held that

(i) objects of the assessee for the benefit of pharma dealers would fall within the fourth limb of charitable purpose i.e advancement of general public utility, and

(ii) the assessee being a mutual concern would not place any embargo for registration under section 12AA having regard to CBDT Circular no. 11/2008 dated 19-12-2008.

[Confederation of Pharma Dealers Association v. CIT(E), ( 2022 ) 137 taxmann.com 117 (Raipur - Trib.)]

Charities Taxation Update No. 11 / 2022-23 Date: 30/05/2022

4. Section 12AA(2) – Deemed Registration if not granted within specified time

Application for registration was made by the assessee in 1989 but no formal order of registration was passed. Thereafter, claim of exemption was allowed for many years. However, the A.O issued notice under section 148 and proceeded with re-assessment on failure of the assessee to furnish the physical registration certificate. The Tribunal held that unless the application for registration was specifically rejected within the time specified of 6 months, the trust/institution ought to be considered compliant with section 12A.

[Jaibharat Mandal Ramlila And Dharmshala Society, Haryana v. ITO(E), 2022 (4) TMI 162 - ITAT Delhi]

Charities Taxation Update No. 11 / 2022-23 Date: 30/05/2022

3. Section 11(1): Income exempt under section 10 not to be included under section 11

Section 10 deals with incomes not included in total income whereas section 11 deals with income from property held for charitable or religious purpose. Income which is required to be excluded by virtue of section 10 cannot be brought within the ambit of section 11.

[Navajbhai Ratan Tata Trust v. ADIT(E), ITA No. 1301, etc./Mum/2018 for AY 2008-09 and AY 2009-10]

Charities Taxation Update No. 11 / 2022-23 Date: 30/05/2022

2. Section 11(1) and section 80G(5):

(i) Section 11(1)- Meaning of Religious Purposes

Generally interpreted, religious purposes would encompass within its fold all institutions or funds, which are for the advancement, support or propagation of a religion and its tenets.

(ii) Section 80G(5)- Illustration where benefit of deduction is available to donor

Donors to certain religious trusts mentioned in section 80(G)(5)(iii) which are for the benefit of a particular community or caste are debarred from claiming benefit of deduction from income for donations made to such trusts. Conversely, it follows that for donations made to religious bodies, which do not fall in the category mentioned in section 80G(5)(iii), benefit of deduction under section 80G can be claimed.

Thus, it could be said that a public religious trust, not meant for the benefit of a particular community, caste or section, will be entitled to claim exemption on its income in the same way as a public charitable trust.

[Sri Channamallikarjuna Trust Committee Gangavathi Sri Mallikarjuna Mutta – Gangavathi v. CIT(E), 2022 (5) TMI 334 - ITAT Bangalore]

Charities Taxation Update No. 11 / 2022-23   Date: 30/05/2022

1. Approval under section 10(23C)(via) and section 80G(5):

In case of a hospital, application for approval under section 10(23C)(vi) and section 80(G)(5)(vi) cannot be rejected on the ground that the books of account of medical stores in the hospital which were separate legal entities were maintained in the office of these entities.

[CIT(E) v. Pacific Medical University, (2022) 137 taxmann.com 208 (SC)]

Charities Taxation Update No. 10 / 2022-23 Date: 23/05/2022

4. Section 12AA: Irrelevant factors for grant of registration

Application for registration of the assessee under section 12AA was rejected by CIT(E) since

(a) it was formed for complying with CSR requirements of the parent company

(b) it had not undertaken any project implementation but merely donated funds in order to discharge the legal obligation of the parent company.

The Tribunal held that

(a) registration under section 12AA cannot be denied unless genuineness of its activities or its charitable objects are doubted.

(b) Since the CIT(E) had neither disputed the charitable nature of objects nor doubted the genuineness of activities carried out by the assessee, registration under section 12AA should be granted to the assessee.

[KDDL Ethos Foundation v. CIT(E), 2022-TIOL-424-ITAT-CHD]

Charities Taxation Update No. 10 / 2022-23 Date: 23/05/2022

3. Section12A(1)(b): Time limit for filing audit report

The assessee did not file the audit report along with its return of income for AY 2002-03 but submitted it to CIT(A) during the course of proceedings pursuant to notice under section 148. Since the audit report was not filed along with the return of income, the exemption under section 11 was denied to the assessee. The Tribunal held that filing of audit report before CIT(A) was sufficient compliance of section 12A(1)(b).

[DCIT v. Audyogik Shikshan Mandal, 2022-TIOL-425-ITAT-Pune]

Charities Taxation Update No. 10 / 2022-23  Date: 23/05/2022

2. Section 11(1)(a): Meaning of ‘income’ for basic exemption of 15%

The 15% deduction under section 11(1)(a) is available on gross income including part of income not received during the year. For this purpose, the gross income should be ascertained from books of accounts of the assessee. The deduction cannot be restricted to actual receipt.

[Mineral Foundation of Goa v. ACIT(E), 2022 (4) TMI 1122 – ITAT PANAJI]

Charities Taxation Update No. 10 / 2022-23   Date: 23/05/2022

1. Section 10(23C)(iiiab): Meaning of ‘not for purposes of profit’

Where an educational institution carried on the activity of education then merely because the institution has surplus, it does not mean that it exists for profit and not for educational purposes.

[The Institute of Franciscan Missionaries of Mary v. Commissioner, (2022) 137 taxmann.com 378 (Mad)]

Charities Taxation Update No. 09 / 2022-23  Date: 16/05/2022

3. Notification-no-51-2022: Amendment to forms 10A, 10AB,10BD and 10BE

CBDT has notified changes in forms 10A, 10AB, 10BD and 10BE. The forms have been amended to seek some additional details from the applicant. Click here for the detailed list of changes.

[Notification No. 51/2022, 09-05-2022]

Charities Taxation Update No. 09 / 2022-23   Date: 16/05/2022

2. Section 11 and section 13:

1. Section 11(1)(a): Income excludes corpus donation

In determining whether 85% income of trust has been applied, voluntary contribution made with a specific direction by donor to form part of the corpus of the trust has to be excluded in computation of income.

1. Section 11(1)(d): Donations received towards specific purpose are corpus donation

Where the assessee had a ‘Building fund’ which was to be spent on construction of a building and therefore part of the capital of the trust, the donations towards such fund were ‘corpus donations’ and exempt under section 11(1)(d).

1. Section 13(1)(d): Consistency to be followed by AO

If the AO has accepted in earlier years that the assessee was entitled to exemption under section 11 and that there was no violation of section 13(1)(d), then by keeping in view the principle of consistency, the AO would not be justified in denying the benefit of exemption under section 11 in a subsequent year.

[DCIT(E) v. Shree Khodal Dham Trust, 2022 (4) TMI 1124 - ITAT AHMEDABAD]

Charities Taxation Update No. 09 / 2022-23   Date: 16/05/2022

1. Section 12AB(1)(a): Registration to an existing trust cannot be ‘provisional registration’ for 3 years

An existing trust, which was already registered was required to make a fresh application under section 12AB. Such trusts were granted registration under a standard format and the standard practice of the tax department was to term such registration as ‘provisional registration’. The Tribunal observed that section 12AB(1)(a) which deals with grant of regular registration for a period of 5 years did not authorise the PCIT or CIT to impose any conditions for grant of such registration. Further, under section 12A(1)(ac)(i), the registration so granted cannot be termed as ‘provisional registration’.

[ITA no. 1305/Mum/2021]

Charities Taxation Update No: 08 / 2022-23 Date: 09/05/2022

Section 13(1)(c): Denial of exemption under section 11

Interest free advances and loans were given to commercial concerns which were either owned by the managing director and founder member of the trust or in which he had substantial stake. The tribunal held that this was violative of the provisions of section 13(1)(c) and 13(1)(d) and hence, the assessee would not be entitled to exemption under section 11 of the Act.

[DCIT (E) v Sri Vekkaliamman Educational And Charitable Trust, 2022 (4) TMI 335 -ITAT CHENNAI]

Charities Taxation Update No:  08 / 2022-23  Date: 09/05/2022

Section 12AA(3):

1. Circumstances in which registration of an institution can be cancelled

The assessee was registered under Societies Registration Act 1860 and also registered under section 12AA. In pursuance to its objects, the assessee was running a school in the name DDPS. A search was conducted on the A Group, consisting of M brothers, which was carrying on coaching business. During the search, it was found that Rs. 46 crores was paid by cheque by M Brothers for obtaining membership in the assessee society and these funds were used to repay the loan taken by the assessee society. Thereafter, the assessee accepted huge loan from M brothers as quid-pro-quo for handing over the management and control of DDPS to M brothers. Also Rs. 8 crores (Rs. 2 crores by each brother) was paid by cheque to acquire shareholding in R. Pvt. Ltd. and Rs.19 crores was paid by cash.

The Tribunal observed as follows:

(a) by making huge payment, both in cheque and cash, to acquire membership in society and control over DDPS, the M brothers and A Group were making huge profits from their coaching business.

(b) therefore, it was clear that M brothers were deriving profit by virtue of their membership in the assessee which was in contravention of clause 4 of its MOA.

(c) the activities of the assessee were not being carried out in accordance with the objects of the assessee inasmuch as that by virtue of the fact that the DDPS had become subservient to the coaching programme of A Group, the M brothers were making huge profits by virtue of them being members of the assessee.

(d) accordingly, the activities of the assessee fell under the purview of section 12AA(3) and hence CIT(A) was justified in cancelling the registration of the trust.

[Disha Delphi Education Society v. Pr.CIT , 2022-TIOL-358-ITAT-JAIPUR]

Charities Taxation Update No. 07 / 2022-23  Date: 02/05/2022

Section 11(5) r.w rule 17C:

A charitable institution registered under section 12AB can make only permitted investments as specified in section 11(5) read with rule 17C. The said rule has been amended to add the following to the list of permissible investments:

(vb) investment made by a person, authorised under section 4 of the Payment and Settlement Systems Act, 2007, in the equity share capital or bonds or debentures of Open Network for Digital Commerce Ltd (a company incorporated under section 7(2), read with section 8(1) of the Companies Act, 2013) for participating in network based open protocol models which enable digital commerce and interoperable digital payments in India.

[Notification G.S.R. 309(E) [NO. 42/2022/F. NO. 370142/10/2022-TPL], dated 22-4-2022]

Charities Taxation Update No. 07 / 2022-23  Date: 02/05/2022

Section 115BBC

i) Addition cannot be made on no reply by Donors

Addition cannot be made as anonymous donation on the ground that no reply had been received from donors in response to letter issued by the AO, on the basis of random selection. The assessee cannot be faulted for non-receipt of replies to letters written by the AO directly to the donors, especially when

(a) the AO had not required the assessee to offer an explanation as to why the verification letters issued by the AO had not been confirmed by the donors; and

(b) not even a list of the persons to whom verification letters had been issued by the AO, had been given to the assessee.

ii)  Documents to be taken from a donor to avoid the contribution being treated as anonymous donation

The assessee had maintained complete details of the donors, indicating their names and addresses. Further, in the appellate proceedings too, the assessee, produced the complete ledger accounts of the donors in the corpus fund and in the non-corpus fund, along with the copies of receipts and the confirmations from the various donors, along with their ID proof, to substantiate the genuineness of the donors and to show that complete details were maintained in keeping with the provisions of section 115BBC, as also to demonstrate that these donations were not anonymous donations. The Tribunal observed that the donations could not be treated as anonymous donations for the purposes of section 115BBC.

iii) Based on observations in (i) and (ii) above, it was held that the addition was made by AO without confronting the assessee and thereby violating the basic principles of natural justice and basing the assessment order on the enquiry conducted at the back of the assessee was not valid.

[DCIT v Swarveda Mahamandir Trust, 2022 (4) TMI 438 - ITAT LUCKNOW]

Charities Taxation Update No. 07 / 2022-23  Date: 02/05/2022

Proviso to section 2(15): Activities constituting trade, commerce or business

Young Indian (YI) was incorporated as a section 25 company with Mrs. S, Mr. R and two others as directors of YI. The objects in its MOA were to promote ideas of democracy and secularism. Mrs. S and Mr. R owned majority share capital (76%). Within three months of incorporation, Rs.50 lakhs was paid to AICC by YI as consideration for assignment of loan of Rs. 90.21 crores due to it by AJL (a publication company which had ceased operations but owned properties worth Rs.2000 crores all over India). YI got allotment of 99% of AJL share capital in lieu of the Rs. 90.21 crore loan due to it from AJL as assignee. It was held that YI had undertaken an adventure in the nature of trade, under a cloak of charitable objects which were never pursued. The real purpose of YI was to take control of properties of AJL. This was clear from the fact that YI never revived the publication nor spent any money on charitable objects. Its registration under section 12AA was cancelled by Department after YI ‘voluntarily surrendered registration’ with real purpose having been accomplished.

[Young Indian v. ACIT (E), [2022] 137 taxmann.com 12 (Delhi - Trib.)]

Charities Taxation Update No. 06 / 2022-23 Date: 26/04/2022

Form 10BD:

Section 80G of the Income tax Act, 1961 allows deductions in respect of donations given to certain charitable institutions approved under that section, provided, inter alia, the particulars of such donors are furnished as provided in section 80G(5)(viii) read with rule 18AB. For this purpose, CBDT has notified Form 10BD, in which details of donations received by the charitable institution during the financial year are to be furnished. The form is now live and needs to be filed by 31st of May 2022 for FY 2021-22. CBDT has also released the attached instructions to fill up the form.

Click on the link  for the form :  https://cir.legatax.in/admin/uploaded_files/Form%20No.%2010BD.pdf

Click on the link for instructions on filling the form : http://cir.legatax.in/admin/uploaded_files/Instructions_for_filling_Form_10BD.pdf

Charities Taxation Update No. 05 / 2022-23  Date: 25/04/2022

Section 12AA(3)- Mere apprehension is not sufficient to cause cancellation

Proceedings were initiated by C IT (E) for cancellation of registration of assessee trust on the ground that name of the assessee appeared in list of bogus donor on the basis of statement of managing trustee of an education and research t rust.

The Tribunal held that since there was no document or material available with CIT to hold that assessee had not given donation to research trust during the year, the order cancelling registration was to be set aside.

[CIT (E) v. Vidya Bharati Society for Educational & Scientific Advancement, (2022) 136 taxmann.com 88 (Cal)]

Charities Taxation Update No. 05 / 2022-23  Date: 25/04/2022

Section 12AA(3)- Illustration where cancellation of registration was not justified

A survey operation under section 133A was conducted in the case of BERT, an education cum research trust. As a result of survey, a statement under section 133A of the managing trustee of BERT was recorded wherein it was admitted that it was engaged in receiving bogus donation from various corporate/individuals/firms and repayment of the same in cash through the web of financial transactions. During the financial year 2011-12, the assessee trust had given a donation of Rs.5 lakh to BERT. The CIT considered that the trust was engaged in money laundering activities. Thus, the activities of the trust were not genuine and not carried out in accordance with the aim and object for which it was established. It was also admitted by the managing trustee of BERT that a person GP was the key person for arranging the large amount of bogus donation. The trust was given opportunity of cross examination of the managing trustee of BERT but the trust failed to avail of the same. Accordingly, the CIT cancelled the registration certificate of the -trust under section 12AA/80G/10(23C).

The Tribunal reversed the order of the CIT by observing as follows:

(i) The statement of GP who was acting as middleman for arranging the bogus donation was not recorded during proceedings of cancellation of registration certificate granted to assessee under section 12AA/80G/10(23C).

(ii) The name of the assessee was not appearing in the list of bogus donations as provided in the statement furnished by the managing trustee of BERT.

[CIT v. Jha Educational Trust, 2017-TIOL-1783-ITAT-KOL, appeal dismissed by High Court]

Charities Taxation Update No. 05 / 2022-23   Date: 25/04/2022

Section 11(1): Illustration where exemption under section 11 cannot be denied 

The assessee had been claiming exemption under section 10(23C). During the year under consideration, the assessee got registration under section 12A on and filed the income tax return. However, in the return of income, the assessee inadvertently claimed exemption under section 10(23C) instead of section 12A. The CPC rejected the claim under section 10(23C) by holding that the assessee had not obtained necessary approval from the prescribed authority and receipts exceeded Rs. 1 crore. The application for rectification under section 154 was also rejected and on appeal before CIT(A), the CIT(A) dismissed the appeal by holding that there was no mistake apparent from record and also that there was lot of difference between the claim of exemption under section 10(23C) and section 11.

The Tribunal held that the assessee cannot be penalised for an inadvertent mistake and directed the AO to allow exemption under section 11 since the assessee was registered under section 12A.

[Desh Bharti Public School Samiti v. AO /DCIT, 2022 (4) TMI 448 - ITAT LUCKNOW]

Charities Taxation Update No. 04 / 2022-23 Date: 18/04/2022

Proviso to section 12A(2): Meaning of proceedings pending before the AO

Appeal before the CIT(A) against the order passed under section 154 cannot be termed as assessment pending before the CIT(A)/AO, even if the CIT(A) has coterminous powers with that of AO.

[Bhagawan Sree Mahayogi Lakshmamma Educational Society, Adoni v. ITO, (2022) 135 taxmann.com 310 ( Hyd - Trib.)]

Charities Taxation Update No. 04 / 2022-23  Date: 18/04/2022

Section 11(1)(d): Corpus Donations

(1) If corpus donation is received by the assessee for a designated purpose, it should be utilized for that purpose only

(2) If depreciation is charged on a fixed asset acquired out of corpus funds, depreciation should be reduced from the corpus fund as well as from the fixed assets.

[Bhagawan Sree Mahayogi Lakshmamma Educational Society, Adoni v. ITO, (2022) 135 taxmann.com 310 ( Hyd - Trib.)]

FCRAR UPDATE No: 001 / 2022 – 2023 Date: 11/04/2022

1. Section 7, section 12(1A), section 12A and section 17 of Foreign Contribution Regulation Act, 2010 (“FCRA”) have been amended / added vide Foreign Contribution (Regulation) Amendment Act, 2020.
2. The amended provisions are summarised below -

• Section 7 prohibits transfer of any contribution by a registered charitable institution to any other person.
• Section 12(1A) provides that every applicant for registration/ prior permission shall open FCRA account and mention details of such account in its application.
• Section 12A provides that any applicant for registration/ prior permission shall provide Aadhar number of its office bearers or directors or other key functionaries, in case of an Indian national, and copy of a passport or OCI card, in case of foreigner.
• Section 17 mandates that every registered institution shall receive contribution only in an account designated as FCRA account in the specified bank.

3. Recently, the Supreme Court, in Noel Harper & Ors. v. UOI & Anr., Writ Petition (CIVIL) No. 566 of 2021 (judgment dated 8.4.2022) has, inter alia, held as follows:

• the aforesaid amended sections 7, 12(1A), 12A and section 17 are constitutionally valid (para 87);
• Section 12A has to be read down and the key functionaries/office bearers of the applicant (associations/NGOs) who are Indian nationals, may be permitted to produce Indian Passport, in addition to Aadhar number, for the purpose of their identification (para 87);
• (i) The expression “transfer” as used in section 7 has not been defined in FCRA.

(ii) It would presuppose giving away of the foreign contribution in whole or in part to third person without retaining any control thereon; and such change of hands is obviously without offering any services in return, namely, free of costs. The third person would then be free to deal with such transferred foreign contribution in the manner he chooses to do so, whilst adhering to the conditions specified in his certificate of registration or the conditions specified in the prior permission under the Act, as the case may be (para 45).

• (i) The expression “utilisation” as used in section 8 has not been defined in FCRA. The ordinary meaning of expression “utilisation” must be understood in the context of the purpose for which a certificate of registration or prior permission has been granted by the Central Government. If the foreign contribution is utilised for such definite purposes, including administrative expenses permissible under Section 8, even though it may theoretically entail in transfer of foreign contribution, it would not be a case attracting the rigors of Section 7.

