Ita/6002/2011 Of The Commissioner Of Income Tax v. Thangadagi Trust, Karatagi

IN THE HIGH COURT OF KARNATAKAKALABURAGI BENCE DATED THIS THE 25 DAY OF FEBRUARY, 2016 PRESENT THR HON'BLE MR.JUSTICK RAM MOHAN REDDY AN THR HON BLE MR.JUSTICE B. MANOHAR ITA NO.6002/2011 BETWEEN The Commissioner ofIncome Tax*+,-(%.( (By Ameet Kumar Deshpande, Advocate) ... Appella AND Thangadagi TrustKaratagi, Tq.GangavathiDist.Koppal, Karnataka State ... Responde (served) This Income Tax Appeal is filed under Section260(A) of Income Tax Act, 1961, praying to set aside thefinal order dated 21.01.2011 passed by the Income Tax Appellate Tribunal “A” Bench, Bangalore in ITANo.853/BANG/2010, in the interest of justice andequity. This appeal coming on for hearing this day, RamMohan Reddy J., delivered the following: JUDGMENT The substantial question of law that was framedwhen this appeal was admitted on 20.04.2011 readsthus: “Whether approval under Section 80 G(5)(vtof Income Tax Act can be granted before theend.of|financialYea’,whenthetrust/ institutionhad.not.appended|theaccounts for the accounting year?’ ? Few facts necessary for decision making are:- The assessee trust came into existence on16.03.2009 and an application dated 05.08.2009 wasmade for registration under Section 12A and for grant ofrecognition under Section 80G of the Income Tax Act,1961 (for short ‘the Act’), which was transferred to the jurisdictional CIT, Gulbarga on 22.09.2009, who on24.02.2010 passed separate orders, one _ grantiregistration under Section 12A of the Act and otherdirecting the assessee to furnish compliance undersection 80G(5)(1) of the ‘Act’. The reply submitted by theassessee on 27.02.2010 recorded the philanthropicactivities of the trust, which was not commenced as onthe date of making application for grant of approvalunder Section 80G5(iv) of the Act and therefore, wasunable to annex the accounts in Form 10A or Form10G. In the hearing before the CIT, Gulbarga, therepresentative for assessee submitted that the assesseehad commenced activities by providing notebooks toschool children, publication showing the historical andcultural importance of local temples with a view to bringcivic amenities and development into the_ regionalthough did not furnish accounts or activity report forthe part of the period. The CIT, Gulbarga declined grantof approval under Section 80G on the premise that the assessee’s application can be entertained only at theend of the accounting period when accounts are drawnand audited, so as to determine and examine whetherincome of the trust qualifies for exemption undersection 11(A) of the ‘Act’. In the opinion of the CIT,Gulbarga, (1) eve)1T there.1S.Nilincome,theprescriptions and prohibitions incorporated undersections 11, 12 and 13 have to be complied withwhereupon a decision for the whole year can be takenand not for part of the year; (11) an undated certificateunder Section 13(1)(c) of the ‘Act’ furnished by thetrustees annexed to Form 10G dated 22.07.2009certifying there was no violation of provision of Section13(1)(c) of the ‘Act’ does not qualify as presumption infavour of the assessee for the remaining part of thefinancial year so as to claim exemption under Section11 of the ‘Act’; and (111) there was necessity to decide forthe year as a whole and not part thereof. The CIT,Gulbarga concluded that the application for approval under Section 80G was premature as the conditionsstipulated under the ‘Act’ were not satisfied. 3.The assessee trust questioned the order of the CIT,Gulbarga in ITA No.893/Bang/10 before the Income TaxAppellate Tribunal “A” Bench, Bangalore (for short ‘theTribunal’) whence the assessee representative advancedthe plea that the application for grant of approval undersection 8OG of the Act when filed on 05.08.2009, interms of rule 11 AA(6) of the rules was barred bylimitation to pass an order and therefore recognitionunder Section 8OG oft the Act was deemed to have beesranted by the revenue. under Section 80G was premature as the conditionsstipulated under the ‘Act’ were not satisfied. 3.The assessee trust questioned the order of the CIT,Gulbarga in ITA No.893/Bang/10 before the Income TaxAppellate Tribunal “A” Bench, Bangalore (for short ‘theTribunal’) whence the assessee representative advancedthe plea that the application for grant of approval undersection 8OG of the Act when filed on 05.08.2009, interms of rule 11 AA(6) of the rules was barred bylimitation to pass an order and therefore recognitionunder Section 8OG oft the Act was deemed to have beesranted by the revenue. 4In opposition the departmental representativesupported the order of the CIT, Gulbarga and submittedthat the applicant trust was at liberty to file anapplication for grant of recognition under Section 80G ofthe ‘Act’ afresh, whence there could be an examinationoft the current status and decide the issue on merit 5.The‘Tribunal’ making.referenceTO Section8OG(5)(i1) of the Act observed that the CIT, Gulbargamistook the provisions of the Act to mean that it wasonly aiter deriving income by the trust and onexamining whether or not money was to be used andapplied in such a manner so as to comply with thesections 11, 12, clause (23AA) or clause (23C) of Section10 of the Act, recognition under Section 80G(5)(iv) couldbe granted. It was further observed that recognitionunder Section 80G of the Act cannot be granted on thepresumption of compliance of the ‘Act’, even thoughgenuine donors are deprived of the benefits of the Act. 6.In view of 80G(5)(i1) of the Act the ‘Tribunalobserved that when an institution/trust derives anyincome, such income would not be liable to inclusion inits total income by virtue of its recognition underSection 127A otf the Act and therefore the assessee entitled to grant of recognition under Section 80G of the ‘Act’ subject to compliance of other provisions of the‘Act’. It further noticed “Action Points” provided in Form10G, item No.3 stipulating that though no time limit isprescribed for submitting the application, but in themutual interest of both itself and donors should submitthe application as soon as it is formed. In addition, itnoticed, that the application provided that the trustshould file the application for grant of recognition assoon as it is formed and the revenue was bound toexamine the documents, which are made available atthat point of time and arrive at a decision for grant ofrecognition under Section 80G of the ‘Act’, T On the tacts ‘Tribunal’ noticed that the assesseecommenced activity by providing notebooks to schoolchildren and publication of development of the regionand in order to support the activity was only by way offlow of finance, which can happen on receipt ofdonations. Recognition under Section 80G of the ‘Act’, as observed by the Tribunal will be one of the factors toinduce donors to donate funds to trusts, to encouragesuch kind of activity by the trust for the development ofthe society as well as the Nation. For the said reasons|the ‘Tribunal’ allowed the appeal, set aside the order ofthe CIT, Gulbarga and directed grant of recognitionunder Section 80G(95)(vi) read with rule 11AA(5) of th‘Act’. 8.HavingnoticedtheTEaso;#s,findings($2conclusion arrived at by the ‘Tribunal’, we do not findany.substantial|questionoT lawmadeOUTforinterference with the order impugned. Q ori Ameet Kumar Deshpande, learned counsel forthe appellant - revenue submits that if on anexamination and verification of the accounts of theassessee trust, it is found that the monies received asdonations are not used for the purpose for which thetrust was created or its activities, the revenue be permitted to withdraw the recognition under Section80G(95)(vi) of the Act. It is open for the authorities underthe ‘Act’, to take such action as is permissible under the‘Act’, in the such eventuality and not for this court toextend permission. Appeal devoid of merit dismissed. Sd/-JUDGE 2+ Sd/-JUDGE