Ullal Charitable Trust Vs CIT (ITAT Bangalore)
Denial of U/s 80G Approval to Educational Trust Held Unjustified – ITAT Directs CIT(E) to Grant Approval
The assessee, a charitable trust running a school, applied for approval u/s 80G to enable donors to claim deduction on donations made to the trust. The CIT(E) rejected the application on the ground that the trust had substantial fee receipts from students and had accumulated excess income over expenditure, which according to the authority indicated a profit motive inconsistent with charitable activities.
Before the Tribunal, the assessee submitted that the trust already held valid registration u/s 12A/12AB and that the department had already accepted the genuineness of its charitable activities. It was further clarified that fee receipts from students were part of the regular educational activities, while donations were separately recorded and only those donations would be eligible for deduction u/s 80G.
The Tribunal observed that once the trust had been granted registration u/s 12A after verification of its objects and activities, the denial of approval u/s 80G on the ground of fee receipts was not justified. The fact that the trust collected fees for running a school does not disentitle it from receiving donations eligible for deduction u/s 80G. The CIT(E) had not shown any evidence of misuse of donations or lack of genuineness of the trust’s activities.
Accordingly, ITAT held that the rejection of approval u/s 80G was based on irrelevant considerations and set aside the order of the CIT(E). The authority was directed to grant approval u/s 80G to the trust if there were no other legal impediments. The appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the rejection order of the Ld.CIT(E) in which the application filed for an approval u/s. 80G has been denied by an order dated 31/01/2025 and raised the following grounds:
1. On the facts and in the circumstances of the case the learned Commissioner of income Tax (Exemptions) erred in denying the approval under section 80G(5)(iii) of the Income tax Act, 1961.
2. The learned Commissioner of Income Tax (Exemptions) erred in holding that the appellant had not furnished sufficient details or proof of the activities of the trust/Institution within the meaning of section 2(15) of the Income tax Act, 1961 when on the same set of facts and material furnished the learned CIT(E) had granted registration under section 12AB of the Income tax Act, 1961.
3. The learned Commissioner of Income Tax (Exemptions) having satisfied with the genuineness of the trust and also having satisfied with the activities of the trust to grant registration under section 12AB of the Income tax Act, 1961 ought to have granted the approval under section 80G(5)(iii) of the Income tax Act, 1961 to enable the appellant trust to get donations for carrying out its objects.
4. The learned Commissioner of Income Tax (Exemptions) has failed to comprehend the fact that, appellant has not only having fees receipts it also has other than fees receipts, which are eligible for deduction under section 80G of the Income tax Act, 1961.
5. The learned Commissioner of Income Tax (Exemptions) has failed to comprehend the fact that, “fees receipts” is the revenue generated out of the regular activities carried by the Institution/Trust, which does not comes under the definition of Donation Received under section 80G of the Income tax Act, 1961.
6. The learned Commissioner of Income Tax (Exemptions) has wrongly assumed the chair of Appellant Trust by creating her own opinion at 6.4 of the order dated 17.1.2025 i.e., answer to (i) is “No” whereas answer to (ii) is Yes, by doing so, learned CIT(E) overlooked the fact that, the answer to (i) and (ii) may be vis a vis.
7. The learned Commissioner of Income Tax (Exemptions) while arriving at the excess of income over expenditure has grossly ignored the capital expenditure applied during the year as application of income under section 11(1) of the Income tax Act, 1961.
8. The learned Commissioner of Income Tax (Exemptions) erred in law in not allowing accumulation under section 11(1)(a) of the Income tax Act, 1961, being 15% of the gross receipts, as application of income.
9. The learned Commissioner of Income Tax (Exemptions) has failed to understand the method of computation of total income ie., application income in Trust cases.
10. The learned Commissioner of Income Tax (Exemptions) has grossly ignored the fact that, the appellant had granted registration under section 80G from the date of appellant’s inception.
11. The learned Commissioner of Income Tax (Exemptions) was not satisfied with the existing materials furnished by the appellant for granting approval in the interest of justice and having failed to do so, the order of denial is opposed to law and liable to be cancelled.
12. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.”
2. The brief facts of the case are that the assessee is a charitable trust and got the registration u/s. 12A of the Act. The assessee apart from the receipt of the donations, also collected fees from the students. The assessee to claim the deduction u/s. 80G of the Act, had filed an application on 10/08/2024. The Ld.CIT(E) issued notice for filing the documents. The assessee appeared and filed their income and expenditure statements for the period ended 31/03/2024, 31/03/2023 and the provisional income and expenditure statement as on 30/09/2024. The assessee also explained the fact that the assessee had collected fees and also received donations and explained that they will utilise the 80G only for the purpose of the donations received by them. The Ld.CIT(E) after going through the income and expenditure statements, had observed that the assessee had a substantial increase in its income over expenses over a period of 3 assessment years and therefore concluded that the assessee was not able to apply the resources at hand towards the charitable objects of the trust and it also indicates the the profit motive of the entity which does not augur well with the charitable motive as per the objects of the trust. The Ld.CIT(E) also observed that the assessee is receiving high fees and also observed that the assessee could not claim the fees receipts as deduction u/s. 80G of the Act and therefore approval u/s. 80G could not be granted.