(ii) If the recipient of foreign contribution engages services of some third party or outsources its certain activities to third person, whilst undertaking definite activities itself and had to pay therefor, it would be a case of utilisation (para 47).

[Editor’s Note: With utmost respect, it is submitted that the observations of the Supreme Court at para 45 that ‘transfer’ is not defined in FCRA is per incuriam in as much as

• section 2(2) of FCRA states that a word not defined bears the meaning given in FEMA, 1999; and
• the term “transfer” is defined in section 2(ze) of FEMA, as follows:

“transfer includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien”]

Charities Taxation Update No. 03 / 2022-23 Date: 11/04/2022

Section 11(4A): Maintenance of books of accounts

The benefit under section 11 cannot be granted if the trust does not maintain separate books of accounts for running a business, even if such business is incidental to the attainment of the object of the trust.

[Kuchalambal Charities v. ITO (E), 2022 (3) TMI 1284 - ITAT Bangalore]

Charities Taxation Update No. 03 / 2022-23   Date: 11/04/2022

Section 11: Statutory transfer to a fund does not constitute ‘income’

The assessee had been maintaining Infrastructure Development Reserve Fund (IDRF) as per the Notification dated 15.01.1998, and money transferred to this fund were to be utilized for the purposes of projects as specified by a committee formed by the State Government under the said Notification. The said transfer was directly reflected in the balance sheet and was not routed through the profit & loss account. It was held that the money transferred to this fund was to be utilized for the purpose of projects as specified by the committee having constituted by the Government and the same could not be taxed as “income”.

[Lucknow Development Authority v. ACIT(E),2022 (3) TMI 886 - ITAT Lucknow]

Charities Taxation Update No. 03 / 2022-23   Date: 11/04/2022

Proviso to section 2(15): Illustrations of activities not regarded as trade, commerce or business

The assessee had been constituted by the State Government to tackle problems of town planning and urban development. The Tribunal held that the activities of a statutory authority established with objects to provide for development of certain areas and shelter to homeless people carried on without profit motive are not business.

[Lucknow Development Authority v. ACIT(E),2022 (3) TMI 886 - ITAT Lucknow]

Charities Taxation Update No. 03 / 2022-23   Date: 11/04/2022

Proviso to section 2(15): Illustrations of activities regarded as trade, commerce or business

The assessee was primarily carrying on the activity of letting out of kalyana mandapa, on a commercial basis by charging exorbitant amount. The Tribunal held that the proviso to section 2(15) was applicable.

[Kuchalambal Charities v. ITO (E), 2022 (3) TMI 1284 - ITAT Bangalore]

Charities Taxation Update No. 03 / 2022-23 Date: 11/04/2022

Section 2(15): Activities not covered by charitable purpose

The assessee trust was created mainly for the purpose of research and study in depth of all Vedas and effect of Vedic chants on human life, nature and universe. Since the assessee was not able to carry out the activities for which it had obtained 12A registration, it started construction activities and letting out properties for a long lease of 99 years and getting rental income of which, some portion of amount was donated to an educational institution. It was held that the activity carried out was not a charitable activity. Further, where only 10% of the income was donated to other trust/organization, it cannot be said that the assessee was carrying charitable activities.

[ITO(E) v. M/S. The Indian Cultural Research Trust, 2022 (3) TMI 1330 - ITAT Chennai]

Charities Taxation Update No. 03 / 2022-23 Date: 11/04/2022

Section 2(15): Advancement of general public utility

Meaning of the term ‘general’

The expression “other objects of general public utility” is very wide. Word “general” in the said expression pertains to a whole class.

[Lucknow Development Authority v. ACIT(E),2022 (3) TMI 886 - ITAT Lucknow]

Charities Taxation Update No. 02 / 2022-23 Date: 09/04/2022

Section 13: Denial of exemption due to benefit given to interested party

The assessee had paid an advance to a proprietary concern of the wife of the Managing Trustee. The said advance was claimed to have been made for purchase of wood to be utilised in the proposed construction of a medical college. On facts, it was held that the sums given were not really an advance against expenses and the amounts paid were diverted for the personal benefit of an interested party under section 13(3) in the garb of purchase of timber and hence violative of section 13(1)(c). Further, contention of the assessee that the amounts were returned by account payee cheques and within a short period was of no consequence since only a small portion of the advance was repaid to the assessee trust within four months from the date of advance.

[Ilahia Trust v. CIT, 2021 (12) TMI 369 (Ker)]

Charities Taxation Update No. 02 / 2022-23 Date: 09/04/2022

Section12A(1)(b) – Timelimit to furnish audit report

The assessee missed filing the audit report along with the return of income. However, it was uploaded before filing application under section 154 for rectification. The said application was rejected by AO. The appeal was dismissed by CIT(A). It was held that the procedural requirement was complied with since the audit report was available to CIT(A) and hence,exemption under section 11 could not be denied merely on the ground of limitation.

[Trinity Education Trust, v. ITO (E), ITA No. 669/SRT/2018]

Charities Taxation Update No. 02 / 2022-23 Date: 09/04/2022

Section 11(1)(a)

An item of exempt income has to considered as exempt even if it is wrongly recorded as income due to error in computer software for preparing return of income.

[Breach Candy Swimming Bath Trust v. DCIT, TS-154-ITAT-2022 (Mum)]

Charities Taxation Update No. 02 / 2022-23 Date: 09/04/2022

Proviso to section 2(15): Illustrations of activities not constituting trade, commerce or business

The dominant/sole object of the assessee was promotion of sports in the State of Gujarat. The assesse was not engaged in any activity, the income from which qualified as business income. It had placed surplus funds as deposit with GSFC Limited and such placement was incidental to its dominant objective i.e. to encourage sports in the State of Gujarat. It was held that interest income earned from surplus fund could not be regarded as “income from business and profession”

[Sports Authority of Gujarat v. DCIT(E), 2022 (3) TMI 153 - ITAT Ahmedabad]

CSRR Update No. 01 / 2022-23 (Date:7/4/2022)

Deductibility of CSR expenditure under section 80G of the Income Tax Act,1961

The assessee had spent certain amount towards CSR activities in nature of donations made to certain eligible institutions and suo motu disallowed the expenditure under section 37(1). Instead, it was claimed as deduction under section 80G in respect of donations paid to eligible charitable institutions. The AO denied the same on the ground that granting deduction to an expenditure which was disallowable under section 37(1) would amount to giving an unintended benefit which was not envisaged under provisions of law. It was held that the assessee could not be denied benefit of claim under Chapter VI-A, which was considered for computing 'Total Taxable Income', merely because such payment forms part of CSR, as it would lead to double disallowance, which was not the intention of Legislature.

[Sling Media (P.) Ltd. v. DCIT, [2022] 135 taxmann.com 164 (Bangalore - Trib.)]

Charities Taxation Update No. 01 / 2022-23  Date: 04/04/2022

Section 12AA – Registration

Registration of a trust cannot be rejected merely because it is for the benefit of a restricted group of employees of the company. The authority has to examine activities actually carried out by the trust, sources of funds and its distribution among other factors.

[ICRW Group Gratuity Trust v. CIT,(2022) 136 taxmann.com 127 (Delhi – Trib)]

Charities Taxation Update No. 01 / 2022-23   Date: 04/04/2022

Section 11(1)(c): Application of income outside India

Application of income outside India can be denied exemption under section 11(1)(c). However, exemption under section 11 cannot be denied on account of violation in terms of Section 11(1)(c) and the portion of income to the extent applied in India will be eligible for exemption.

[Hariday v. Additional DIT, 2022-TIOL-284-ITAT-DEL]

Charities Taxation Update No. 01 / 2022-23  Date: 04/04/2022

Section 2(15) - Charitable Purpose

A trust for discharge of statutory obligation of a company to pay gratuity to employees may not constitute a charitable trust. However, if other activities including activity for welfare of the employees have been carried out by the trust, then the position may be different.

[ICRW Group Gratuity Trust v. CIT,(2022) 136 taxmann.com 127 (Delhi – Trib)]

Charities Taxation update No. 33 / 2021-22 Date: 28 /03/2022

Section 115BBC: Anonymous Donation

• Meaning of religious purposes

Religious activities are to be given a wide treatment and cannot be interpreted narrowly because in the concept of Hinduism, there is no line of demarcation between religious and charitable. It is always a mix of both and are blended together for the benefit of public at large.

• Institutions to which this section 115BBC is not applicable

Assessee trust had activities which were a mix of religious, charitable and socio-economic nature. It received certain unverified and anonymous donations. There was no finding that the assessee was running any educational institution, hospital or medical institution for which such anonymous donations were received. Hence, exemption under 115BBC(2) was available and the anonymous donations could not be taxed under section 115BBC(1) as clarified by CBDT vide its circular no. 14/2006 dated 28.12.2006.

• Consistency to be applied

If similar anonymous donations have been accepted not only in the earlier years but also in the subsequent years under section 143(3) and it has been categorically found that section 115BBC is not applicable, then, in the view of consistency, such donations cannot be disallowed in the year under consideration.

[JCIT v. Divya Jyoti Jagrati Sansthan, 2022-TIOL-241-ITAT-DEL]

Charities Taxation update No. 33 / 2021-22  Date: 28 /03/2022

Proviso to section 2(15):

Where the objects clause of the trust deed provided for certain objects for advancement of general public utility but as long as such objects have not been acted upon, the proviso to section 2(15) will not apply.

[Oswal Bandhu Samaj v. ITO(E), 2022 (3) TMI 379 – ITAT Pune]

FCRAR Update No. 006 / 2021-22 (Date: 26/03/2022)

Extension of FCRA registration

The Ministry of Home Affairs (‘Ministry’) had earlier, vide Public Notice dated 31st December 2021, extended the validity of FCRA registration certificates. Now, once again, the Ministry has further extended the validity of FCRA registration certificates of:

(i) entities whose validity was extended till 31st March 22, vide the Public Notice dated 31st December 2021 or whose renewal application is pending.

(ii) entities whose five-year validity period of the registration certificate will expire within the period 1st April 2022 to 30th June 2022 and they have applied for the renewal before the expiry of five years.

The validity of registration of entities falling in the either of the above case is extended up to 30th June 2022 or till the date of disposal of the renewal application, whichever is earlier.

Accordingly, as a natural corollary, such entities will be allowed to receive and utilise the foreign contribution up to 30th June 2022 or till the date of disposal of the renewal application, whichever is earlier.

However, if the application for renewal of registration certificate is rejected, the validity of the certificate shall be deemed to have expired on the date of refusal of the application and the association will not be able to receive or utilise foreign contribution, thereafter.

[Please click here to access copy of the Public Notice dated 24th March 2022]

Charities Taxation update No. 032 / 2021-22  Date: 21/03/2022

Section 13(2)(b)- Onus on Revenue

The law requires the revenue to bring on record cogent evidence to justify the invocation of section 13 and in respect of property let out by the assessee, the material collected from the internet as well as estate agents cannot be termed as collaborative piece of evidence to any facts which is established substantively. Unless and until the AO brings on record some credible information, the burden to rebut does not shift to the assessee.

[CIT(E) DELHI v. Hamdard National Foundation (India), 2022 (2) TMI 931- Delhi High Court]

Charities Taxation update No. 032 / 2021-22 Date: 21/03/2022

Section 13(2)(b)- Meaning of ‘adequate’

In case of a property let out by the assessee, unless the price/rent is such as to shock the conscience of the Court and to hold that it cannot be reasonable consideration at all, it would not be possible to hold that the transaction is otherwise bereft of adequate consideration. In order to determine the same, the context of the facts of the particular case needs to be appreciated.

[CIT(E) DELHI v. Hamdard National Foundation (India), 2022 (2) TMI 931- Delhi High Court]

Charities Taxation update No. 032 / 2021-22 Date: 21/03/2022

Section 13(2): Consistency to be followed

In the absence of any material change justifying the revenue to take a different view of the matter, the position of fact accepted by the revenue over a period of time (more than two decades) should not be allowed to be re-opened unless the revenue is able to establish compelling reasons for a departure from the settled position.

[CIT(E) DELHI v. Hamdard National Foundation (India), 2022 (2) TMI 931- Delhi High Court]

Charities Taxation update No. 032 / 2021-22 Date: 21/03/2022

Section 12AA: Meaning of ‘genuine’ activities

The activities of the trust or the institution must be genuine which means that they are in consonance with the object of the trust and are not mere camouflage of the proposed objects.

[CIT(E), Kolkata v. Nawal Kishore Kejriwal Charity Trust & others, (2022)(2) TMI 534 – Calcutta High Court]

Charities Taxation update No. 032 / 2021-22 Date: 21/03/2022

Section 11(6): Double deduction not permitted

For the purpose of section 11(6) income includes corpus donation exempt under section 11(1)(d) and depreciation will not be available as a deduction if corpus donation has been used to acquire a capital asset in respect of which its entire cost has been claimed as application of income.

[JCIT v. Divya Jyoti Trust Tejas Eye Hospital, (2022)(3)TMI 35 - ITAT Ahmedabad]

Charities Taxation update No. 032 / 2021-22 Date: 21/03/2022

Section 11(1)(a): Income excludes corpus donation under section 11(1)(d)

The income for the purpose of section 11(1)(a) excludes corpus donation referred to in section 11(1)(d).

[JCIT v. Divya Jyoti Trust Tejas Eye Hospital, (2022)(3)TMI 35 - ITAT Ahmedabad]

Charities Taxation Update No. 031 / 2021-22 Date: 14/03/2022

Section 12AA(3) - Cancellation of registration

Opportunity of being Heard

The documents which were the basis of the finding of the CIT(E) were not furnished to the assessee trust and the persons from whom statements were recorded, namely, the treasurer and secretary of the said organisation, were not presented for cross-examination. Revenue cannot say that they should be given one more opportunity to rectify the defects. This procedure is unknown to law. The documents which were the basis for concluding that the registration granted in favour of the assessee should be cancelled were not furnished to the assessee. Therefore, the CIT(E) having committed a fundamental error cannot be granted for one more opportunity.

[CIT(E) v. Mayapur Dham Pilgrim and Visitors Trust, 2022 (2) TMI 833 (Cal)]

Charities Taxation Update No. 031 / 2021-22 Date: 14/03/2022

Proviso to section 2(15)- Activities regarded as Trade, commerce or business

The assessee was a society constituted with its main objectives being to serve as a seminal agency to generate and propagate innovative ideas on housing. It was granted registration under section 12AA. The assessee was given contracts to construct houses by either the State Government or from MP/MLA Funds set up by the State Government. The Tribunal upheld the CIT(A)’s order which said that if the assessee's contention of carrying on charitable activity on account of having built roads, nallas, commercial buildings is accepted, then every civil work contractor would be entitled to claim that it is carrying out charitable activities. Hence, the activities of the assessee are hit by the proviso to section 2(15).

[M/s. Zilla Nirmiti Kendra Uttara Kannada, v. ACIT (E), ITA No. 2069/Bang/2018]

Charities Taxation Update No. 031 / 2021-22 Date: 14/03/2022

Section 11(4A) - Meaning, interpretation of “incidental to attainment of objects”

'Incidental' is an offshoot of the 'main activities', inherent bye-product of pre-dominant activities. The activities complementing the main activities are not in the nature of incidental to the business. It is incidental if it is supporting the activities to the main activities.

[M/s. Zilla Nirmiti Kendra Uttara Kannada, v. ACIT (E), ITA No. 2069/Bang/2018]

Charities Taxation Update No. 031 / 2021-22 Date: 14/03/2022

Section 10(23C)- Person includes an AOP

Since an AOP is recognised as a "person" for the purpose of the Income Tax Act, 1961 and section 10(23C) grants exemption to a “person” engaged in deriving income from specified sources including the University or Educational Institution, section 10(23C)(vi) is clear enough and it specifically covers AOP, which need not be a registered Body.

[Sharda Mandir High School v. CIT (E), 2022 (2) TMI 705 – ITAT MUMBAI]

Charities Taxation Update No. 031 / 2021-22 Date: 14/03/2022

Approval under section 10(23C)

Unless the finding of facts are given on the basis of evidence that the assessee does not meet the parameters of section 10(23C), exemption cannot be denied on the ground that it does not have an independent Memorandum of Association, Bye laws, etc. and this is not a sustainable ground to deny the exemption as required under section 10(23C).

[Sharda Mandir High School v. CIT (E), 2022 (2) TMI 705 – ITAT MUMBAI]

Charities Taxation Update No. 031 / 2021-22 Date: 14/03/2022

Section 10(23C)- Registration under section 12AA is not mandatory

As clarified by the CBDT vide its circular 14/2015 dated 17th August 2015, there is no mandate of law that the person seeking exemption under section 10(23C)(vi) is required to be registered under section 12AA of the Act.

[Sharda Mandir High School v. CIT (E), 2022 (2) TMI 705 – ITAT MUMBAI]

Charities Taxation Update No. 030 / 2021-22    Date: 07/03/2022

---------------------------------------------------------------------------------------

Proviso to section 2(15)- Activities not regarded as Trade, commerce or business

The assessee, a company licensed under section 25 of the Companies Act 1961 and registered under section 12A, provided basic services by way of domain name registration, for which, it charged subscription fee on annual basis and also collected connectivity charges. It was concluded that the services provided, were only incidental to the main objects of the assessee and not in the nature of a commercial activity.

[CIT v. National Internet Exchange of India [IT Appeal No. 521 of 2017,dated 9-1-2018] followed in CIT (E) v. National Internet Exchange of India, (2021) 133 taxmann.com 376 (Delhi); SLP granted in CIT (E) v. National Internet Exchange of India, (2021) 133 taxmann.com 377 (SC)]

----------------------------------------------------------------------------------------

Charities Taxation Update No. 030 / 2021-22   Date: 07/03/2022

----------------------------------------------------------------------

Proviso to section 2(15)- Activities not regarded as Trade, commerce or business

Activity of running the planetarium for general public at normal rate and earning revenue from shows did not result in a commercial activity.

[DCIT (E) – 2(1), MUMBAI v. NEHRU CENTRE DISCOVERY OF INDIA  BUILDING, (2022) (2) TMI 975 - ITAT MUMBAI]

----------------------------------------------------------------------

Charities Taxation Update No. 030 / 2021-22   Date: 07/03/2022

----------------------------------------------------------------------

Proviso to section 2(15)- Activities not regarded as Trade, commerce or business

The assessee company was licensed under section 25 of the erstwhile Companies Act, 1956 as a non-profit entity, under the membership of National Council of Science Museum (NCSM) an autonomous body, formed under the Ministry of Culture, (Govt. of India). It was registered under section 12AA. It was engaged in the activities of taking up all kinds of museum/science centre projects on turnkey basis. In terms of an agreement entered into by and between the assessee and the Reserve Bank of India ('RBI'), the assessee becames the successful bidder in an open tender process floated by RBI for setting up the museum project on turnkey basis and hence, was awarded with the said contract for executing the work. The AO came to a finding that the assessee was engaged in full-fledged commercial activities during the year and applying first proviso of section 2(15) denied the claim of the assessee under Section 11.

The Tribunal held that though the assessee was a registered under section 12A as a charitable institution, the actual work done by the assessee in the year under consideration was not charitable in nature particularly when no formal and systematic educational function was discharged by it; rather that it was commercial in view of the receipt on turnkey project basis from RBI in lieu of the service rendered by the assessee and this involved activities carrying on in the nature of trade, commerce or business for consideration coming under the periphery of first proviso to section 2(15).

The High Court held that the activities of the assessee showed that by establishing knowledge parks, imparting education and undertaking advancement of other aspects of general public utility, the assessee was not involved in a commercial activity. To state that the assessee was only a contractor was to belittle its status and the purpose for which it was established by the Ministry of Culture, Government of India. Merely because a certain amount was generated as surplus, it did not mean that the activities of the assessee were not being charitable for the purpose of imparting education or for general public utility.

