CIT Exemption Vs Sattavis Kadva Patidar Pragati Mandal (Gujarat High Court)
The Gujarat High Court dismissed the Tax Appeal filed by the CIT (Exemption) against the order dated 08.05.2024 passed by the Income Tax Appellate Tribunal in ITA No. 414 of 2023 concerning the assessee’s application under Section 80G of the Income-tax Act, 1961. The Revenue had proposed three substantial questions of law concerning the applicability of Section 80G(5B), the religious and charitable objects contained in the trust deed, and the interaction between Section 80G(5B), Section 80G(5) and Section 2(15) of the Act.
The substantial questions proposed by the Revenue proceeded on the premise that the assessee trust had religious objects as well as charitable objects. The Revenue contended that Section 80G(5B) was applicable to trusts which were charitable in nature and not to trusts which were purely religious or religious-cum-charitable in nature. It further contended that certain object clauses under the head “Religious purpose” were religious in nature and that Section 80G(5B) could not override the substantive requirements of Section 80G(5), read with Section 2(15). Reliance was also sought to be placed upon the Supreme Court decision in Upper Ganges Sugar Mills Ltd.
During the hearing before the High Court, however, the learned Senior Standing Counsel appearing for the Revenue was unable to dispute the factual finding recorded by the Tribunal that no notice had been issued to the assessee by the CIT (Exemption) before rejecting the application for registration under Section 80G(5B). The Tribunal had specifically observed that no show cause notice was issued before the application under Section 80G was rejected. It regarded the show cause notice as significant to procedural fairness and the protection of the taxpayer’s rights.
The Tribunal had thereafter concluded that the order passed by the CIT (Exemption) was bad in law. It found that the assessee trust, having not spent any money on religious purposes, was eligible for approval under Section 80G(5). The Tribunal consequently set aside the order dated 27.03.2023 passed by the CIT (Exemption) and directed grant of exemption/approval to the assessee trust.
The Gujarat High Court focused upon the undisputed procedural defect. In view of the categorical finding recorded by the Tribunal regarding the absence of any notice issued by the CIT (Exemption) to the assessee before rejection of the application, the High Court was not inclined to entertain the appeal on the proposed substantial questions of law. The appeal was accordingly dismissed.
The decision therefore turned upon the absence of a show cause notice and the resulting procedural defect in the rejection of the Section 80G application. The High Court did not enter into an independent adjudication of the Revenue’s proposed questions concerning the scope of Section 80G(5B), the religious character of the trust’s objects or the applicability of the Supreme Court decision in Upper Ganges Sugar Mills Ltd. The statutory framework governing Section 80G, including the provision permitting limited expenditure of a religious nature, is discussed in TaxGuru material on Section 80G and charitable and religious trusts.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1 This Tax Appeal is admitted for consideration of the following substantial questions of law:
“1 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal has erred in directing CIT(E) to examine the application of assessee in limited purview of provisions of Section 80G(5B) of Income Tax Act, 1961 ignoring the fact that Section 80G(5B) of Income Tax Act, 1961 is applicable for trusts which are charitable in nature and not on the trusts which are purely religious in nature or religious cum charitable in nature.
2 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal erred in directing CIT(E) to examine the application of assessee in limited purview of provisions ofSection 80G(5B) of the Income Tax Act, 1961 ignoring the fact that object clauses 1 to 4 under the head ‘Religious purpose’ of the trust deed are religious in nature and other objects are charitable in nature.
3 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal has erred in directing CIT(E) to examine the application of assessee in limited purview of provisions of section 80G(5B) of Income Tax Act, 1961 ignoring the fact that provisions ofSection 80G(5B) of Income Tax Act, 1961 cannot override substantial provisions of section 80G(5) r.w.s 2(15) of Income Tax Act, 1961 that define charitable object, which stands further clarified by Hon’ble Supreme Court of India in the case of Upper Ganges Sugar Mills Ltd. Reported in [1997] 93 Taxmann 645 (SC)?” 2 During the course of hearing of the present tax appeal, when we have invited the attention of the learned Senior Standing Counsel Mr.Aman Mir to the observations made in Page 1 of 2 5.3 of the impugned judgement and order dated 08.05.2024 passed by the Income Tax Appellate Tribunal in ITA No. 414 of 2023, learned Senior Standing Counsel Mr.Aman Mir is unable to dispute the fact recorded by the Tribunal to the extent that no notice was issued to the assessee by the CIT (Exemption) before rejecting the application for registration under Section 80G(5B) of the Income Tax Act,1961
3 In this regard, the Tribunal has held as under:
“7.7 At this juncture, it is also important to note that no show cause notice was issued to the assessee before rejecting the application under Section 80G of the Act by Ld. CIT(E). The show cause notice holds immense significance in income tax proceedings, ensuring procedural fairness and safeguarding the rights of taxpayers. There are many judicial pronouncements which have reinforced the indispensability of this notice, emphasizing that orders issued without its adherence may be deemed invalid.
8 On perusal of financial, facts, and circumstances of the present case, after thoughtful deliberations, we are of the opinion that the order passed by Ld. CIT(E) is bad at law. We are of the considered view that the assessee trust having not spent any money on religious purposes, is eligible for grant of approval u/s 80G(5) of the Act, thus, set aside the order dated 27.03.2023 passed by Ld. CIT(E) with a direction to grant exemption/approval to the assessee trust, accordingly. In the result grounds of the appeal involving the sole issue raised by the assessee in the present case are allowed.”
4 Thus, in view of the categorical findings recorded by the Tribunal about the absence of any notice issued to the assessee by the CIT (Exemption), we are not inclined to entertain the present appeal on the proposed substantial questions of law. Hence, the appeal stand dismissed accordingly.
