Case Law Details
While granting the exemption or renewal of exemption under section 80G(5) of the Act, the role of CIT is limited to look into the nature of activities being carried on by the institution or fund and the violation if any, of the provisions of section 13 of the Act and its various sub‑sections are to be looked into by the Assessing Officer while deciding the issue of grant of deduction under sections 11 and 12 of the Act. The CIT while issuing the extension of exemption under section 80G(5) of the Act has a limited role to play i.e. to see whether the activities of the assessee trust were charitable in nature. As pointed out in the paras hereinabove, the assessee was engaged in promoting educational activities by way of running schools, colleges, etc. The activities carried on by the assessee were purely charitable in nature which entitled it to claim the exemption under section 80G(5) of the Act. Merely because, the assessee had entered into an agreement for leasing out the part of its land to its sister concern M/s. ABL for establishing RMC Plant with the understanding that the RMC would be supplied to it at concessional rates and on priority basis, does not establish the case of the CIT that the assessee had allowed M/s. ABL to use its property for its benefit. On the other hand, the assessee had benefited by way of receipt of the Ready Mix Concrete for the construction of its school building at concessional rates. The assessee has tabulated such benefit over the period of the agreement at Rs.40,35,856/-. On the other hand, if the portion of land made available to M/s. ABL was rented out, then the same would have fetched very low rentals. In other words, by way of this arrangement, the assessee has benefited in getting the RMC at concessional rates and such understanding between the assessee and M/s. ABL is not in violation of the provisions of section 13 of the Act.
Even otherwise, while granting the exemption under section 80G(5) of the Act, the Hon’ble Gujarat High Court in Orpat Charitable Trust Vs. CIT (supra) while deciding the issue of renewal of certificate under section 80G(5) of the Act, held that even if the ground about contravention of section 11(5) of the Act was validly taken by the CIT, that would have bearing only at the point of the assessment and would not be a material consideration in so far as the granting approval under section 80G(5) of the Act was concerned.
Further, the Cochin Bench of the Tribunal in George Educational, Medical & Charitable Society Vs. Asst. Director of Income Tax (supra) had held that while granting registration under section 12A of the Act where the objects of the assessee society were genuine, merely because it had incurred certain expenditure, which fell within the category of benefit to a person under section 13(3) of the Act and hence, the assessee society was held to be hit by the provisions of section 13(1) (c) of the Act, does not entitle the CIT to deny the exemption of income claimed under section 11 of the Act.
The Delhi Bench of the Tribunal in Aggarwal Mitra Mandal Trust DIT (Exemption) (supra) held that while granting registration under section 12A of the Act, the CIT is to satisfy himself about the genuineness of activities and objects of the trust and as such, the scope of his powers was limited in this regard to make such enquiries as he deemed to, in respect of these two aspects. It was further held that if the Commissioner had not doubted the genuineness of the activities of the trust, he could not refuse the grant of registration under section 12A of the Act. The provisions of section 13(1) of the Act would be applied or invoked only at the time of computation of total income of the previous year of the person who was claiming deduction under section 11 or 12 of the Act, by the Assessing Officer and not by the CIT, while considering the application for registration under section 12A of the Act.
Following the above parity of reasoning in the facts of the present case, where the assessee was engaged in promotion of educational activities, which with within the domain of being charitable, the CIT at the time of grant of extension of exemption under section 80G(5) of the Act was not empowered to deny the said exemption to the assessee on the ground that it had violated the provisions of section 13(1) of the Act. In any case, the arrangement entered into by the assessee with M/s. ABL was a beneficial arrangement and was for the purpose of carrying on the activities of the trust by way of construction of the buildings of the educational institutes to be run by the assessee, and where there was benefit to the assessee by way of such arrangement, the same does not establishes that the assessee was not engaged in providing charitable activities i.e. education. In view thereof, we find no merit in the order of Commissioner. Accordingly, we direct the Commissioner to grant renewal of exemption under section 80G(5) of the Act to the assessee.