[Creative Museum Designers v. ITO(E), 2022 (2) TMI 503 – Calcutta HC  reversing Creative Museum Designers v. ITO(E), Creative Museum Designers v. ITO(E), (2021) 209 TTJ 943 ( Kol Trib )]

----------------------------------------------------------------------

Charities Taxation Update No. 030 / 2021-22   Date: 07/03/2022

----------------------------------------------------------------------------------------

Section 2(15)- Charitable Purpose - Education

1. The assessee provided training in the field of remote sensing for preservation of environment through optimization of land use and natural resources. It provided specialized post-graduate degree courses in that subject in association with a recognized university. It was held that the assessee’s mission was to provide education.

[Haryana State Remote Sensing Application Centre, v. CIT, Chandigarh ITA No. 1849/Del/2020]

----------------------------------------------------------------------------------------

Charities Taxation Update No. 030 / 2021-22  Date: 07/03/2022

----------------------------------------------------------------------

Section 2(15)- Charitable Purpose - Education

1. ‘Education’ is a very wide term which covers not only the skills and information imparted in schools and colleges but also covers the entire field of any institution which disseminates ‘information and skills’ not only offline but online as well and it is not confined to basic education like languages, sciences etc., but also encompasses the entire gamut of universe.

[DCIT (E) – 2(1), Mumbai v. Nehru Centre Discovery of India Building, (2022)(2) TMI 975 - ITAT MUMBAI]

----------------------------------------------------------------------

Charities Taxation Update No. 030 / 2021-22  Date: 07/03/2022

----------------------------------------------------------------------

Section 2(15)- Charitable Purpose - Education

1. “Education” cannot be restricted to only formal education

The term “education” as occurring in section 2(15) cannot be restricted to formal school or college education and dissemination of knowledge through a museum or a science park or development of facility with a view to educate the public on various subjects such as development of textile industries, astronomy, space travel etc constitutes education.

[Creative Museum Designers v. ITO(E), (2022) (2) TMI 503 – Calcutta HC]

----------------------------------------------------------------------

Charities Taxation Update No. 029 / 2021-22 Date: 28/02/2022

----------------------------------------------------------------------

Section 11(2) – Exemption cannot be denied if specific purpose for accumulation is not mentioned

Revenue is not justified in denying the claim of accumulation merely on the ground that the reasons or object of accumulation has not been specified in Form No. 10 if the assessee had actually applied said funds to charitable purpose as resolved.

[Seth Damji Laxmichand Jain Dharma Sthanak v. ITO(E), 2022-TIOL-165-ITAT-MUM]

----------------------------------------------------------------------

Charities Taxation Update No. 029 / 2021-22 Date: 28/02/2022

----------------------------------------------------------------------

Section 11(1)(a)- Application of Income

Excess of earlier year’s expenditure is application of income

Income derived by trust should be determined on the basis of commercial principles. Hence, where expenses for charitable and religious purposes incurred in earlier year are adjusted against income of a subsequent year, income of that earlier year can be said to have been applied for charitable and religious purposes in year in which expenses had been adjusted.

[CIT(E) v. Kantilal Jaikishandas Choksi Charitable Trust, (2021) 133 taxmann.com 217 (Guj.); SLP dismissed by Supreme Court in (2021) 133 taxmann.com 218 (SC)]

----------------------------------------------------------------------

Charities Taxation Update No. 028 / Date: 15/02/2022

---------------------------------------------------------------------

Section 80G - Approval of a charitable trust for deduction to donor

Approval under section 80G cannot be denied merely because no activities were started by the assessee.

[DIT(E) v. M.L. Meyyappan Charitable Trust, 2021-TIOL-614-HC-MAD-IT]

----------------------------------------------------------------------

Charities Taxation Update No. 028 /  Date: 15/02/2022

----------------------------------------------------------------------

Section 12A/12AA - Registration of an institution

Irrelevant factors for grant of registration (up to 31-3-2021)

• Incorrect accounts were submitted along with application for registration.

[International Devraha Divya Foundation Trust v. CIT(E), 2022 (2) TMI 104-ITAT LUCKNOW]

• The institution has generated surplus/profit (in the absence of any other circumstances)

[Deepak Society Kolhapur v. CIT(E), 2021-TIOL-523-ITAT-PUNE]

• The institution is new and activities haven’t started

[DIT(E) v. M.L. Meyyappan Charitable Trust, 2021-TIOL-614-HC-MAD-IT]

• Addition could be made under section 69 when it is not the case of the assessee that the said addition has anything to do with the activities of the trust.

[Teachers Academy Education Trust v. CIT(E), 2021-TIOL-226-ITAT-BANG]

----------------------------------------------------------------------

Charities Taxation Update No. 028 / Date: 15/02/2022

----------------------------------------------------------------------

Section 11(2), Explanation to section 11(2)

Secondary accumulation (up to 5 years) [section 11(2)]

A notice of deficiency may be issued to the assessee if there is delay in furnishing of the Form No. 10. The delay could be condoned if the deficiency is not brought to the knowledge of the assessee, and the issue may be set aside to the file of the A.O. to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.

[Himalayan Buddhist Cultural Association v. ACIT, (2022) 93 ITR(Trib) 57 (Chd) (SN)] (assessment year 2015-16)

----------------------------------------------------------------------

CSRR Update No. 002 / 2021-22 (Date: 14/02/2022)

----------------------------------------------------------------------

The Ministry of Corporate Affairs (MCA) has amended Companies (Accounts) Rules, 2014 to insert Rule 12(1B) which stipulates as follows:

• every company covered by CSR provisions under section 135 should file report in Form CSR-2 with the ROC from FY 2020-21 onwards.
• for financial years after FY 2020-21, the Form CSR-2 is required to be filed as an addendum to Form AOC-4 / AOC-4 XBRL / AOC-4 NBFC (Ind AS).
• for FY 2020-21, Form CSR-2 is required to be filed separately on or before 31st March 2022

[vide Companies (Accounts) Amendment Rules, 2022 dated 11 February 2022]

The link to the notification and the format of the form is

https://www.mca.gov.in/bin/dms/getdocument?mds=adQPpN3U8Y7Llcmy0C8FvA%253D%253D&type=open

Charities Taxation Update No. 027 / 2021-22 (Date: 12/02/2022)

This update contains summary of recent developments in charities taxation and additions to Charities Institution Referencer (CIR), an online database on Charities taxation.

-----------------------------------------------------------------------------------------------

Section 2(15) - Charitable Purpose

Illustrations of activities regarded / not regarded as ‘advancement of any other object of general public utility’

The following activities constitutes activity for ‘advancement of any other object of general public utility’

(a) Promoting Rajasthan traditional hand work, hand block/tie and dye and other traditional techniques of garment and textile sector at national and international level

(b) Education and knowledge related activities

(c) Setting up and maintaining training and research centres to facilitate skill development to the workers engaged at various levels in the garment and textile industry and enhancing the ability and skills of employees in the said industry for understanding the global trends and generating more employment opportunities in the said sector by providing advanced skill development training

(d) Establishing and maintaining testing laboratories and conducting research in the field of garment and textile industry.

(e) Establishing and operating conference/meeting halls and provide a common platform to buyers and sellers for the promotion of garment and textile trade and to convene conferences, seminars, etc. and such places

[Gear Training and Research Foundation v. CIT(E), (2022) 134 taxmann.com 89 (Jpr Trib.)]

-----------------------------------------------------------------------------------------------

Section 11(1)(d) – Corpus donations

Meaning of “corpus”

Normally, "Corpus Fund" denotes a permanent fund separately accounted and capital in nature.

[CIT(E) v. Choice Foundation, (2022) 134 taxmann.com 163 (Ker)]

Illustrations of corpus donations

Donations towards infrastructure development ("infrastructure fund") is a voluntary contribution towards the corpus fund.

[CIT(E) v. Choice Foundation, (2022) 134 taxmann.com 163 (Ker)]

------------------------------------------------------------------------------------------------

Section 12A/12AA - Registration of an institution

Compliance with material requirements under other laws

Registration under section 8 of the Companies Act 2013

Merely because an assessee has been registered under section 8 of the Companies Act 2013, it does not mean it shall be eligible for grant of registration under section 12AA. However, where another arm of the government administering the company law legislation has examined the objects and intended application of profits and has granted the registration as section 8 company, it shall provide an additional level of comfort to the CIT(E) in terms of examining the true intent behind its objects of setting up/incorporation and also for the purposes of examining compliance of other laws material for achievement of its objectives under section 12AA(a)(ii)

[Gear Training and Research Foundation v. CIT(E), (2022) 134 taxmann.com 89 (Jpr Trib.)]

------------------------------------------------------------------------------------------------

Miscellaneous

Computation of income

Donation for construction of church, repairs and maintenance, borewells, burial grounds and two wheelers received by an unregistered charitable trust were held to be taxable.

[Church of Christ v. ITO(E), 2022 (1) TMI 980 - ITAT HYDERABAD]

Section 12A/12AA - Registration of an institution

• PAN

Registration granted under section 12AA to an entity under one PAN continues even when entity gets new PAN due to loss of earlier PAN

[ITO(E) v. Stella Maris Church, 2022-TIOL-108-ITAT-BANG].

Section12A(b) - Requirement to obtain and file audit report

Illustration

In the earlier round of litigation, the Tribunal vide its order dt. 12.08.2015, had set aside the issue and restored it to the AO to decide it afresh. The AO in pursuance of the said order, passed the impugned order under which, he yet again made an addition of Rs.7,13,26,199/-. The basis of making addition by the AO was that the assessee trust was under statutory obligation to get its accounts audited and obtain the audit report with the prescribed time which was not done.

The CIT(A) held that the registration under section 12A was granted vide order dated 07.01.2014 w.e.f 01.04.2010. Thereafter, the assessee got its account audited and submitted a report in Form No. 10B. These facts went to demonstrate that the assessee could not have submitted Form No. 10B before grant of registration by CIT.

The Tribunal observed that

(a) The CIT(A) had passed a detailed and a well reasoned order.

(b) The AO did not point out any specific defects in the account of the assessee.

(c) Merely because the accounts were audited post grant of registration u/s 12AA of the Act under the peculiarity of the present case, did not 'ipso facto' vitiate the authenticity of the accounts so furnished before the AO.

[DCIT(E) v. Hardayal Charitable and Educational Trust, 2022-TIOL-66-ITAT-DEL]

Section 12A/12AA - Registration of an institution

• Provisos to section 12A(2)

Provisos to section 12A(2) do not confer retrospective benefit to an assessee

[Bhagawan Sree Mahayogi Lakshmamma Educational Society v. ITO, 2022 (1) TMI 86 - ITAT HYDERABAD]

Section 12A/12AA - Registration of an institution

• Irrelevant factors for grant of registration/what cannot be examined at the stage of registration (up to 31-3-2021)

The assessee had made donations to an organisation which was not registered under section 12A and was also situated outside India

[CIT(E) v. Govardhan Foundation, (2022) 134 taxmann.com 32 (Cal)]

Proviso to section 2(15) - Charitable Purpose

• Illustrations of activities not constituting trade, commerce or business

> Activities of Trade Federation did not constitute trade, etc.

The assessee is a company incorporated under section 25 of the Companies Act, 1956. It was promoted by Surat Diamond Association, its other members and the Government of Gujarat for development of world class gem and jewellery park. The assessee also set up Custom House clearing and Administrative Office through which storage and clearance of diamonds for export could be managed easily. For development of Customs House and Administrative Building and Gem and Jewellery Parks for export of diamonds, the assessee received contribution from its members, being gem and jewellery exporters. After development of plot as gem and jewelry park respective plots were allotted to members only. The assessee was not dealing with any outsider other than its members for the purpose of receipt of funds and utilization thereof (complete identity between contributor and participators to fund existed). The case of the AO was that the assessee was carrying out activities in the nature of trade, commerce or business and consequently it could not be regarded as charitable organization and therefore the exemption under sections 11 and 12 should not be allowed to the assessee.

The Tribunal observed, inter alia, as follows:

(a) If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business, - particularly if generating 'surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature.

In assessee’s case, whatever surplus arose was purely incidental and no adverse inference of carrying out trade, commerce or business should be drawn in its case.

(b) where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2 (15) owing to the principle of mutuality.

In assessee’s case, the amount received from members was utilized solely for the benefit of the members only; there was a complete identity between contributors and participators to the fund of the assessee. In view of the same, it could be said that the assessee was not carrying out any activity in the nature trade, commerce or business.

[ITO(E) v. Gujarat Hira Bourse, 2022 (1) TMI 410 - ITAT SURAT following Tribunal order in assessee’s own case in ITA No. 2917/AHD/2014, 1967/AHD/2016 and ITA No.897/AHD/2017 respectively dated 22.06.2021]

Section 12A/12AA - Registration of an institution

• Illustrations of cases where registration granted

The assessee enjoyed registration under section 12A since 1995. The CIT(E) opined that

(a) the assessee had made donations to an organisation which was not registered under section 12A and was also situated outside India.

(b) to make donation beyond the border of India, the assessee was required to take prior approval from the CBDT. The assessee contended that the donations were made to a school in Nepal in terms of the clause 4(A) of the Trust Deed which did not prohibit the assessee from making such donations and Trust Deed was a registered deed under section 12A.

(c) the activities of the assessee were not genuine.

The assessee did not submit a reply and, therefore, the CIT(E) proceeded to pass the order in February 2017 holding that the activities of the assessee were not genuine and were not carried out in accordance with the objects of the Trust. The registration granted under section 12A on 14th December 1995 was cancelled by him with retrospective effect from 1st April, 2011 that is, from the financial year 2011-12 relevant to the assessment year 2012-13.

The Tribunal observed as follows:

(a) at the time when the registration was granted in 1995, the clauses contained in the trust deed were examined and the activities of the trust were found to be genuine and after recording satisfaction, registration had been granted. Therefore, such an issue could not have given rise to a cause of action for cancellation of the registration.

(b) the reason cited by the CIT for cancellation of the registration could not be a ground to do since it was admittedly an issue which could be dealt with by the AO, during the course of assessment.

The High Court observed as follows:

(a) the Tribunal, which is the final fact finding authority, had examined the entire facts including the conditions contained in the trust deed recorded a finding in favour of the assessee.

(b) there was no error in the approach of the Tribunal nor the conclusion arrived at by the Tribunal.

It held that no substantial question of law arose for its consideration.

[CIT(E) v. Govardhan Foundation, (2022) 134 taxmann.com 32 (Cal)]

Section 2(24)(iia)

Illustrations of items constituting income

All voluntary contributions (including corpus donations) received by unregistered specified trusts / institutions are income.

[Bhagawan Sree Mahayogi Lakshmamma Educational Society v. ITO, 2022 (1) TMI 86 - ITAT HYDERABAD]

Charities Update dt. 24/01/2022:

Section 2(15) - Charitable Purpose

• Illustrations of “charitable purpose”

The following constitute charitable purpose

(a) Organizing blood donation camps, etc.

(b) Promoting national integrity

(c) Helping at the time of natural and man made calamities

[Daman District Bhandari Samaj Daman v. CIT(E), 2021 (12) TMI 980 - ITAT SURAT]

Charities Update dt. 02/02/2022:

Section 11(1)(c) - Application of income to purposes outside India

There is no restriction under the Act to carry out charitable activities beyond the boundaries of India; the only consequence of carrying out such activities is that the amount spent cannot be regarded as application in India, and income is not exempt to this extent.

[Environmental And Social Research Organisation v. CIT(E), 2021-TIOL-2019-ITAT-MAD]

Charities Update dt. 02/02/2022:

Section 12A/12AA - Registration of an institution

Registration cannot be denied on the ground that some conditions of sections 11 and 12 are not fulfilled.

[Environmental And Social Research Organisation v. CIT(E), 2021-TIOL-2019-ITAT-MAD]

Charities Update dt. 02/02/2022:

Section 13 - Denial of exemption

Consequences of violation of section 13(1)(d)

Exemption under section 11 is lost only in respect of income which is derived from investments in violation of section 13(1)(d) and is available in respect of all other income derived by the charitable institution

[ACIT v. Navajbhai Ratan Tata Trust, TS-38-ITAT-2022(Mum)]

Charities Update dt. 02/02/2022:

Section 11(2), Explanation to section 11(2) and section 13(9) - Secondary accumulation (up to 5 years)

Application of accumulated income should be deemed to be initially from accumulated income and balance from current income

For the year under consideration, the income of the current year and income accumulated under section 11(2) were parked in deposits and savings account with scheduled banks. The maturity proceeds were again reinvested in deposits. Thus, the identity of monies as current year's income and income accumulated under section 11(2) was not possible. Consequently, the expenditure incurred towards the objectives of the Trust should be treated as application of income out of earlier years’ accumulation of income as declared by the assessee.

[JCIT(OSD)(E) v. Infosys Science Foundation, 2021 (12) TMI 1068 - ITAT BANGALORE]

Charities Update dt. 02/02/2022:

Section 12A/12AA - Registration of an institution

In CIT(E) v. Gettwell Health and Education Samiti, (2020) 115 taxmann.com 66 (Raj), the High Court had held that where CIT(E) did not decide application under section 12AA within six months from date on which matter was remitted by Tribunal, registration under section 12AA(2) would be deemed to be granted to the assessee. The Supreme Court has granted SLP against the said order

[CIT(E) v. Gettwell Health and Education Samiti, (2021) 133 taxmann.com 114 (SC)]

Charities Update dt. 02/02/2022:

Section 2(15) - Charitable Purpose

Preservation of environment

The object to conserve and enhance the natural environment and biodiversity so as to derive sustainable benefits for human kind from the mother nature is covered by “preservation of environment”.

[Environmental And Social Research Organisation v. CIT(E), 2021-TIOL-2019-ITAT-MAD]

Charities Update dt. 02/02/2022:

Section 11(1) - 11(1)(a) - Income

Illustrations of items not constituting income

Dividend income exempt under section 10(34) and long term capital gains exemption under section 10(38) do not constitute income under section 11(1)(a)

[ACIT v. Navajbai Ratan Tata Trust, TS-38-ITAT-2022(Mum)] (assessment year 2008-09)

Charities Update dt. 24/01/2022:

Section 11(1) - 11(1)(a) - Religious purposes

Mere celebration of festivals does not constitute religious purpose

The assessee’s objects (other than main objects) provided that the assessee may celebrate festivals such as Ganesh, Janmastami, Jalaram Jayanti, Navratri, Diwali, New Year and Holi. The Tribunal held that merely because this activity was mentioned in the objects, it did not become religious activity

[Daman District Bhandari Samaj Daman v. CIT(E), 2021 (12) TMI 980 - ITAT SURAT]

Charities Update dt. 02/02/2022:

Proviso to section 2(15) - Charitable Purpose

• Illustrations of activities not constituting trade, commerce or business

Sponsorship income

The assessee was engaged in holding of talks and events for cancer awareness and prevention in different sections of people with sponsorship and contributions from business entities.

The Tribunal observed that

(a) as per the objects of the Trust, the activity was not on profit basis

(b) the intent, the overall scheme and theme of activities actually undertaken was to make people at large aware of cancer disease, its dangers and what preventive care against the same was possible.

(c) deduction of TDS would not convert a sponsorship for events/donations into commercial receipt on the basis of presumptive inference.

(d) surplus generated in the charitable activity, by itself does not make the activity for making profit or in the nature of trade, commerce or business.

[Mancan Foundation v. CIT(E), 2021-TIOL-537-ITAT-JAIPUR]

Charities Update dt. 24/01/2022:

Proviso to section 2(15) - Charitable Purpose

• Printing of cards for the welfare of the poor and destitute children did not constitute a business

The assessee was running a printing press and publishing a newspaper. The Court held that the profit so generated was used for charitable purposes and apparently there was no profit motive in the activities of the assessee. Hence, it could not be said that the assessee was involved in any trade, commerce or business.

[PCIT v. Servants of People Society, (2021) 133 taxmann.com 244 (Delhi)]

Charities Update dt. 24/01/2022:

Section 2(15) - Charitable Purpose

• Illustrations of activities regarded as education

Hostels for students

Running hostels for the students as per UGC Guidelines by an assessee running engineering college should be construed as intrinsic part of the 'educational activities' of the assessee, in the absence of any evidence to show that the hostel facilities were provided to any person other than students and staff of the society.

[Ideal Institute of Technology Society v. JCIT, 2022-TIOL-60-ITAT-DEL]

Charities Update dt. 24/01/2022:

Proviso to section 2(15) - Charitable Purpose

• Business

There is no condition in the law that the institution seeking exemption should not generate a quantitative surplus.

[CIT(E) v. Contai Rotary Community Welfare Trust, 2021 (12) TMI 412 - CALCUTTA HIGH COURT]

Charities Update dt. 24/01/2022:

Section 2(15) - Charitable Purpose

• Illustrations of activities regarded as “medical relief”

The activity of running X-ray centre where X-ray services are provided at substantially low rates with marginal / negligible profit is covered by medical relief.

[CIT(E) v. Contai Rotary Community Welfare Trust, 2021 (12) TMI 412 - CALCUTTA HIGH COURT]

CSR Update dt. 12/01/2022:

• Deduction under section 80G is available in respect of CSR contribution.

[Naik Seafoods Pvt. Ltd. v. PCIT, TS-1157-ITAT-2021(Mum)].

Charities Update dt. 29/12/2021:

Section12A - 12AA - Registration of an institution

Jurisdiction of CIT(E) where original order is set aside by Tribunal

In case of an order under section 12AA rejecting the application for registration restored by the Tribunal for fresh consideration, the jurisdiction of the PCIT(E) is limited to the issues mentioned in the original order and if he has not drawn any adverse inference in respect of these issues, the fresh order denying the registration is bad in law.

[Lord Shiva Educational Welfare Society v. CIT(E), 2021-TIOL-1945-ITAT-AMRITSAR]

Charities Update dt. 29/12/2021:

Section 2(15) - Charitable Purpose

The registration under the Societies Registration Act 1860 may not be the conclusive regarding satisfaction of the definition of charitable purpose

[Nirmithi Kendra v. DCIT(E), 2021 (12) TMI 602 - KERALA HIGH COURT]

Charities Update dt. 29/12/2021:

Proviso to section 2(15) - Charitable Purpose

During the year under consideration, the assessee had undertaken construction activities as well as sale of materials to the public. The assessee was engaged in executing various construction projects which included

(a) General projects

(b) MPLADS projects and

(c) MLA projects

The assessee received funds for undertaking these projects and these projects were undertaken by the assessee in a very systematic and organized manner.

The Tribunal held that the case of the assessee was hit by the proviso to section 2(15). The High Court affirmed the Tribunal order

[Nirmithi Kendra v. DCIT(E), 2021 (12) TMI 602 - KERALA HIGH COURT]

Charities Update dt. 29/12/2021:

Section12A - 12AA - Registration of an institution

Onus on assessee

Registration can be refused if the appellant has not complied with the notice However, keeping in view the difficulties being faced on account of Covid-19 pandemic, in the interest of justice, the Tribunal remanded the matter to the CIT(E) to grant one more opportunity to the appellant to comply with the notice.

[Solapur CETP v. CIT(E), 2021-TIOL-1957-ITAT-PUNE]

Charities Update dt. 29/12/2021:

Section 2(15) - Charitable Purpose

Illustrations of “charitable purpose”:

• Organizing free of cost Bhandara
• Running “Dharmarth” Aushadhalaya
• Running Satsang and Bhakti lectures
• Running gaushala

[Shri Baba Balakpuri Dharmarath Aushadhalaya Trust v. CIT(E), 2021-TIOL-1887-ITAT-DEL]

Charities Update dt. 20/12/2021:

Miscellaneous

Rate of tax

The following income is chargeable to tax at maximum marginal tax (MMR):

(a) Income taxable to the extent of payment where tax is not deducted; or

(b) income taxable to the extent of labour charges in statutory violation

[Ilahia Trust v. CIT, 2021 (12) TMI 369 - KERALA HIGH COURT]

[Note: The High Court has not explained why section 164(2) requiring taxation as AOP is not applicable]

Charities Update dt. 20/12/2021:

Section 80G

Section 80G(5B)

Meaning of “total income”

For the purpose of ascertaining whether expenses on religious purposes are less than 5% of the total income, the expression “total income” in section 80G(5B) could mean total receipts including corpus donations.

[See Shri Shridhar Gyan Prasar Parmarthik Trust Rajgad v. CIT(E), 2021 (12) TMI 93 - ITAT INDORE]

Charities Update dt. 20/12/2021:

Section 13 - Denial of exemption - Section 13(1)(c)

The AO should examine the assessee's records properly before coming to come to the conclusion that benefit directly or indirectly, from the property or the income has been derived by the person mentioned under section 13(3)

[Chandigarh Educational Trust v. PCIT(C), 2021-TIOL-1924-ITAT-CHD]

Charities Update dt. 20/12/2021:

Section12A/12AA - Registration of an institution provisos to section 12A(2)

Retrospective in operation

(a) The provisos to section 12AA(2) apply with retrospective effect from the date from which section 12A provided for registration under section 12AA as a pre-condition for applicability of section 11 and 12.

(b) An assessment proceeding which is pending in appeal before the appellate authority should be deemed to be 'assessment proceedings pending before the assessing officer' within the meaning of that term as envisaged under the proviso. Hence an assessee which has obtained registration under section 12AA during the pendency of appeal is entitled for exemption claimed under section 11.

[Prem Prakash Mandal Sewa Trust v. ITO(E), (2021) 132 taxmann.com 269 (Raipur - Trib.)]

(In view of the aforesaid factual and legal discussion and considering the facts that assessee was granted registration under s.12AA w.e.f. 1-4-2015, vide order dated 9-5-2016, when the appeal of assessee was pending before learned CIT(A). Therefore we direct the Assessing Officer to grant the benefit of Section 11 & 12 for AY 2008-09.)

Charities Update dt. 20/12/2021:

Section12A - 12AA - Registration of an institution

Illustrations where registration denied

A society having immovable properties but not registered under Indian Registration Act or under Societies Registration Act cannot be registered under section 12AA

[Arya Vysya Samajam v. ITO(E), ITA No.1755/Chny/2019, dt.25.10.21]

Charities Update dt. 20/12/2021:

Section12A - 12AA - Registration of an institution

A reasonable opportunity of being heard is to be given before rejection of application and the fact that in the past, adjournments were sought would not be material.

[Chandigarh Educational Trust v. PCIT(C), 2021-TIOL-1924-ITAT-CHD]

Charities Update dt. 20/12/2021:

Section12A - 12AA - Registration of an institution

Onus on assessee

The onus is on the assessee who seeks registration to engage a counsel, participate in the proceedings and make available the relevant documents. Without ensuring that the documents are placed on record, the onus placed upon the assessee cannot be said to be properly discharged in law. In the absence of proper compliance on the part of the assessee, the CIT(E) is at liberty to pass an order on the basis of material available on record.

[Sadhna Ashram Trust v. CIT(E), 2021 (12) TMI 364 - ITAT DELHI]

Charities Update dt. 20/12/2021:

Proviso to section 2(15) - Charitable Purpose

Income of a chamber of commerce

The assessee is a non-profit company incorporated, inter alia, for the purposes of promoting and protecting the trade, commerce and manufacturers of India and in particular the trade, commerce and manufacturers of the Bombay Presidency.

During the relevant year, the income streams of the assessee were as follows:

(a) Certificate of origin fees - Rs.2,81,06,980

(b) Secretarial Fees - Rs.5,00,000

(c) Labour advisory Fees - Rs.21,91,605

(d) Seminar and training programmes - Rs.43,61,134

(e) Conference and exhibition - Rs.48,22,078

(f) Advertisements - Rs.26,15,000

(g) Sale of in house publications- Rs.3,90,269

The Tribunal noted that the issue in the appeal was covered in favour of the assessee in Indian Chamber of Commerce v. ITO, (2015) 67 SOT 176 (Kol). It also observed that the amounts received were not in nature of trade (since there was no exchange of goods either for goods in return or money) or commerce (since it was not engaged in purchase and sale of goods) or business (since the appellant was a non-profit making body formed with the promotion of protecting the trade, commerce and manufacture of India and in particular the Bombay Presidency).

In view of the above, it held that the activities carried out by the assesse continued to be charitable in nature even under the amended definition of charitable purpose in section 2(15) of the Act.

[Bombay Chamber of Commerce & Mackinnon Mackenzie Building v. ITO(E), 2021 (10) TMI 224 - ITAT MUMBAI]

Charities Update dt. 20/12/2021:

Section 11(1) - 11(1)(a)

Illustrations of payments not regarded as “application of income”

The following payments cannot be regarded as application of income:

(a) Payments where default is made in TDS

(b) Labour charges in violation of the statutory provision

[Ilahia Trust v. CIT, 2021 (12) TMI 369 - KERALA HIGH COURT]

Charities Update dt. 20/12/2021:

Section 11(1) / 11(1)(a) and Explanation 1 to section 13(1)

Illustration where “legal obligation” is not constituted

A society with immovable properties but not registered under Indian Registration Act or under Societies Registration Act cannot be considered as legal obligation

[Arya Vysya Samajam v. ITO(E), ITA No.1755/Chny/2019, dt.25.10.21]

Charities Update dt. 13/12/2021:

Section 13 - Denial of exemption

The following facts are relevant in determination of reasonableness of remuneration to Trustees

• The recipient has filed return of income reflecting the salary
• The salary in accordance with the normal pay-scales of the positions held by the Trustees

The AO cannot sit in the armchair of an assessee and decide the pattern of working, methodology to be adopted for whole administration of the trust including the payment structure of salary/remuneration to be paid to the professors/administrative staffs. In other words, he cannot manage or control the managerial affairs of the educational trust.

[See CIT(E)/DCIT(E) v. Krupanidhi Education Trust, 2021 (11) TMI 382 - KARNATAKA HIGH COURT].

Charities Update dt. 13/12/2021:

Section 2(15) - Charitable Purpose

Illustrations of activities regarded as ‘education’

Publication / provision of text books, other books, journals is incidental to furtherance of the objective of imparting education.

[The Association of Physician of India v. DIT, 2021 (11) TMI 850 MUMBAI]

Charities Update dt. 13/12/2021:

Section 11(1) - 11(1)(a)

Sub grant to the University of Texas, USA out of the funds received earlier from National Institute of Health (NIH), was allowable as application of income “in” India.

[Hariday v. ADIT, 2021 (10) TMI-ITAT DELHI]

Charities Update dt. 30/11/2021:

Section 13 - Denial of exemption

Illustration of a case in which section 13(1)(c) was held inapplicable (that is, no benefit to interested persons)

Parameters for determination of reasonableness

Cost of salary to interested party as a percentage of total salaries could be relevant in justifying the adequacy of remuneration to an interested party.

[DCIT(E) v. C T Educational Society, 2021-TIOL-1853-ITAT-CHD]

Charities Update dt. 30/11/2021:

Section 13 - Denial of exemption

Illustration of a case in which section 13(1)(c) was held inapplicable (that is, no benefit to interested persons)

Advance for supply of goods

The AO found that the assessee society had made interest free advances to its members and transaction was covered under provisions of section 13(1)(c) and 13(1)(d) read with Section 13(3). It was explained by the Society that same were in fact not interest free advances, but were given towards consideration for purchase of land which, in fact was given by the members to the assessee for construction of building for educational activity of the assessee. The AO, however, made addition of Rs.1,98,48,600 on account of notional interest @ 12% per annum on such interest free advances.

The CIT(A) found that the members had agreed to sell their land for construction of building for activities of the assessee, which, as per its convenience, paid the sale consideration in installments, spread over a period. Ultimately the sale deeds were executed at the Collector rate. Accordingly, he deleted the addition of Rs.1,98,48,600 made by the AO on account of notional interest charged on the amount of advance paid by the society.

The Tribunal observed that it was duly proved that the payments were made to the members for the purchase of land and such payments were made at arms length price. In view of the above, the Tribunal did not find any infirmity in order of the CIT(A) and upheld it.

[DCIT(E) v. C T Educational Society, 2021-TIOL-1853-ITAT-CHD]

Charities Update dt. 30/11/2021:

Section 13 - Denial of exemption

Illustration of situation in which section 13(2)(c) was held inapplicable

Reasonable salary paid to the interested party

The AO found that the assessee had paid excessive salary to its members and thus contravened section 13(2)(c). He disallowed a sum of Rs.46,75,933 paid to members towards salary.

The CIT(A) observed that

(a) the AO held that the payments made by the society on account of salary as unreasonable mainly on account of the fact that the persons were engaged in other activities and had their other sources of income.

(b) the total payments made by the society on account of salaries to these persons was less than 2.5% of the total expenditure incurred on account of salaries.

(c) these facts and figures were not considered by the AO before making the disallowance.

(d) no adverse material was brought on record by the AO to hold that services were not rendered by these persons and payments made to these specified persons were excessive and unreasonable.

Accordingly, the CIT(A) deleted the disallowance made by the AO. The Tribunal held that it did not find any infirmity in the order of the CIT(A)

[DCIT(E) v. C T Educational Society, 2021-TIOL-1853-ITAT-CHD]

Charities Update dt. 30/11/2021:

Section 12A/12AA(3) - Cancellation of registration

Illustration where cancellation of registration under section 12AA(3) was held as not justified

The CIT(E) cancelled the registration granted under section 12AA on the ground that the donation received from two parties aggregating to Rs.70 lakhs were bogus to avail wrongful tax benefits by abuse of status of charitable trust. The assessee put forth several contentions, including the following, to assail the cancellation order

1. The CIT(E) heavily relied upon the statement of the founder Director of the donor to question the bonafides of the activities of the assessee trust. The solitary allegation levelled by the CIT(E) was primarily based on assessment order under section 143(3) r.w.s. 147 of the Act passed by the AO.
2. A vague and non-descript statement and that too recorded under section 133A does not carry any evidentiary value, in the absence of any tangible evidence to corroborate the assertions made against the deponent in the light of the decision in CIT v. S. Khader Khan Son [2013] 352 ITR 480 (SC).

iii. The activity of the trust of running the school was never doubted in the past nor the application or utilization of the fund was ever doubted by the CIT(E) in any of the year since inception.

1. No single instance was recorded by the CIT(E) or by the AO that assessee trust was generating any unaccounted cash by any means, which has been allegedly transferred to the donor in lieu of receiving the donation. Pertinently in AY 2011-12, the assessee trust was eligible to receive the donation in cash.
2. In the light of the judicial precedents, the additions to the extent of alleged ingenuine donations may, at best, be plausible in law and registration of the charitable trust per se cannot be withdrawn and cancelled on surmises and conjectures.

The Tribunal observed as follows:

(a) prima facie there was merit in the various pleas advanced on behalf of the assessee

(b) It is a settled principle of law that the onus lies on the person who alleges untruthfulness against the other persons. In the instant case, the allegation has been made on behalf of the Revenue for adversial conduct of the assessee. It is thus the duty of the Revenue to comply with the sacrosanct principles of natural justice and grant opportunity to the assessee for rebuttal of evidences in possession of the Revenue.

(c) The registration already granted cannot be withdrawn arbitrarily and in a light hearted manner giving retrospective effect.

(d) All pleas canvassed on behalf of the assessee require proper appraisal and disposal thereof in an objective manner.

(e) The order of the CIT(E) is required to deal with various pleas of the assessee

(f) The doctrine of legitimate expectations demands that the assessee should be made privy to the tangible evidences in corroboration of statement sought to be relied upon.

(g) Similarly, the cross examination of deponent's statement is incumbent to prevent miscarriage of justice.

(h) The CIT(E) while cancelling the registration appears to have wrongfully placed the onus of proving bonafides of donations on the assessee without showing reasons/evidence for drawing adverse conclusion on a registered trust.

Accordingly the Tribunal set aside the cancellation order and restored the issue to the CIT(E) to pass a speaking order in this regard after making objective analysis of the facts and circumstances of the case in its entirety and in accordance with law.

[Shree Jainarayan Hariram Goel Charitable Trust v. CIT(E), (2021) 130 taxmann.com 493 (Raipur Trib)]

Charities Update dt. 30/11/2021:

Section 12A/12AA(3) - Registration

For grant of registration, it is irrelevant that no activity or minimum activity has been carried out by the institution.

[Ashok Kiran Charitable Trust v. CIT(E), 2021 (11) TMI 380 - ITAT LUCKNOW]

Charities Update dt. 30/11/2021:

Section 12A/12AA(3) - Cancellation of registration

Illustration where cancellation of registration under section 12AA(3) was held as not justified

The CIT(E) cancelled the registration granted under section 12AA on the ground that the donation received from two parties aggregating to Rs.70 lakhs were bogus to avail wrongful tax benefits by abuse of status of charitable trust. The assessee put forth several contentions, including the following, to assail the cancellation order

1. The CIT(E) heavily relied upon the statement of the founder Director of the donor to question the bonafides of the activities of the assessee trust. The solitary allegation levelled by the CIT(E) was primarily based on assessment order under section 143(3) r.w.s. 147 of the Act passed by the AO.
2. A vague and non-descript statement and that too recorded under section 133A does not carry any evidentiary value, in the absence of any tangible evidence to corroborate the assertions made against the deponent in the light of the decision in CIT v. S. Khader Khan Son [2013] 352 ITR 480 (SC).

iii. The activity of the trust of running the school was never doubted in the past nor the application or utilization of the fund was ever doubted by the CIT(E) in any of the year since inception.

1. No single instance was recorded by the CIT(E) or by the AO that assessee trust was generating any unaccounted cash by any means, which has been allegedly transferred to the donor in lieu of receiving the donation. Pertinently in AY 2011-12, the assessee trust was eligible to receive the donation in cash.
2. In the light of the judicial precedents, the additions to the extent of alleged ingenuine donations may, at best, be plausible in law and registration of the charitable trust per se cannot be withdrawn and cancelled on surmises and conjectures.

The Tribunal observed as follows:

(a) prima facie there was merit in the various pleas advanced on behalf of the assessee

(b) It is a settled principle of law that the onus lies on the person who alleges untruthfulness against the other persons. In the instant case, the allegation has been made on behalf of the Revenue for adversial conduct of the assessee. It is thus the duty of the Revenue to comply with the sacrosanct principles of natural justice and grant opportunity to the assessee for rebuttal of evidences in possession of the Revenue.

(c) The registration already granted cannot be withdrawn arbitrarily and in a light hearted manner giving retrospective effect.

(d) All pleas canvassed on behalf of the assessee require proper appraisal and disposal thereof in an objective manner.

(e) The order of the CIT(E) is required to deal with various pleas of the assessee

(f) The doctrine of legitimate expectations demands that the assessee should be made privy to the tangible evidences in corroboration of statement sought to be relied upon.

(g) Similarly, the cross examination of deponent's statement is incumbent to prevent miscarriage of justice.

(h) The CIT(E) while cancelling the registration appears to have wrongfully placed the onus of proving bonafides of donations on the assessee without showing reasons/evidence for drawing adverse conclusion on a registered trust.

Accordingly the Tribunal set aside the cancellation order and restored the issue to the CIT(E) to pass a speaking order in this regard after making objective analysis of the facts and circumstances of the case in its entirety and in accordance with law.

[Shree Jainarayan Hariram Goel Charitable Trust v. CIT(E), (2021) 130 taxmann.com 493 (Raipur Trib)]

Charities Update dt. 30/11/2021:

Section 12A/12AA(3) - Registration

Utilisation of funds

Registration of an institution cannot be denied merely on the ground that the assessee had incurred expenses which according to CIT(E) did not qualify as utilization for charitable purposes.

[Small Farmer Agri-Business Consortium v. CIT(E), 2021 (11) TMI 417 - ITAT CHANDIGARH]

Charities Update dt. 30/11/2021:

Section 2(15) - Charitable Purpose

Relief to small and marginal farmers in need of aid:

The assessee society was implementing the various new projects launched by the State Government as Crop Cluster Development Programme for Horticulture Clusters, which was to be implemented through Farmers Producers Organisation (FPO) and this programme was aimed at backward and forward integration by creating farm infrastructure the FPO, in turn, enabled the farmers in enhancing the productivity through efficient cost effective and sustainable resources. It also removed hurdles in enabling farmers access to the market both as buyers and sellers. Therefore, the main object of the assessee was to work for the benefit of the small and marginal farmers and to protect their interest which came under the definition of relief of the poor as clarified in Circular No. 11/2008 dt. 19/12/2008 issued by CBDT

[Small Farmer Agri-Business Consortium v. CIT(E), 2021 (11) TMI 417 - ITAT CHANDIGARH]

Charities Update dt. 23/11/2021:

Section 115BBC - Anonymous donations

Illustrations where donations have not been treated as anonymous donations

The activities of the assessee included running of medical college, running a hospital approximately 30 km from Indore in a rural area where the villagers and people at large were provided free medical facilities and free medicines. The assessee received donation towards corpus funds of Rs.14,06,75,754 and Rs.20,50,90,750 during assessment year 2013-2014 and assessment year 2015- 2016 retrospectively.

The assessee provided the complete list of 27746 persons for A.Y. 2013-14 who have given cash donation of Rs.14,06,75,754 and list of 38625 contributors to donation of Rs.17,23,85,000. It also gave details of PAN for donations of Rs.4, 35,00,000 containing details of the name and address of the person, age, gender and father/husband name. The AO however, was not satisfied with these details and questioned the genuineness of such donation because

(a) PAN was not given in most of the cases; or

(b) wrong/invalid PAN was cited; or

(c) incomplete/wrong address was given; or

(d) summons were returned unserved.

The Tribunal observed as follows:

(a) if a person receiving a voluntary contribution maintains the records of the identity of donor indicating name and address of the person making such contribution, then such voluntary contribution cannot be treated as anonymous donation.

(b) the AO has alleged that the assessee’s case falls under section 115BBC(3). However, for holding so the AO should have given a finding that the assessee had not maintained the record of name, address of the person giving such contribution.

(c) the assessee has prepared complete list of the donors giving voluntary contribution which included the name, gender/father’s/husband’s name, address and the amounts received and the same were duly accounted for in books of accounts regularly maintained and audited. A perusal of these details showed that donations were received from thousands of persons residing in the villages. It is a well-known fact that if in the address, name of village is mentioned, it does not a tantamount to show that the address is incomplete because in small villages consisting of a few 100 houses, the people are known by name. Normally, the small villages don’t have street no. or house no.; some small villages do not have even post office so there is no pin code number also. In such circumstances the AO ought to have taken positive view in totality of facts that the assessee was running 1200 bed facility hospital which was providing free of cost treatment to hundreds and thousands of the villagers and also giving them free medicines. There were several small villages in the close vicinity of hospital and there were no other good hospitals or medical facilities providing such type of voluntary charitable services. When a person is given free of cost good treatment and free medicines and there is no obligation on him for making any sort of payments than in such circumstances when such a person gets discharged from the hospital, he/she or his/her family members are happy to give some voluntary contribution at the specific counter provided in the hospital and a receipt for the same is also issued to them.

(d) the AO issued summons to many of such donors of people of which some were returned unserved but in many cases confirmations were received and the villagers have either signed or have put their thumb impression.

(e) around 200 confirmation were filed by the assessee before the AO

(f) the assessee’s accounts are duly audited and details of name and address of each and every donors was maintained and were produced before the Tribunal confirmations of many donors were also been placed on record.

The Tribunal held that looking to the totality of facts, the alleged donation could not be held to be an ‘anonymous donation’ as provided under section 115BB(3).

[DCIT(E) v. Mayank Welfare Society, ITA No.232/Ind/2017, dt. 29.10.2021]

Charities Update dt. 23/11/2021:

Section 12A/12AA(3) - Cancellation of registration

Registration cannot be cancelled under section 12AA(3) on the ground that the section 13 would apply to the charitable institution

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 12A/12AA(3) - Cancellation of registration

On the facts stated in para 2(a) above, the Tribunal observed that CIT erred in cancelling the registration under section 12AA(3) and 12AA(4) without placing any material evidence which could indicate that the assessee was not running for the charitable objects for which it was established and when no doubt has been raised about genuineness of the activities carried out by the assessee society with regard to imparting of education and carrying out charitable activities.

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 13 - Denial of exemption

Illustrations of cases in which section 13(1)(c) was held inapplicable (that is, no benefit to interested persons)

A search and seizure action was carried out on the trustee group and certain loose papers were found. In the alleged loose sheets there was a summary of transactions for the period 01.04.2009 to 30.06.2010 including consolidated figures for assets expenses, liabilities source of funds etc. In the last line of the sheet, it was is mentioned that “shortage of cash, [V (Trustee)] as on 30.06.2010” and an amount of Rs.5,61,877 was mentioned against it.

The Tribunal observed that, it was not proved that Mr. V (Trustee) had taken money because in the alleged loose sheets only shortage of cash was mentioned as “V”. It nowhere indicated that the alleged sum of Rs.5,61,877 had been taken by from the society. Under these given facts and circumstances of the case, the alleged addition of Rs.5,61,877 had been made by AO merely on surmises and conjectures which deserves to be deleted.

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 12A/12AA(3) - Registration

Proviso to section 2(15) is irrelevant in grant of the registration

[BCCI v. PCIT, (2021) 132 taxmann.com 132 (Mum Trib)]

Charities Update dt. 23/11/2021:

Section 12A/12AA(3) - Registration

Application to CIT(E) by a charitable institution upon change or modifications of objects [Section 12A(1)(ab)].

Section 12(1)(ab) provides that application for registration is required when the modification in objects of a charitable institution do not confirm to the conditions under which the registration was granted. In this connection, the Tribunal has held as follows:

(a) a comparison has to be made between the objects in pre-amendment memorandum of association and the amended memorandum of association and unless there are significant variation between the two, the provisions of section 12A(1)(ab) will not be applicable.

(b) There is a vital distinction between ‘object’ and ‘power’ in deciding the claim of registration under section 12AA and application for registration under section 12A(1)(ab) is required only on modification of “objects” and not powers.

(c) Any modification undertaken pursuant to directions from the Supreme Court was not to be considered as “not in conformity” with the pre-amendment memorandum of association.

[BCCI v. PCIT, (2021) 132 taxmann.com 132 (Mum Trib)]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Activities of a cricket association

The assessee, Board of Control for Cricket in India (“BCCI”), is conducting IPL matches. The PCIT held that the assessee was not entitled to registration.

The Tribunal noted that it did not have to decide whether the IPL matches were commercial in nature in deciding the claim of registration under section 12A. However, it observed that “on the face of it”, what is important is the object of promoting cricket and if IPL also can be said to be within the object of promoting cricket, which is the predominant object of BCCI, then, merely because IPL is more entertaining or more economically viable, it cannot be said that BCCI is not following the object of promoting cricket.

[Note: The observations appear to be in the nature of obiter and the Tribunal did not conclusively decide that the conduct of IPL does not result in trade, commerce or business within the meaning of the proviso to section 2(15) and that the said proviso does not apply.]

[BCCI v. PCIT, (2021) 132 taxmann.com 132 (Mum Trib)]

Charities Update dt. 23/11/2021:

Section 11(1) - 11(1)(a) and section 13(7)

Addition on the basis of loose papers

On the facts stated in para 2(a) above, it was held that in absence of any corroborative evidence brought on record by both lower authorities and CIT (DR) there was no justification in finding of the CIT(A) sustaining the addition of Rs.8,47,694 on account of unrecorded fees of the assessee and the same was directed to be deleted.

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

If any assessee is engaged in any activity with a desire to earn profits, the object of 'general public utility' will be only a mask or a device to hide the true purpose, and the proviso will become applicable.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 23/11/2021:

Section 11(1A) - Application of capital gains

No adjustment under section 11(1A) can be made in intimation under section 143(1).

[Ceylon Pentecostal Mission v. ACIT(CPC), 2021 (10) TMI 509 - ITAT CHENNAI]

Charities Update dt. 23/11/2021:

Section 11(2), Explanation to section 11(2) and section 13(9)

Section 11(2) is a beneficial provision; therefore, while considering such beneficial provision, the CIT(A) should consider the issue without going into technicalities or procedural lapses.

In the intimation under section 143(1), the AO cannot make adjustment to total income for non-submission of Form No.10 along with return of income.

Where there is no regular assessment proceedings under section 143(3), the assessee does not have an occasion to file necessary Form 10 before the AO; in such circumstances Form 10 can be filed during appellate proceedings before CIT(A)

[Ceylon Pentecostal Mission v. ACIT(CPC), 2021 (10) TMI 509 - ITAT CHENNAI]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Activities of a cricket association

The assessee, Board of Control for Cricket in India (“BCCI”), is conducting IPL matches. The PCIT held that the assessee was not entitled to registration.

The Tribunal noted that it did not have to decide whether the IPL matches were commercial in nature in deciding the claim of registration under section 12A. However, it observed that “on the face of it”, what is important is the object of promoting cricket and if IPL also can be said to be within the object of promoting cricket, which is the predominant object of BCCI, then, merely because IPL is more entertaining or more economically viable, it cannot be said that BCCI is not following the object of promoting cricket.

[Note: The observations appear to be in the nature of obiter and the Tribunal did not conclusively decide that the conduct of IPL does not result in trade, commerce or business within the meaning of the proviso to section 2(15) and that the said proviso does not apply.]

[BCCI v. PCIT, (2021) 132 taxmann.com 132 (Mum Trib)]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Surplus

Mere surplus does not mean there is profit motive.

It is not necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on a "no profit no loss" basis or that the profit shall proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on, and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive.

Whether an entity is carrying on activity is in the nature of trade, commerce or business is a question of fact, which is to be decided based on the nature, scope, extent and frequency of the activity.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Activities of government agencies, statutory authorities

The assessee was a Board established under section 3 of Karnataka Housing Board Act,1962( hereinafter referred to as KHB Act) as a successor of Mysore Housing Board which was constituted in the year 1956. The State Government of Karnataka had passed the KHB Act with a view to satisfy the need of housing accommodation in the State of Karnataka. The AO was the opinion that assessee earned profit over a period of time in preceding years, ranging more than 10% and that it was involved in the systematic commercial activity in the nature of sale of sites, apartments, houses, most of which was through open auctions to the highest bidder. The AO thus held that, assessee was running its activities on commercial principles and denied exemption under section 11 for years under consideration.

The Tribunal observed as follows:

(i) the main source of revenue generated by assessee was from sale of sites and houses as compared to the income generated from housing schemes. Hence, the assessee had undertaken majority of activities which could not be construed to be charitable in nature since they were based on commercial principles.

(ii) The EMD/Registration fee forefited by the assessee could not be regarded in respect of a housing scheme floated for general public utility/interest.

(iii) the assessee consistently earned substantial profit in its activity. Therefore, the activity had been carried on with profit motive in the same manner in which a private builder would conduct his business. It cannot be said that such activities were incidental to the main object of the trust.

(iv) Apart from this, the activity of construction and sale of immovable property cannot be the object but only a mean to achieve the object of development of area in accordance with the plan. Therefore, while the object in a given case may be a charitable purpose, not involving profit, the activities undertaken by assessee in pursuance of the object, attained the colour of business.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Addition on the basis of loose papers

The assessee society was registered under the M.P. Society Registration Act, 1973. The AO, based on loose sheets seized during search, held that the assessee had earned business income. The Tribunal observed as follows:

(i) Except for the alleged seized loose papers which only indicated some accounting figures that also for a particular period, nothing else had been brought it which could question the genuineness of the activity of imparting education being carried out by the assessee society.

(ii) All the discussion were only confined to the loose papers.

(iii) Revenue authorities had not disputed the fact that the colleges owned by the society were running regularly for imparting education under various streams for last many years, under the approval of related organization of Central Government.

The Tribunal held that under the given facts and circumstances, both lower authorities erred in treating income of assessee as business income.

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 2(15) - Charitable Purpose

Providing cheaper residential and commercial properties to the public is a charitable purpose.

Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It therefore, includes within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 15/11/2021:

Proviso to section 2(15) - Charitable Purpose

Activities of State Transport Corporation

The assessee was formed under the Road Transport Corporation Act 1950 (RTC Act) to provide economic and efficient transport system to the public. The AO came to conclusion that the assessee was involved in activities in the nature of business and was, therefore, not existing for charitable purposes as per proviso to section 2(15) of the Act for the following reasons:

(a) The assessee generated revenue from operations and miscellaneous income of Rs.1515,06,05,000 and Rs.150,92,67,000/- respectively and these incomes included income from streams which were commercial in nature.

(b) It was providing buses on hire for excursion, wedding, pilgrimage etc., to general public and collecting charges for such letting on commercial basis.

(c) It was providing advertisements on buses and charging substantial fees.

(d) It was carrying activities which were akin to business venture rather than charitable organization.

The Tribunal observed as follows:

(a) The assessee was a statutory corporation established under the RTC Act.

(b) It was not driven by profit motive but was for providing transportation facilities to members of the public.

(c) The State Government fixed fares for travel by public.

(d) Buses plied in areas even where it is not economically viable.

(e) Section 18 of the RTC Act laid down duties of the assessee which was to provide, secure and promote efficient, adequate, economical and properly coordinated system of road transport services in the State of Karnataka.

(f) Section 22 of the RTC Act laid down that the corporation should act on business principles in the sense it has to recover the cost of services rendered to the public which means that it cannot provide service free of cost.

(g) Section 30 of the RTC Act provided how profits of the corporation shall be disposed and it laid down that the same shall be used only for road development.

(h) From the various provisions of the RTC Act it could be seen that the dominant and prime objective of the assessee was not profit making.

The Tribunal held that keeping in mind the above factual aspects and the provisions of the RTC Act and the principle laid down in the decision of the Hon'ble Delhi High Court in the case of India Promotion Organization, it was shown that the assessee was not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The proviso to section 2(15) was therefore not applicable to the assessee.

[Karnataka State Road Transport Corporation v. ACIT(E), DCIT(E) v. Karnataka State Road Transport Corporation, 2021 (10) TMI 728 - ITAT BANGALORE].

Charities Update dt. 15/11/2021:

Proviso to section 2(15) - Charitable Purpose

Charges for provision of infrastructural facilities to industrial units

The assessee was formed as a special purpose vehicle to upgrade infrastructure at three industrial units through the cluster development programme initiated by the Government of India under the Industrial Infrastructure Upgradation Scheme, 2003. Accordingly, the assessee received grant from Central as well as State government in addition to contribution from industrial units located within three industrial estates. The assessee entered into a MoU with TANSIDCO to carry out various activities as per the agreement which would include improvement of infrastructural facilities at these three industrial estates. To meet the running cost, the assessee was allowed to collect maintenance / other charges from beneficiary units. The AO treated these charges as commercial receipts and denied the exemption

The CIT(A) after examining the primary objects of the assessee as well as the purpose for which it was established, came to a conclusion that the primary objective was charitable in nature and collection of fees was not to earn profit. Therefore, the assessee did not cease to be charitable in character so as to render it ineligible to claim benefits under section 11 and 12.

The Tribunal concurred with the findings of the CIT(A).

[ITO v. Chennai Auto Ancillary Industrial Infrastructure Upgradation Company, 2021 (10) TMI 1051 - ITAT CHENNAI]

Charities Update dt. 15/11/2021:

Section 12A/12AA(3) - Cancellation of registration

Circumstances in which registration of an institution can be cancelled

No cancellation when application is pending before Settlement Commission

When an application is pending before Settlement Commission for disposal, all powers of income tax authorities get exclusively vested with the Settlement Commission and not merely those powers for which the assessee is before the Settlement Commission. Hence, CIT(E) is not empowered to pass an order cancelling the registration granted to the assessee when the issue was still pending with Settlement Commission

[Rohilkhand Educational Charitable Trust v. PCIT(C), 2021 (10) TMI 1012 – ITAT Lucknow]

Charities Update dt. 15/11/2021:

Checklist for donation by a charitable trust to another charitable trust

Donation by a charitable trust to another charitable trust requires compliance with various provisions, non-compliance with which can entail onerous consequences for the donor trust. CIR now contains a revised checklist for giving such donations. We hope the subscribers will find it useful.

Charities Update dt. 15/11/2021:

Checklist for donation by a charitable trust to another charitable trust

Donation by a charitable trust to another charitable trust requires compliance with various provisions, non-compliance with which can entail onerous consequences for the donor trust. CIR now contains a revised checklist for giving such donations. We hope the subscribers will find it useful.

Charities Update dt. 15/11/2021:

Section 2(15) - Charitable Purpose

Providing economic and efficient transport system to the public by a statutory corporation is ‘advancement of any other object of general public utility’

[Karnataka State Road Transport Corporation v. ACIT(E), DCIT(E) v. Karnataka State Road Transport Corporation, 2021 (10) TMI 728 - ITAT BANGALORE].

Charities Update dt. 25/10/2021:

Section12A/12AB - Registration of an institution - New procedure for registration of a charitable institution under section 12AB

Once an application for registration under section 12AB is made in the prescribed form and manner by a trust/institution already registered under erstwhile section 12A/12AA.

(a) the PCIT or CIT has no discretion to call for documents or information or make enquiries.

(b) the PCIT/CIT does not have the power to satisfy himself about the objects or the genuineness of activities. The PCIT/CIT has no discretion either to grant or to reject the registration as sought for. He has to mandatorily pass an order in writing granting the registration [see section 12AB(1) which states that the PCIT/CIT ‘shall’ pass an order]. The reason is that if any adverse fact comes to the notice of the Tax Department, as against a registered trust (that it has allegedly violated any condition or provision of the Act), such issue can be dealt with separately after registration under section 12AB.

[S.R. TRUST v. PCIT, 2021 (9) TMI 1227 - MADRAS HIGH COURT]

Any subsequent registration would entail enquiries and satisfaction of the conditions mentioned for an institution where registration is due to expire [section 12A(1)(ac)(i) read with section 12AA(1)(b)]}.

Charities Update dt. 25/10/2021:

Section 12AB(4)/(5) - Cancellation of registration (w.e.f. 1-4.2021)

The word ‘subsequently’ in section 12AB(4)/(5) refers to subsequent to registration under section 12AB and not registration under section 12A/12AA. In other words, registration under these sections cannot be cancelled under section 12AB(4)/(5)

[S.R. TRUST v. PCIT, 2021 (9) TMI 1227 - MADRAS HIGH COURT]

Charities Update dt. 25/10/2021:

Section 12A/12AA(3) - Cancellation of registration

Irrelevant factors for cancellation of registration under section 12AA(3)

The CIT(E) cancelled registration on the ground that a trustee was paid remuneration although the trust deed had a clause to the effect that "the trustees shall not be entitled to any remuneration for their service put in by them in connection with the management of the trust". The Tribunal observed that the clause cannot be given much weightage and is not a ground to cancel the registration.

[The Education Renaissance Trust v. CIT(E), 2021 (10) TMI 447 - ITAT HYDERABAD]

Charities Update dt. 25/10/2021:

Section 11(1) - 11(1)(a)

Excess of earlier year’s expenditure (that is, deficit of earlier year) is application of income

Expenses incurred by trust for charitable and religious purposes in earlier years which are adjusted against income earned by trust in subsequent year will be regarded as application of income of trust for charitable and religious purposes in subsequent year.

[PCIT v. Karnataka Jesuit Educational Society, (2021) 128 taxmann.com 348 (Karn)]

Charities Update dt. 20/10/2021:

Section 13 - Denial of exemption

Parameters for determination of reasonableness

Contemporaneous comparative instances of interest paid by similar assessees is a relevant factor in determining adequacy or otherwise of interest paid by the assessee

[The Oxford Educational & Charitable Society v. CIT (E), 2021 (9) TMI 230 - ITAT AMRITSAR]

Charities Update dt. 20/10/2021:

Section 10(23C)

Quantification of aggregate annual receipts

Section 10(23C)(iiiad) being activity centric, the limit of ₹ 1 crore prescribed thereunder has to be seen only with reference to the fee and other receipts of the eligible activity/institution

Non corpus donations are not part of aggregate annual receipts

[Manas Sewa Samiti v. ACIT, 2021 (10) TMI 468 - ALLAHABAD HIGH COURT]

Charities Update dt. 20/10/2021:

Section 10(23C)

The approval can be withdrawn only by the authority having jurisdiction. The withdrawal is not sustainable if it is effected by an authority not having jurisdiction

[Aurora Educational Society v. PCIT(C), (2021) 128 taxmann.com 380 (Hyd Trib)]

Charities Update dt. 20/10/2021:

Section 10(23C)

Approval can be withdrawn with retrospective effect

Approval can be withdrawn with retrospective effect from a particular date only if the withdrawal order indicates how the assessee had violated the conditions of its approval granted earlier in all the intervening assessment years from the said date wherein it had also been assessed without any violation of the approval's conditions.

To illustrate, suppose the approval was given with effect from 2009, and a search and seizure action took place in 2018. In such a case, the withdrawal of approval for the period prior to search action in 2018 is illegal if nothing is indicated in the withdrawal order as to how the assessee had violated the conditions of its approval granted earlier

[Aurora Educational Society v. PCIT(C), (2021) 128 taxmann.com 380 (Hyd Trib)]

Charities Update dt. 20/10/2021:

Section 10(23C)

Approval by the prescribed authority

Approval under section 10(23C)(vi) cannot be denied on the ground that the assessee is not paying the sufficient salary to the teachers and thereby violating the CBSE guidelines by not paying the 6th pay commission salary

[The Oxford Educational & Charitable Society v. CIT (E), 2021 (9) TMI 230 - ITAT AMRITSAR]

Charities Update dt. 20/10/2021:

Section 115TD to 115TF

Chapter XII-EB was inserted by the Finance Act, 2016 to provide for tax on accreted income of a charitable institution in specified situations. The existing note on the said Chapter in CIR has now been revised to make it comprehensive and to incorporate in it multiple computation as well as interpretational issues.

Charities Update dt. 20/10/2021:

Section 2(15) - Charitable Purpose

Illustrations of activities regarded as ‘education’

The provision for transportation facility to students is sine qua non for, and is integral part of, imparting education.

[The Oxford Educational & Charitable Society v. CIT (E), 2021 (9) TMI 230 - ITAT AMRITSAR]

Charities Update dt. 04/10/2021:

Section 11(1) - 11(1)(a)

An assessee engaged in providing education is entitled to basic exemption of 15% on its gross receipts, that is, fees and miscellaneous income.

[Bellary Educational Services Trust v. DCIT, 2021 (9) TMI 241 - ITAT BANGALORE]

Charities Update dt. 04/10/2021:

Miscellaneous

Revision under section 263

The order passed by the AO accepting the return of income did not make any reference to any of the arguments put forward on behalf of the assessee and had merely accepted the return of income filed by the assessee. The High Could held that if the order of the AO does not disclose the basis of his conclusion, then jurisdiction under section 263 of the Act can be invoked.

[Marougen Edu Foundation v. PCIT, 2021 (9) TMI 1118 - ITAT BANGALORE]

Charities Update dt. 04/10/2021:

Section 10(23C)

• Exemption under section 10(23C)(via) was not to be granted to the income of a hospital

(a) when remuneration was paid from the earnings of the Indoor Patients Department to the doctors, (some of whom were directors), although they were not working in that department.

(b) if the rates charged by the hospital were at par with other hospitals which ran on commercial basis

[Ashwini Sahakari Rugnalaya And Research Centre v. CCIT, 2021-TIOL-240-SC-IT]

Charities Update dt. 04/10/2021:

Section 10(23C)

• The determination of the existence of educational institution solely for educational purposes is to be done on the basis of its activities.

[Baba Banda Bahadur Memorial and Educational Society v. CIT(E), 2021 (8) TMI 1158 – ITAT AMRITSAR, para 11]

Charities Update dt. 04/10/2021:

Proviso to section 2(15) - Charitable Purpose

The assessee was set up to promote, develop and protect the interests of trade and commerce and also to foster the feeling of unity and co-operation among the persons engaged in trade and commerce of all matters concerning their common good.

During the relevant years, the assessee inter alia, carried out the following activities:

(a) LBT Andolan: the assessee protested against the levy of Local Body Tax, which was detrimental to the interest of trade and commerce. For launching such a protest, it collected certain amounts and showed them under the head LBT Andolan revenue and incurred expenses under the head LBT Hatav expenses.

(b) Shop Act Andolan: The assessee carried out protests against certain clauses of the Shop Act for which it collected certain sums from its members and then spent it.

(c) The assessee organized certain campaign for the promotion of trade and commerce. The amount collected from the members was described as advertisement receipts and the amount spent on organizing such an event was described as advertisement cost.

(d) Similarly, the assessee organised cricket tournament for which it collected some charges and incurred some expenses

Apart from the above, there was minor interest income and some amount of membership fee.

The Tribunal observed that on going through the bifurcation of the revenue and the expenses for all the four years that were taken note of by the CIT(E), it became apparent that none of the activity was in the nature of trade, commerce or business.

[Federation of Trade Association of Pune v. CIT(E), 2021 (9) TMI 195 - ITAT PUNE]

FCRAR Update dt. 04/10/2021:

Extension of the validity of the registration certificate

FCRA registration certificates which are expiring during the period between 29th September, 2020 and 31st December, 2021 and which await renewal shall remain valid up to 31st December, 2021.

[Public Notice No. II/21022/23(22)/2020-FCRA-III dated 30th September, 2021 issued by the Ministry of Home Affairs]

Thus, the application for renewal of registration by institutions covered by the abovereferred notice can now be made before 31st December 2021.

FCRAR Update dt. 13/09/2021:

The FCRAR has been updated with more questions including the following:

• Renewal of registration - Whether names of all trustees need to be mentioned in FC-3 or only names of the smaller executive body be mentioned?
• Renewal of registration - Is PAN / Aadhaar No. of a trustee / office bearers, etc. required for renewal of application?
• Utilisation - Charitable institution registered / granted prior permission under FCRA receives foreign contributions - Within what period does it have to utilise the land or building acquired out of foreign contribution?

The FCRAR now has more than 390 questions.

Charities Update dt. 20/09/2021:

Section 80G

Irrelevant factors for grant of approval

Some objects or many objects were not pursued

Merely because the Trust's activities were confined to only a few objects, it could not be a ground for denying approval under section 80G.

[Sri Guru Nanak Devji Religious and Charitable Trust v. CIT(E), 2021-TIOL-1287-ITAT-Cuttack]

Charities Update dt. 20/09/2021:

Section12A/12AA - Registration of an institution

Tribunal’s powers

In the appeal before Tribunal, the tax department cannot justify denial of registration on a ground not taken up by CIT(E) for refusal of registration.

[See Sri Guru Nanak Devji Religious and Charitable Trust v. CIT(E), 2021-TIOL-1287-ITAT-Cuttack]

Charities Update dt. 20/09/2021:

Section 2(15) – Charitable purpose

Medical relief need not be provided free of cost

Recovery of cost of providing ambulance services and generating nominal surplus does not mean the activity ceases to be charitable activity in the field of medical relief.

[Mahaveer Charitable Society v. CIT(E), 2021 (9) TMI 513 – ITAT Jodhpur]

Charities Update dt. 20/09/2021:

Section 80G

Illustrations of cases in which the trust was not expressed to be for the benefit of a religious community or caste

Facts

(a) In addition to running a Gurudwar, the trust was also maintaining a park for all citizens of Puri and visitors/tourists/pilgrims on the land given by Puri Muncipal Corporation.

(b) It also served people during natural calamities such as flood, earthquake, cyclone etc.

(c) The Trust was serving humanity without any discrimination of religious status or caste or creed.

On above facts, the Tribunal held that the Trust was not working for the benefit of any particular religious community or caste, and hence, not hit by section 80G(5)(iii).

[Sri Guru Nanak Devji Religious and Charitable Trust v. CIT(E), 2021-TIOL-1287-ITAT-Cuttack]

Charities Update dt. 20/09/2021:

Section12A/12AA - Registration of an institution

Irrelevant factors for grant of registration

(a) The institution has generated surplus/profit (in the absence of any other circumstances)

(b) Day to day activities were entrusted to the President and Secretary and not to all 14 trustees

[CIT v. Angels Educational Trust, (2021) 129 taxmann.com 305 (Mad)]

Charities Update dt. 20/09/2021:

Section 2(15) – Charitable purpose

Illustrations of activities regarded as “medical relief”

The following activities constitute medical relief

(a) Ambulance services (even when the assessee was recovering the costs)

(b) Medical camps

[Mahaveer Charitable Society v. CIT(E), 2021 (9) TMI 513 – ITAT Jodhpur]

Charities Update dt. 13/09/2021:

Section12A/12AA - Registration of an institution – proviso to section 12A(2)

Genuineness of activities

Genuineness of activities would mean that activities are not camouflage, bogus, artificial and these are in accordance with the objects of the institution [Anwar Sultana Educational Trust v. CIT(E), 2021 (8) TMI 709 - ITAT AMRITSAR].

Charities Update dt. 13/09/2021:

Section 13 - Denial of exemption

Irrelevant factor in determining adequacy or otherwise of the salary to an interested party

The salary paid to employees of the trust cannot be used as basis for quantifying the benefit given to the trustees, when the quality of work rendered by the trustees on one hand, and that by the employees of the trust, (who are involved only in execution of the decisions taken by the management and other day-to-day activities), is totally different and there can be no comparison between the two.

[Mukat Educational Trust v. DCIT, 2021 (9) TMI 131 - ITAT CHANDIGARH]

Charities Update dt. 13/09/2021:

Section 11(1) / 11(1)(a) - “Application of income”

Consistency has to be observed by AO in grant of exemption.

[Sanskriti KMV School v. ACIT(E), (2021) 127 taxmann.com 178 (Chd Trib)].

Charities Update dt. 13/09/2021:

Section 13 - Denial of exemption

Parameters for determination of seasonableness

In order to justify reasonableness of remuneration to trustees in respect of services to a trust, it is not that in all cases, the fact of their having rendered services needs to be established with documentary evidence. At times, circumstantial and surrounding evidence is sufficient to demonstrate their services, especially when trust gone to strength to strength.

[Mukat Educational Trust v. DCIT, 2021 (9) TMI 131 - ITAT CHANDIGARH]

Charities Update dt. 13/09/2021:

Provisos to section 2(15) and section 13(8)

If the entire income from an activity of profit was utilized for various certain charitable purpose for which the appellant society was established it would fully satisfy the conditions laid down u/s 2(15) of the Act.

[Brahman Sabha Karveer v. CIT(E), (2021) 126 taxmann.com 172 (Pune Trib), (2021) 188 ITD 474 (Pune)].

[Note: There are decisions on the above aspect holding to the contrary]

Charities Update dt. 13/09/2021:

Section12A/12AA - Registration of an institution

Registration cannot be denied merely because

(a) the charitable institution has charitable as well as religious objects;

(b) the assessee may not be able to claim benefit of exemption under section 11 and 12 in respect of certain income (which has to be examined at the time of assessment);

(c) the income of the charitable institution is from letting out properties.

[Brahman Sabha Karveer v. CIT(E), (2021) 126 taxmann.com 172 (Pune Trib), (2021) 188 ITD 474 (Pune)]

Charities Update dt. 13/09/2021:

Extension of time line

The CBDT has extended the time lines for filing of Income-tax returns and audit reports for Assessment Year 2021-22 as follows:

(a) The due date of furnishing of Return of Income for Assessment Year 2021-22, which was 31st July 2021 under section 139(1) is further extended to 31st December, 2021;

(b) The due date of furnishing of Report of Audit under any provision of the Act for the Previous Year 2020-21, is further extended to 15th January, 2022;

(c) The due date of furnishing of Return of Income for Assessment Year 2021-22, which is 31st October 2021 under section 139(1) is further extended to 15th February, 2022;

(d) The due date of furnishing of Return of Income for Assessment Year 2021-22, which is 30th November 2021 under section 139(1) is further extended to 28th February, 2022;

(e) The due date of furnishing of belated/revised Return of Income for Assessment Year 2021-22, which is 31st December 2021 under section 139(4)/(5) is further extended to 31st March, 2022.

[Circular No.17/2021 dated 9th September 2021]

Charities Update dt. 13/09/2021:

Section 13 - Denial of exemption

Consequences of violation of section 13

If section 13 is violated, entire income of charitable institution would not lose exemption [Anwar Sultana Educational Trust v. CIT(E), 2021 (8) TMI 709 - ITAT AMRITSAR]

Charities Update dt. 13/09/2021:

Section 13 - Denial of exemption

Section 13(1)(b)

In order to decide whether the assessee is created or established for the benefit of any particular religious community or caste, its activities (and not objects) have to be seen [Shirmoni Gurdwara Parbandhak Committee v. CIT, 2021 (8) TMI 763 - ITAT AMRITSAR, para 29]

Charities Update dt. 13/09/2021:

Section 80G - Conditions to be fulfilled by a charitable institution for enabling a deduction to its donor - Conditions

Meaning of “total income” for the purposes of section 80G(5)

There are multiple views regarding the meaning of the term “total income” as used in section 80G(5B). In Shirmoni Gurdwara Parbandhak Committee v. CIT, 2021 (8) TMI 763 - ITAT AMRITSAR, the Tribunal compared the expenditure on religious activities with total expenditure to check compliance with the 5% limit.

Illustrations

The CIT rejected application filed under section 80G

The Tribunal noted as follows:

(a) SGPC was running various schools, cancer hospitals, general hospitals, shelter homes, sarai, langer (community kitchen), flood relief camps, pandemic relief camps etc. All these activities were being done by the assessee for the benefit of the all communities/religions, irrespective of caste, creed, religion sikhs etc.

(b) The teaching, administrative and even the other staff in the institutions run by the assessee had been given employment on the basis of professional qualification regardless of religion, caste, creed, color, sex, race etc.

(c) The admissions in the educational institutions were given on merit and not on the basis of religion, caste, creed, color, sex, race etc.

(d) Facilities of medical aid & OPD in hospitals run by the assessee were also provided to the public at large regardless of religion, caste, creed, color, sex, race etc.

(e) Aid during natural calamities in the form of food and other relief materials was provided to the public at large regardless of religion, caste, creed, color, sex, race etc.

(f) Humanitarian services like free medical aid, free oxygen, and free food during the current COVID-19 were provided to all needy persons.

The Tribunal held that

(a) the activities of the assessee could not be termed as being done only for the benefit of particular community/ religion;

(b) the activities would not be religious activities since the its total expenditure incurred on the religious activities was less than 5% during these years;

(c) accordingly, the assessee was entitled to the benefit of 80G (5).

[Shirmoni Gurdwara Parbandhak Committee v. CIT, 2021 (8) TMI 763 - ITAT AMRITSAR]

Charities Update dt. 13/09/2021:

Section12A/12AA - Registration of an institution – proviso to section 12A(2)

Illustrations of cases where registration granted

The CIT(E) denied registration to the assessee on the basis of the franchise agreement entered between the assessee and ZLL. However the running of the school, duly affiliated with the central board of secondary education was not denied by the CIT(E), while rejecting the application for registration of the assessee.

It was held that running of the school after affiliation with the CBSE Board, was a charitable activity within section 2(15) and merely because the assessee entered into franchise agreement with ZLL, it did not make the activity of the assessee non charitable. Accordingly, the CIT(E) was directed to grant registration to the assessee from the date of application.

[Sant Shri Mahesh Muni Ji Borewale Eductional Welfare Society v. CIT(E), 2021 (8) TMI 767 - ITAT AMRITSAR]

Charities Update dt. 13/09/2021:

Section 11(1) / 11(1)(a) - “Application of income”

Illustrations of payments not regarded as “application of income”

Investment in fixed deposit is not application of income [Ursuline Franciscan Congregation Generalate Somarpann Declaralakatte Mangalore v. ITO(E), 2021 (8) TMI 995 - ITAT BANGALORE].

Charities Update dt. 13/09/2021:

Section 11(1) / 11(1)(a) - “Application of income”

Expenses incurred is allowable as application of income even if a sum earmarked and allocated for the purposes of trust is not paid before year end [Ursuline Franciscan Congregation Generalate Somarpann Declaralakatte Mangalore v. ITO(E), 2021 (8) TMI 995 - ITAT BANGALORE]

Charities Update dt. 01/09/2021:

Section 13 - Denial of exemption

Consequences of violation of section 13(1)(b)/(c)

Entire income of charitable institution would not lose exemption

[St. Xavier Educational Trust v. CIT(E), (2021) 128 taxmann.com 198 (Mad)]

Charities Update dt. 01/09/2021:

Section12A/12AA - Registration of an institution – proviso to section 12A(2)

Irrelevant factors for grant of registration

Registration cannot be denied on the ground that section 13 applies to the institution

[Federation of Democratic Voice v. CIT(E), 2021 (8) TMI 508 - ITAT BANGALORE, para 9]

Charities Update dt. 17/08/2021:

Section 2(24)(iia) - income

High Court had held in Thanthi Trust v. DIT(E), (2020) 121 taxmann.com 119 (Mad), that registration granted to assessee could not be cancelled where it was engaged in business of publishing newspaper and surplus of income from business was utilized for donation to a particular assessee-trust which was running educational institution, though assessee did not run any school or college. Special leave petition filed against impugned order is granted.

[DIT(E) v. Thanthi Trust, (2021) 128 taxmann.com 317 (SC)]

FCRAR Update dt. 09/08/2021:

1) The Ministry of Home Affairs has issued various clarifications on FCRA. These clarifications are changed from time to time. The FCRAR now incorporates all these FAQs as listed on FCRA website as on 15th July 2021.

2) The FCRAR now contains specimen letters from donors for different situations. They have been drafted considering the requirements of FCRA and the Income-tax Act, 1961.

Charities Update dt. 09/08/2021:

Section 11(2), Explanation to section 11(2) and section 13(9)

The petitioner filed a writ with a prayer of granting leave to make an application before the CBDT for condoning the delay in filing Form No.10. The Court disposed of the writ by granting liberty to the petitioner to file an application before the CBDT under section 119(2)(b) within three weeks from date and directing the CBDT to consider and dispose of such application within four weeks from the date of receipt of such application on its own merit strictly in accordance with law.

[Tripura Cricket Association v ACIT, W.P.A. 8480 of 2020 dt. 26.07.2021]

Charities Update dt. 09/08/2021:

Section12A/12AA - Registration of an institution – proviso to section 12A(2)

(a) The provisos to section 12AA(2) are retrospective in operation and apply with retrospective effect from the date from which section 12A provided for registration under section 12AA as a pre-condition for applicability of section 11 and 12.

[Shri Vishwa Mitter Sekhri Charitable Society v. ITO(E), 2021 (8) TMI 59 - ITAT AMRITSAR]

(b) A proceeding for reassessment could be considered as an assessment proceeding.

[Shri Vishwa Mitter Sekhri Charitable Society v. ITO(E), 2021 (8) TMI 59 - ITAT AMRITSAR]

Charities Update dt. 09/08/2021:

Section 11(1) / 11(1)(a) - Income of a wholly charitable / religious institution

Exemption under section 11 cannot be denied to an educational institution merely on the ground that it has charged exam fees, when no capitation fees were charged by it, and there was no profiteering.

[DCIT(E) v. Major Shiv Dayal Singh Chikitsa Trust, 2021 (8) TMI 30 – ITAT Delhi]

Charities Update dt. 09/08/2021:

Section 12A/12AA(3) - Cancellation of registration

Circumstances in which registration of an institution can be cancelled

If the answers given to the questionnaire by the Managing Trustee of the Trust showed that the assessee was receiving bogus donations, then the authorities were justified in cancelling the registration under sections 12AA and 80G. This is because an entity which is misusing the status conferred upon it by section 12AA is not entitled to retain and enjoy said status

[CIT(E) v. Batanagar Education and Research Trust, 2021-TIOL-204-SC-IT]

Charities Update dt. 09/08/2021:

Section 2(24)(iia) - income

Corpus donations for a charitable institution not registered under section 12A/12AA is not exempt under section 11.

[Veeravel Trust v. ITO(E), 2021 (7) TMI 1084 - ITAT CHENNAI]

Charities Update dt. 02/08/2021:

Miscellaneous - Assessment

Compliance with section 144B is required

Where assessee's declared income was varied but no show-cause notice cum draft assessment order was issued as mandated under section 144B, it was held that

(a) the stand of revenue was contrary to statutory scheme, as engrafted in section 144B.

(b) impugned assessment order, with accompanying notice of demand under section 156 and notice for initiation of penalty proceedings issued under section 270A were to be set aside.

[Smart Vishwas Society v. National Faceless Assessment Centre Delhi, (2021) 128 taxmann.com 278 (Del)]

Charities Update dt. 02/08/2021:

Section 13

Transactions of preceding financial years are covered

A transaction would be covered in the ambit of section 13(2)(a) not only when it is entered during the previous year but also when it is entered in any earlier previous year and continues to remain in force during the relevant previous year. However, if the assessee trust had written off the amount, then legally the loans given would have been wiped out from the Trust balance sheet, and the Department could not have taken the plea of “continue to lend”.

[Jaya Educational Trust v. DCIT, 2021 (7) TMI 773 - ITAT CHENNAI, para 17]

[Note: The Tribunal has not discussed whether such write off could have resulted in benefit to the borrowers].

Charities Update dt. 02/08/2021:

Section 13

Illustration of situation in which section 13 was held as not applicable

Two individuals were appointed consultants of the assessee for a period of 5 years with a specific task of helping it to establish new medical college. Interest free loans were given to them by the assessee pursuant to a contractual obligation. According to the AO, these two persons were tasked with setting up core team to explore changes that were taking place in respect of rules and regulations formulated by the Government. They were required to directly report to the Chairman for any of the policy decisions. Therefore, he opined that they were performing managerial functions of the Trust and hence, they came under the term manager as defined under section 13(3)(cc).

The Tribunal held that the two individuals could not be considered as managers of the Trust, who were involved in day to day managerial functions and hence they were not covered by section 13(3)(cc) of the Act.

The Tribunal also observed that the AO proceeded on the assumption that the assessee has lent the sum. However, the transactions between the trust and the consultants were under normal circumstances as a prudent businessman and hence question of charging interest or taking a security against such advance did not arise. Therefore, the loans given to two consultants did not result in any benefit directly or indirectly to interested persons so as to attract section 13(1)(c).

[Jaya Educational Trust v. DCIT, 2021 (7) TMI 773 - ITAT CHENNAI]

Charities Update dt. 02/08/2021:

Section 13

If assessee commits violation of section 13(1)(c), then its entire income would not lose exemption.

[Jaya Educational Trust v. DCIT, 2021 (7) TMI 773 - ITAT CHENNAI]

Charities Update dt. 02/08/2021:

Section 11(1)(d) - Corpus donations

Corpus donations should not be included in income and expenditure account

Corpus donation cannot be included in the income and expenditure account of the trust but has to be shown on the liability side of the balance sheet.

[Apeejay Education Trust v. DCIT(E), 2021 (7) TMI 906 – ITAT KOLKATA, para 3.8] [in the context of section 10(23C)(vi)]

Charities Update dt. 02/08/2021:

Provisos to section 2(15) - Charitable Purpose

Where industry or trade associations claim to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality.

[ACIT v. Gujarat Hira Bourse, 2021 (7) TMI 555 – ITAT SURAT, para 25]

Charities Update dt. 02/08/2021:

Section 12A/12AA(3) - Cancellation of registration

Registration cannot be cancelled without fair hearing

If despite seeking time to file submissions on merits, the PCIT passes an order without affording any such opportunity, then it could be said that there is denial of fair hearing by the PCIT.

[Chandigarh Education Society v. PCIT(C), 2021-TIOL-1165-ITAT-CHD, para 10]

Charities Update dt. 02/08/2021:

Section 11(1)(a) - Application of income

Provision for gratuity payable (determined by way of actuarial valuation) constitutes application of income).

[Apeejay Education Trust v. DCIT(E), 2021 (7) TMI 906 – ITAT KOLKATA] [in the context of section 10(23C)(vi)]

Charities Update dt. 02/08/2021:

Section 11(2), Explanation to section 11(2) and section 13(9)

Delayed filing of return of income for bona fide reasons should be condoned by the AO

The assessee had filed Form No.10 before due date under section 139(1). However, it had belatedly filed return of income within due date specified under section 139 (4). The Tribunal held that the reasons given by the assessee for not filing the return within due date specified under the Act for were bonafide and reasonable and therefore, the AO ought to have condoned the delay in filing return of income and should not have rejected exemption claimed by the assessee for accumulation of income under section 11(2).

[Jaya Educational Trust v. DCIT, 2021 (7) TMI 773 - ITAT CHENNAI]

Charities Update dt. 02/08/2021:

Section 2(15) – Charitable purpose

• An amendment in trust deed operates prospectively[CIT v. Young Women’s Christian Association, (2021) 128 taxmann.com 105 (Mad), (2021) 432 ITR 397 (Mad), 2021-TIOL-435-MAD-IT]
• A mutual association can be a charitable institution [ACIT v. Gujarat Hira Bourse, 2021 (7) TMI 555 – ITAT SURAT, para 25]
• An institution set up with the object of promoting trade or commerce is a charitable institution since it promotes common good through enhancement of business [ACIT v. Gujarat Hira Bourse, 2021 (7) TMI 555 – ITAT SURAT, para 25]
• Establishing and running hostels for students and staff of the educational institution is to be construed as ‘educational activity’ of the assessee [Durga Charitable Society v. JCIT, 2021 (7) TMI 905 – ITAT Delhi, para 7]

Charities Update dt. 19/07/2021:

Anonymous donation

The assessee could not have received identical cash donation of Rs.4501 from 4851 persons, especially when the notices to the alleged donors were returned unserved with remarks “Address incomplete/person not known”

The AO had brought to tax a sum of Rs.2,17,75,000/- being donations received during the year under consideration as "anonymous donations" under section 115BBC. According to him, the assessee had failed to prove the genuineness of the donations received as well as the identity and creditworthiness of the donors.

The Tribunal observed as follows:

(a) On random verification carried out by the AO under section 133(6), all the notices were returned un-served with remarks "Address incomplete/persons not known".

(b) The burden of proving the genuineness of receipt of donation is always on the assessee. This burden can be discharged by him by leading necessary evidence or from circumstantial evidence.

(c) In the absence of any positive evidence from the assessee, the AO as well as the appellate authority would be justified applying the test of human probabilities and can draw an adverse inference against the assessee.

(d) In present case, it was highly improbable that an organization could receive donation of identical amount of Rs.4,501/- from 4851 persons. Therefore, it was a fit case to apply the test of human probabilities.

(e) The appellant had failed to discharge the onus of rebuttal of the material with which he was confronted before the AO.

(f) in order to verify the genuineness of the claim, a remand report from the AO was called for pursuant to which the appellant had filed a new set of information different from what was filed at the time of original assessment proceedings.

(g) This conduct of the appellant suggested that the information filed during the original assessment proceedings was not correct or incomplete.

It held that on consideration of the totality of the circumstances of the case, the transaction of receipt of donation was a sham, a make believe story, a device adopted by the appellant to bring on record the undisclosed income of the appellant society.

[Ninaidevi Shikshan Prasarak Mandal v. ITO( E), 2021 (7) TMI 143 - ITAT PUNE]

Charities Update dt. 19/07/2021:

Section 11(4A) - Business income of a charitable institution

Meaning, interpretation of “incidental to attainment of objects”

• If an activity is integral or subservient to the dominant object it is not covered by section 11(4A); however, if it forms incidental, ancillary or connected activity it is covered by section 11(4A).

If it is a business activity which is an integral and inseparable part of the main activity carried on by the assessee, then it is not covered by section 11(4A)

• A business whose income is utilised by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is a business which is incidental to the attainment of the objectives of the trust or institution

[Daya Nand Pushpa Devi Charitable Trust v. CIT, 2021 (7) TMI 124 - ALLAHABAD HIGH COURT]

Charities Update dt. 19/07/2021:

Section 11(2), Explanation to section 11(2) and section 13(9)

If the appellant has filed Form No. 10 along with its return of income, and, after giving effect to the appellate order, there is any surplus income for the current year after set off of past deficit, then the AO has to consider Form No. 10 filed by the appellant and compute the income accordingly.

[DCIT(E) v. ADITYA BIRLA FOUNDATION, 2021 (7) TMI 440 - ITAT MUMBAI]

Charities Update dt. 19/07/2021:

Section 11(1) / 11(1)(a) - Application of income

Disallowance of payment as application of income

If the trustees have spent the income on a particular purpose not covered by the objects of the assessee but covered by charitable purpose [as defined in section 2(15)] or religious purpose in India, the assessee would be entitled to exemption under section 11(1)(a).

[DIT(E) v. Shanmuga Arts, Science, Technology & Research Academy (SASTRA), 2021 (7) TMI 178 - MADRAS HIGH COURT]

[Note: There have been contrary decisions of the Tribunal]

Charities Update dt. 19/07/2021:

Section 11(1) / 11(1)(a) - Application of income

Disallowance of payment as application of income

For establishing genuineness of payments, the AO would be entitled to ask, inter alia, to whom such amounts were paid, and for what purpose.

[See Alimaan Charitable Trust v. CIT(E), TS-505-ITAT-2021-Mum]

Charities Update dt. 19/07/2021:

Miscellaneous

Hybrid method of accounting cannot be followed

(a) The method of accounting provided under section 145(1) is either cash or mercantile and hence, it cannot be mixed or hybrid system.

(b) If the assessee is following mercantile system of accounting as per its audit report and accounts, it cannot be allowed to account only interest income on receipt basis.

[DCIT(E) v. ADITYA BIRLA FOUNDATION, 2021 (7) TMI 440 - ITAT MUMBAI]

Charities Update dt. 19/07/2021:

Miscellaneous

Applicability of section 68

For establishing genuineness of the donations received, the AO would be entitled to ask the following details from the assessee:

In respect of foreign contribution, he may ask for a copy of FCRA registration, Form FC-3 & audit report. Mere “Form FC 6” filed by the assessee without containing details of the donors or any correspondence of the assessee with them, would not suffice

[See Alimaan Charitable Trust v. CIT(E), TS-505-ITAT-2021-Mum]

Charities Update dt. 19/07/2021:

Anonymous donation

Burden of providing genuineness of donations is on the assessee

This burden can be discharged by him by leading necessary evidence or from circumstantial evidence. In the absence of any positive evidence from the assessee, the AO as well as the appellate authority would be justified applying the test of human probabilities and can draw an adverse inference against the assessee.

[Ninaidevi Shikshan Prasarak Mandal v. ITO( E), 2021 (7) TMI 143 - ITAT PUNE].

Charities Update dt. 19/07/2021:

Proviso to section 2(15) - Charitable purpose

The activity of maintaining a hostel by an educational institution in discharge of its statutory obligation did not fall within the meaning of "business".

[Daya Nand Pushpa Devi Charitable Trust v. CIT, 2021 (7) TMI 124 - ALLAHABAD HIGH COURT]

Charities Update dt. 19/07/2021:

Section 2(15) - Charitable purpose

‘Education’ in section 2(15) covers all types of education

The word "education" in section 2(15) is not qualified by any restrictions. It has been used in its widest amplitude and  is not confined to only “young” but covers any section or class of the society or any particular type or level of education.

[Daya Nand Pushpa Devi Charitable Trust v. CIT, 2021 (7) TMI 124 - ALLAHABAD HIGH COURT]

Charities Update dt. 19/07/2021:

Section 2(15) - Charitable purpose

Providing sports facilities to general public is covered by “charitable purpose”

Members of Delhi Police personnel constitute section of the public.

Promotion of welfare and recreational activities of the police personnel is regarded as advancement of general public utility.

[Delhi Police Welfare and Recreational Club Fund v. CIT(E), 2021 (6) TMI 988 - ITAT Delhi, para 7]

Charities Update dt. 19/07/2021:

Section 2(15) - Charitable purpose

Providing sports facilities to general public is covered by “charitable purpose”

Providing sports facilities to general public without restriction to any caste, creed, religion or profession or promotion or management of social intercourse or athletic sports and cultural and educational activities for its members constitutes object of general public utility

[ITO(E) v. The Pransukhlal Mafaltlal Hindu Swimming Bath and Boat Club Trust, 2021-TIOL-1071-ITAT-Mum following Tribunal decision in assessee’s own case in ITA No. 1039 and 1040/Mum/2016, dated 21.03.2018]

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

• Holding seminars, etc. on laws and accountancy and allowing free download of publications and periodicals was education

The main object of the assessee was as under:

“To spread education in matters relating to tax laws, other laws and accountancy.”

It, inter alia, carried on the following activities:

(a) disseminated knowledge on commercial law, tax laws by holding seminars, conferences, workshops, etc.

(b) conducted more than hundred webinars on tax laws and accountancy during the lockdown period arising out of the pandemic

(c) regularly conducted moot court competition amongst law students at All India level which immensely helped in building the skill set of the students in the field of law in becoming legal professionals.

(d) maintained a free website where all publications and periodicals were available on the website which could be downloaded free of cost.

On the above facts, the Tribunal held that the assessee was engaged in educational activity.

[All India Federation of Tax Practitioners v. ITO(E), ITA No.4940 and 4941/Mum/2019 (Mum) dated 07.05.2021, para 8, 9, 10 and 12]

Charities Update dt. 02/07/2021:

Section 13 – Denial of exemption

• Rent to interested parties could be on arm’s length basis

The assessee had paid rent to interested parties. The CIT(A) deleted the disallowance made by the AO. The Tribunal upheld the CIT(A)’s order on following grounds:

(a) the payment of rent was not doubted

(b) the AO did not bring any material on record to substantiate that the rent paid was excessive

(c) the specified persons to whom accommodation was provided had shown the valuation of the said properties as perquisites in their respective hands.

(d) the rent paid for the same accommodation has been accepted in the preceding years.

[Manav Mangal Society v. DCIT(E), 2021 (6) TMI 446 - ITAT CHANDIGARH, para 17.2]

Charities Update dt. 02/07/2021:

Section 13 – Denial of exemption

• Interest to interested parties could be on arm’s length basis

If the rate at which interest was paid by the assessee to a bank was higher than the rate at which interest was paid to interested parties, then the interest cannot be considered as excessive

[Manav Mangal Society v. DCIT(E), 2021 (6) TMI 446 - ITAT CHANDIGARH, para 24]

Charities Update dt. 02/07/2021:

Section 13 – Denial of exemption

• Consistency has to be followed

If the AO has allowed entire salary in a particular year, he cannot disallow portion of the salary in subsequent year on the ground that such salary is excessive, especially when the AO has independently not brought any evidence which can show how much salary person having similar qualification can fetch in the open market.

[Manav Mangal Society v. DCIT(E), 2021 (6) TMI 446 - ITAT CHANDIGARH, para 24]

Charities Update dt. 02/07/2021:

Section 12A-12AA(3) – Cancellation of Registration

• Donation to another trust settled by the author of the assessee is irrelevant for grant of registration

The fact that the assessee trust had given donation to another charitable trust registered under section 12AA, which was also settled by the author of the assessee and the donation was given out of interest bearing borrowings is an irrelevant factor for cancellation of registration under section 12AA(3).

[Bhai Hospital Trust v. DIT(E), 2021 (6) TMI 621 – ITAT Delhi]

Charities Update dt. 02/07/2021:

Section 13 – Denial of exemption

• Documents required to justify adequacy of remuneration

The following documents/evidence/information could be required/relevant in justifying the adequacy of remuneration to an interested party:

(a) whether the salary has duly been reflected in tax return of the interested party and due taxes have been paid thereupon?

(b) growth in activities of the charitable institution after appointment of interested party.

[Manav Mangal Society v. DCIT(E), 2021 (6) TMI 446 - ITAT CHANDIGARH]

Charities Update dt. 02/07/2021:

Section 12A-12AA(3) – Cancellation of Registration

• Registration cannot be cancelled from inception of a trust, that is, even prior to the effective date of registration

Bhai Hospital Trust v. DIT(E), 2021 (6) TMI 621 – ITAT Delhi

Charities Update dt. 02/07/2021:

Section 11(1)

• Accounting for grant

The appellant had received a revenue grant of Rs.15 crores towards publicity and an amount of Rs.6.09 crore was spent therefrom, during the year under consideration. The balance grant of Rs.8.91 crore was unutilized and, therefore, the same was shown under the head Current Liabilities in the Balance Sheet. The AO treated the entire revenue grant received as income of the appellant in the year of receipt and accordingly, made an addition of Rs.8.91 crores.

The Tribunal observed that policy of accounting for grant on receipt in current liability had been accepted by the Revenue in the earlier year. Having accepted the above policy earlier, on the principle of consistency, the AO's action was not justified without pointing out why contrary view from earlier year was being taken.

[DCIT v. Maharashtra Tourism Development Corporation Ltd, 2021-TIOL-1037-ITAT-MUM]

Charities Update dt. 02/07/2021:

Section 11(1)

• Sanctity has to be attached to registration granted under section 12A / 12AA

Though registration granted under section 12A / 12AA does not automatically entitle a trust/institution for availing exemption under section 11, some sanctity has to be attached to the registration granted under section 12A.

[All India Federation of Tax Practitioners v. ITO(E), ITA No.4940 and 4941/Mum/2019 (Mum) dated 07.05.2021]

Charities Update dt. 02/07/2021:

Section 11(1)

• Accounting for grant

The appellant had received a revenue grant of Rs.15 crores towards publicity and an amount of Rs.6.09 crore was spent therefrom, during the year under consideration. The balance grant of Rs.8.91 crore was unutilized and, therefore, the same was shown under the head Current Liabilities in the Balance Sheet. The AO treated the entire revenue grant received as income of the appellant in the year of receipt and accordingly, made an addition of Rs.8.91 crores.

The Tribunal observed that policy of accounting for grant on receipt in current liability had been accepted by the Revenue in the earlier year. Having accepted the above policy earlier, on the principle of consistency, the AO's action was not justified without pointing out why contrary view from earlier year was being taken.

[DCIT v. Maharashtra Tourism Development Corporation Ltd, 2021-TIOL-1037-ITAT-MUM]

Charities Update dt. 02/07/2021:

Provisos to section 2(15) - Charitable Purpose

• Subscriptions from members and sale of publications did not result in business, etc.

The main object of the assessee was as under:

“To spread education in matters relating to tax laws, other laws and accountancy.”

It earned income from following

(a) holding seminars, conferences, workshops, etc. disseminating knowledge on commercial law, tax laws and charging fees;

(b) obtaining subscription from member;

(c) sale of publications.

The Tribunal observed as follows:

(a) before applying the proviso to section 2(15), the dominant purpose test has to be applied.

(b) the dominant purpose of the assessee, as shown by its Memorandum of Association, was to carry out its object of general public utility and not to earn profit by engaging itself in any trade, commerce or business.

(c) while carrying out its charitable objects, if, the assessee incidentally earned some profit from any commercial activity to supplement its main object, it could not be said that the assessee had engaged itself in trade, commerce and business so as to attract the proviso to section 2(15).

[All India Federation of Tax Practitioners v. ITO(E), ITA No.4940 and 4941/Mum/2019 (Mum) dated 07.05.2021]

Charities Update dt. 02/07/2021:

Section 10(23C)

• The word 'income' in section 10(22) includes deemed income under section 68

The word 'income' in section 10(22) [corresponding to section 10(23C)] includes deemed income under section 68 and hence, assessee entitled to exemption under section 10(22) could claim exemption in respect of income under section 68.

[DIT(E) v. Raunaq Education Foundation, (2007) 164 Taxman 266 (Del), (2007) 294 ITR 76 (Del) appeal dismissed by the Supreme Court on the ground of low tax effect; DIT(E) v. Raunaq Education Foundation, (2021) 124 taxmann.com 566 (SC), (2021) 278 Taxman 186 (SC), (2021) 431 ITR 52 (SC)]

Charities Update dt. 02/07/2021:

Section 11(1)

• Interest on unutilised grant-in-aid received by an institution which has to be treated as a part of grant itself does not constitute income under section 11(1)(a)

DCIT v. Maharashtra Tourism Development Corporation Ltd, 2021-TIOL-1037-ITAT-MUM

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

• Commercial organization to provide employment to ex-servicemen

The appellant company was formed to provide reemployment to ex-servicemen. Its application for registration was rejected by the CIT(E). The Tribunal observed as follows:

(a) A perusal of Memorandum of Association (MOA) does not show any clause creating an interest in property in favour of the public for any of the object listed under section 2(15), which is sine qua non for creation of charity.

(b) The MOA permitted the company to distribute the profits in the form of dividend amongst its members

(c) The MOA did not set out a condition that the income earned by the company shall be deployed for the objects of the company.

(d) The company was therefore a commercial organization

(e) However, the view of the CIT(E) that the company was a commercial organization merely because it was generating huge revenue from year to year with mark-up on the cost of 10% to 12% could not be upheld.

In the interest of justice, the Tribunal remanded the matter to the file of the CIT (E) for de-novo consideration of application on the touchstone of law laid down in Ananda Social and Educational Trust vs. CIT, (2020) 272 Taxman 7 (SC)

[Maharashtra Ex-Servicemen Corporation Ltd. v. CIT(E), 2021 (6) TMI 811 - ITAT PUNE, para 9]

Charities Update dt. 02/07/2021:

• Provisos to section 2(15) - Charitable Purpose

Consistency has to be followed

If there is no change in facts, then the principle of consistency may apply and the proviso to section 2(15) cannot be invoked, although while granting exemption in earlier as well as subsequent assessment years no scrutiny assessment was made.

[All India Federation of Tax Practitioners v. ITO(E), ITA No.4940 and 4941/Mum/2019 (Mum) dated 07.05.2021]

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

• Benefit to public is a prerequisite for satisfaction of definition of ‘charitable purpose’

A clause in the MOA creating an interest in property in favour of the public for any of the object listed under section 2(15), is sine qua non for creation of charity.

[Maharashtra Ex-Servicemen Corporation Ltd. v. CIT(E), 2021 (6) TMI 811 - ITAT PUNE, para 9]

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

• Surplus from activity does not mean that the definition of charitable purpose is not satisfied

Maharashtra Ex-Servicemen Corporation Ltd. v. CIT(E), 2021 (6) TMI 811 - ITAT PUNE, para 9

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

• Publication of books, magazines, journals, depicting rich cultural heritage of India falls within the ambit of education

The assessee was engaged in publication and selling of

(a) books & CDs of various kinds;

(b) quarterly magazines journals containing serious information about various facets of Indian Art, the cultural events of India etc.

The AO concluded that the activities of the trust fell in the category of advancement of any other object of general public utility and not education.

The Tribunal observed as follows:

(a) The assessee trust in pursuance of its charitable objects had published various books, magazines / journals which depicted the rich cultural heritage of India together with its art, literature, science, history, architecture, archeology, theatre, cinema, dance, music etc.

(b) Various universities/private scholars had sought permission for using publications of the assessee trust as reference material.

(c) Articles from books published by assessee were used by various universities as part of their curriculum

(d) Various libraries, universities (both inland and foreign), museums, art galleries, government bodies and individuals had subscribed to the publications of the assessee

(e) Over the years, the assessee had published over 240 magazines and 120 books thereby making them a veritable encyclopedia of art and culture.

(f) The profile of the assessee revealed that their publications enjoyed a loyal readership and a very high reputation nationally and internationally, being read not only in the major cities, but also in remote towns in India and across 30 countries abroad. Their readers included Indophiles, connoisseurs and art dealers, executives, scholars, architects, designers, and students all over the world.

(g) For some publications of the assessee, grants were received from Ministry of Culture, Government of India.

The Tribunal held that

(a) the various publications of the assessee clearly fall within the ambit of the expression Classical Education which expression also falls within the ambit of Education;

(b) the activities of the assessee were charitable in nature not falling under the ambit of advancement of any other object of general public utility and hence proviso to section 2(15) of the Act did not apply to the assessee.

[The Marg Foundation v. ITO(E), 2021-TIOL-985-ITAT-MUM]

Charities Update dt. 02/07/2021:

Compliance extension

Government grants further extension to 31^st August 2021

The application under Section 10(23C), 12AB, 35(1)(ii)/(iia)/(iii) and 80G of the Act in Form No. 10A/ Form No.10AB, for registration/ provisional registration/ intimation/ approval/ provisional approval of Trusts/ Institutions/ Research Associations etc., required to be made on or before 30th June, 2021, may be made on or before 31st August, 2021.

[Circular No. 12/2021 dated 25th June, 2021]

Charities Update dt. 17/06/2021:

Section 13 - Denial of exemption

The assessee paid rent of Rs.24 lakhs per annum to interested party for lease of land for 60 years. The Tribunal observed / held that market value of the land was Rs.13,03,76,400/- as per the registered lease deed and the payment of lease rent of Rs.24 lakhs worked out to hardly 1.86% thereon. Hence, it could be safely concluded that the rent paid by the assessee trust to the trustees was not excessive or unreasonable [The Sardar Partapsingh Education Society v. CIT(E), 2021 (6) TMI 401 - ITAT Mumbai]

Charities Update dt. 17/06/2021:

Section 10(23C)

(a)    In the context of exemption under section 10(23C), the conditions as stipulated in section 13 are irrelevant.

(b)    Merely because the institution has surplus does not mean that it exists for profit and not solely for educational purposes, so long as the profit is not distributed to private individuals.

(c)    The surplus may be quantified on the basis of return of income and not income and expenditure account.

(d)    In determining the surplus capital expenditure has to be excluded

[The Sardar Partapsingh Education Society v. CIT(E), 2021 (6) TMI 401 - ITAT Mumbai]

Charities Update dt. 17/06/2021:

Section 13 - Denial of exemption

The assessee being a religious society, was allowed exemption for all the preceding years and there was no material change in the activities of the assessee and the mischief of the provision of section 13(1)(b) was not attracted. The AO however, denied such exemption during the year under consideration, mainly on the ground that the assessee was a charitable society and there was a violation of Section 13(1)(b). The Tribunal held that a trust for religious purpose cannot be said to be an institution is for the benefit of a religious community/caste for the purposes of section 13(1)(b) [ACIT(E) v. Indian Evangelical Team, 2021-TIOL-917-ITAT-DEL]

Charities Update dt. 17/06/2021:

Section 12A/12AA - Registration of an institution

Some principles for inquiry by CIT(E) regarding compliance with material laws

(a) The CIT(E) can ask for compliance of only those laws which are material for fulfilment of the objects of the assessee.

(b) The scope and ambit of the enquiry under the Act is limited. The CIT(E) cannot look into whether the approval or permission under other law was rightly given or not. He cannot sit in judgment against such permission/ approval given under other law.

(c) The CIT(E) should keep in mind that it is not possible for the assessee to even apply and seek approval/permission at the stage of registration of the trust under section 12AA, as those approvals/permission can be granted only after the setting up or commencement of the charitable activities.

(d) The CIT(E) cannot raise vague questions

(e) If the CIT(E), is of the opinion that approval/permission are required from competent authorities, he should

(i) specify which are the relevant laws;

(ii) the reasons why such other laws are material; and

(iii) Authorities from which permissions/approval are required.

(f) It is incumbent upon the CIT(E) to seek a response of the assessee, after giving

(i) Show cause notice;

(ii) any opportunity of hearing

[Doctor Madan Lal Atri Charitable Trust v. CIT(E), (2021) 127 taxmann.com 636 (Agra Trib)]

[Note: This is the first reported decision on the provision and lays down very important and salutary provisions]

Charities Update dt. 17/06/2021:

Section 12A/12AA - Registration of an institution

For determining genuineness of the activities which the Trust proposed to carry on, the CIT(E) should restrict himself to examination of objects of the Trust in its Trust Deed [Doctor Madan Lal Atri Charitable Trust v. CIT(E), (2021) 127 taxmann.com 636 (Agra Trib)]

Charities Update dt. 17/06/2021:

Section 12A/12AA - Registration of an institution

Registration cannot be denied on the ground that corpus donations collected in the preceding financial years had escaped assessment to tax [Pramod Kiran Sevadham Foundation v. CIT, 2021 (6) TMI 100 - ITAT Pune]

Charities Update dt. 17/06/2021:

Section 12A/12AA - Registration of an institution

Registration cannot be denied on the ground that part of the income of the applicant is not exempt and that the applicant has not paid tax on such income [Shree Lakadipool Vitthal Mandir v. CIT(E), 2021 (5) TMI 801 - ITAT PUNE]

Charities Update dt. 17/06/2021:

Proviso to section 2(15) - Charitable purpose

The appellant is a statutory body formed under Maharashtra Housing Area Development Act 1976. The appellant built tenements and sold them. The Tribunal held that the appellant’s activity could not be held for the profit motive or for carrying out systematic business, albeit all its policy as well as conduct was to provide shelter to the needy and poor people in line with the mandate of Constitution of India [ITA No.6678/Mum/2013 vide order dated 04/06/2019 followed in Maharashtra Housing And Area Development Authority v. ACIT(E), 2021-TIOL-900-ITAT-MUM]

Charities Update dt. 17/06/2021:

Section 2(15) - Charitable purpose

The assessee was a charitable trust engaged in imparting education in the field of classical music and light music based on the Gurukul Philosophy, where the student learnt by virtually staying with the Guru. The institution was founded in 1932 by Acharya Jialal Vasant and had 84 years of rich heritage. The institution had a repute for providing scientific training in Hindustani Classical Music and Light Music. It had a studio namely “Ajivasan Sounds” which was used for the purpose of training students in professional singing and also the same was made available to various artists for the purpose of recording. The Tribunal found that the gross receipts were only ₹ 16.72 lakhs which subsidized the fees of ₹ 33.01 lakhs for 785 students which worked out to ₹ 4206/- per student per year. It observed that

(a) teaching of Indian Classical Music is within the field of “education”

(b) the maintenance of studio was intrinsic and in pursuance of the object of the assessee which was education.

[Acharya Jiyalal Vasant Sangeet Niketan v. ITO(E), 2021 (4) TMI 113 - ITAT MUMBAI]

Charities Update dt. 17/06/2021:

Proviso to section 2(15) - Charitable purpose

Running a coffee shop and a restaurant did not mean that the assessee was involved in trade, commerce or business [ITO(E) v. India Islamic Cultural Centre, 2021-TIOL-945-ITAT-DEL]

Charities Update dt. 17/06/2021:

Section 2(15) - Charitable purpose

Illustration of ancillary/incidental objects that were regarded as charitable

The main object of the assessee was to spread education. The Tribunal held that the following objects were incidental to the main objects:

(f) To purchase, construct, maintain alter, take on lease exchange hire or otherwise acquire movable or immovable property which may be deemed necessary or convenient for any of the purposes of the society.

(g) To print and publish any newspaper, periodicals, books or leaflets that the society may think desirable for the promotion of its objects.

(h) To subscribe to any charity and to grant donations for public purposes.

(i) To co-operate and federate and affiliate with organisation having similar objects

(j) To invest any moneys of the society, not immediately required for any of its objects in such manner as may from time to time be determined.

(k) To do all other thinks as are incidental or conducive to the attainment of the above objects or anyone of them.

[The Sardar Partapsingh Education Society v. CIT(E), 2021 (6) TMI 401 - ITAT Mumbai]

Charities Update dt. 17/06/2021:

Section 2(15) - Charitable purpose

Construction of approach road to a temple (although not mentioned in the objects clause of the trust deed) is permissible activity of charitable nature when the object of the trust included construction of temple [JCIT(E)(OSD) v. Subh Mangal Foundation 1, 2021 (6) TMI 246 - ITAT AHMEDABAD].

Charities Update dt. 17/06/2021:

Section 2(15) - Charitable purpose

Meaning of “ancillary / incidental or subsidiary objects”

In case of a society registered under the Societies Registration Act 1860, the Memorandum of Association may not explicitly distinguish between main objects and incidental objects for the attainment of main objects. However, inspite of this, depending on their nature, certain objects may be treated as incidental objects [The Sardar Partapsingh Education Society v. CIT(E), 2021 (6) TMI 401 - ITAT Mumbai]

Charities Update dt. 02/06/2021:

Section12A/12AA - Registration of an institution

Necessary registration not obtained under other statutes is irrelevant in grant of registration

The assessee association not registered with any competent authorities that is, Charity Commissioner/Registered Registrar of Societies/Registrar of Companies etc. is not relevant in grant of registration

[The Panchkuva Cloth Merchant Association v. CIT(E), 2021 (5) TMI 726 - ITAT AHMEDABAD]

Charities Update dt. 02/06/2021:

Section 10(23C)(iiiab) - Any university/educational institution wholly or substantially financed by the government

An educational institution cannot engage in commercial or profit making activities.

[DCIT v. JMJ Education Society, 2021 (5) TMI 381 - ITAT BANGALORE]

Charities Update dt. 02/06/2021:

Section12A/12AA - Registration of an institution

Execution of a formal deed of trust is not necessary for grant of registration. The assessee has to produce constitutive and evidential documents which embrace within its fold all documents which afford a logical basis of inferring creation of the trust/assessee. These documents have to be verified and examined by the CIT(E) before rejecting the application for registration

[The Panchkuva Cloth Merchant Association v. CIT(E), 2021 (5) TMI 726 - ITAT AHMEDABAD]

Charities Update dt. 02/06/2021:

Section12A/12AA - Registration of an institution

Execution of a formal deed of trust is not necessary for grant of registration. The assessee has to produce constitutive and evidential documents which embrace within its fold all documents which afford a logical basis of inferring creation of the trust/assessee. These documents have to be verified and examined by the CIT(E) before rejecting the application for registration

[The Panchkuva Cloth Merchant Association v. CIT(E), 2021 (5) TMI 726 - ITAT AHMEDABAD]

Charities Update dt. 02/06/2021:

Section 2(15) - Charitable Purpose

An activity cannot be regarded as education if the assessee is carrying on a commercial venture.

No commercial activities are treated as charitable objects and that any activity for profit or for personal enjoyment or for avoiding tax is not regarded as a charitable purpose

[DCIT v. JMJ Education Society, 2021 (5) TMI 381 - ITAT BANGALORE]

Charities Update dt. 02/06/2021:

Section 2(15) - Charitable Purpose

The primary object of District Bar Association was advancement of general public utility

The assessee is a society was formed by lawyers of District Bar Association, Barnala. As per its objects, it has to work for construction of chambers to its members, its allotment, besides environment protection viz. growing trees, and that of saving people from drug addictive disorder, to save and educate girl child and also to spread legal awareness among the general public. The assessee filed an application registration under section 12AA.

The CIT(E) was of the view that the main activity of the assessee was to construct and allot the chambers to the members of District Bar Association, and these activities and benefits restricted only to the members of District Bar Association, who were professionals and not general public. In other words, in the opinion of the CIT(E), the same could not be said to be activities carried out for the general public purpose. On this premise, the CIT(E) rejected the application of the assessee filed under section 12AA

The Tribunal held that the primary or dominant purpose of an institution such as the assessee was in the form of advancement of the object of general public utility.

[Building Committee (Society) Barnala v. CIT(E), 2021 (5) TMI 661 - ITAT CHANDIGARH]

FCRAR Update dt. 20/05/2021:

FCRA Account with SBI, New Delhi can now be opened by 30th June, 2021

Vide Public Notice dated 13.10.2020, the Ministry of Home Affairs required the existing FCRA account holders to open the “FCRA Account” at New Delhi Main Branch of SBI (NDMB) by 31.3.2021 or earlier.

The Ministry has now amended the said Public Notice to provide that the “FCRA Account” at NDMB may now be opened by 30.6.2021 and that such persons shall not receive any foreign contribution in any account other than the designated “FCRA Account” at NDMB from the date of opening of such account or 1.7.2021, whichever is earlier.

(Notice No. F.No.II/21022/36(58)/2021-FCRA-III dated 18th May, 2021)

FCRAR Update dt. 20/05/2021:

Validity of registration certificate extended to 30^th September 2021

The Ministry of Home Affairs has issued a public notice to provide that registration certificates issued under the Foreign Contribution (Regulation) Act, 2010 and expiring / expired during the period between 29^th September, 2020 and 30^th September, 2021 shall remain valid up to 30^th September 2021.

(Notice No. F.No.II/21022/36(58)/2021-FCRA-II dated 18^th May, 2021)

Charities Update dt. 16/05/2021:

Section 68

The assessee had obtained loans from three parties. The Assessing Officer made addition under section 68. The Tribunal observed as follows:

(a)   If the assessee came into existence during the relevant previous year and it was the first year of charitable activities conducted by it, it is highly unbelievable that assessee would earn huge undisclosed income in the relevant assessment year.

(b)   The fact that there is a common director and common address in lender companies may not be relevant criteria to decide the issue under section 68.

(c)   Material gathered pursuant to enquiry conducted through Income Tax Inspector cannot be used in evidence against the assessee if the assessee has not been confronted with the said material or explanation of assessee has not been called for.

It held that no addition could be made against the assessee of such nature in assessment year under appeal particularly when the nature of the activities of the assessee were to run an educational institution.

[Society for Institute for Professional Studies v. JCIT, 2021 (3) TMI 220 – ITAT Delh]

Charities Update dt. 16/05/2021:

Section 11(1)(a) – Religious purposes

Construction of a building to accommodate sadhus, etc.

The memorandum of association of the assessee contained the following objective:

“1. To construct and primarily establish Geeta Bhawan with in the prescints of Mandi Barnala, to provide for the accommodation to learned Sadhus, Saints and Preists, for the propagation and dissemination of Dharmik Shiksha.”

The Tribunal observed as follows:

(a) the assessee established Geeta Bhawan to provide accommodation to Sadhus, Saints and Priests for the propagation and dissemination of Dharmik Shiksha.

(b) the accommodation was provided to those persons who were propagating and disseminating Dharmik Shiksha in the society as a whole and not to a particular community or religion.

(c) the said persons were also not related to a particular religion or community of the society.

In view of the above, it held that it cannot be said that the objects of the assessee were religious in nature for the purposes of section 80G.

[Om Sat Sanatan Geeta Bilawan Trsut v. CIT(E), 2021 (5) TMI 81 – ITAT Chandigarh]

Charities Update dt. 16/05/2021:

Taxation of donee - Deduction to assessees for contribution to charitable institutions

Deduction under section 80G is available even when the donations are made as part of the Corporation Social Responsibility.

[Allegis Services (India) Pvt. Ltd. v. ACIT, 2021-TIOL-344-ITAT-Bang]

Charities Update dt. 16/05/2021:

Proviso to section 2(15) - Charitable Purpose

An activity can be hit by the first proviso to section 2(15) in one year and the assessee may not qualify to be existing for ‘charitable purposes’, however, that very activity of the assessee may remain unaffected by the same disabling provision for another year. The reason is that it is not only the nature of the activity but also the level of activity which, taken together, determine whether this disabling clause can come into play.

[Ess Kay Foundation v. CIT(E), 2021-TIOL-664-ITAT-JAIPUR]