Case Law Details
Blaze Trust Vs CIT (ITAT Chennai)
The Income Tax Appellate Tribunal (ITAT), Chennai, adjudicated an appeal filed by the assessee against the order of the Commissioner of Income Tax (Exemption), Chennai, dated 29.08.2024, rejecting approval under Section 80G of the Income Tax Act, 1961. The appeal was filed with a delay of 118 days; however, upon consideration of the affidavit explaining the delay, the Tribunal condoned it and proceeded to examine the case on merits.
The assessee is a public charitable trust incorporated on 25.09.2003. It had applied for registration under Section 80G(5)(iii) through Form 10AB on 20.02.2024. The Commissioner rejected the application on the ground that the activities of the trust were in the nature of a business correspondent, treating them as micro-finance activities that were not charitable in nature.
Before the Tribunal, the assessee contended that its objects included socio-economic empowerment of marginalized communities, promotion of human rights, provision of food, shelter, medical aid and education, establishment of welfare institutions, and implementation of development programmes. It further submitted that its activities, such as facilitating bank account operations, pension disbursement, and acting as an intermediary in welfare delivery systems, were integrally connected with its charitable objectives and carried out without profit motive.
The assessee placed on record extensive documentation, including its annual reports and financial statements, to demonstrate that its activities were aligned with its stated objects. It highlighted that micro-credit and loan distribution activities were undertaken as part of government schemes aimed at poverty alleviation and empowerment of disadvantaged communities. It also pointed out that it had been providing educational support and welfare assistance to various vulnerable groups, including women and students.
The assessee further submitted that it had already been granted registration under Section 12A both under the old and new regimes, indicating that its activities had previously been recognized as charitable by the tax authorities. It also emphasized that its financial records showed only incidental surplus, approximately 10% of gross receipts, and there was no evidence of profit maximization or commercial exploitation.
The Department, on the other hand, argued that the assessee was functioning as a business correspondent for a bank and earning service charges, which indicated that its activities were commercial and not charitable.
After considering the submissions and examining the records, the Tribunal found merit in the arguments of the assessee. It noted that the trust had been functioning since 2003 with the objective of addressing socio-economic issues faced by disadvantaged communities. The Tribunal observed that the assessee had already been granted registration under Section 12A, both under the earlier and revised regimes, acknowledging the charitable nature of its activities.
The Tribunal held that the reasoning adopted by the Commissioner in treating the trust’s activities as those of a business correspondent was not supported by any evidence demonstrating commercial intent or profit-oriented operations. It observed that the trust deed itself permitted activities such as micro-credit programmes and formation of self-help groups, which necessarily involve interaction with financial systems. Such activities, when carried out in furtherance of charitable objectives, cannot be treated as independent business activities.
The Tribunal further noted that there was no material on record to indicate that the trust was driven by profit motive or that it carried out systematic commercial operations for earning profits. It emphasized that there was no distribution of surplus to trustees or members, and any income generated was applied towards the trust’s objectives. The financial statements did not reflect abnormal profits, reinforcing the absence of commercial intent.
The Tribunal concluded that the activities of the trust fell within the scope of “relief to the poor,” including education, healthcare, and community development. It observed that incidental activities or interaction with financial systems did not alter the essential charitable character of the trust.
It also clarified that at the stage of granting approval under Section 80G, the authority is required to examine only the nature of objects and the genuineness of activities, and not to reassess application of income or recharacterize incidental activities as business without evidence of profit motive. The Tribunal further held that the proviso to Section 2(15) was not applicable in the present case, as the activities were clearly within the ambit of charitable purposes.
Accordingly, the Tribunal held that the rejection of the application was unsustainable and directed the Commissioner to grant approval under Section 80G. The appeal filed by the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
The appeal is filed by the assessee against the order of rejecting the approval claimed u/s.80G of the Income Tax Act, 1961 (in short “the Act”) by the Commissioner of Income Tax (Exemption), Chennai, (in Short “Id.CIT(E)”) dated 29.08.2024.
2. At the outset, it is found that the present appeal was filed by the assessee with a delay of 118 days and the assessee had filed an affidavit bringing out the reasonable cause for such delay and after going through the same and hearing the both parties, the same is found to be sufficient and hence the delay is condoned for adjudication of appeal on merits.
3. The brief facts of the case emanating from the records are that the assessee is a public charitable trust incorporated on 25.09.2003 and had filed its Form 10AB claiming registration u/s.80G(5)(iii) of the Act on 20.02.2024. The said application filed by the assessee was rejected by the Id.CIT(E) by deeming the activities of the assessee to be in the nature of a Business Correspondent and concluded that the activities of the assessee trust is of micro-finance while it is not charitable in nature.
4. Before us, the Ld.AR submitted that the objects of the assessee trust include Socio-economic empowerment of women, dalits, tribals and vulnerable communities, Promotion of human rights and access to basic resources, Providing food, shelter, medical aid, education to the poor and needy, Running rehabilitation homes and welfare institutions, Promotion of education, health care and community development, Formation of self-help groups and micro-credit programmes for the poor, Conducting awareness programmes, seminars and development activities and further argued that the activities pursued by the appellant in providing services of opening of bank accounts, facilitating receipts & disbursement of old age pension sanctioned by state government, acting as an intermediary of welfare delivery are integrally connected with upliftment of poor and marginalized community and was done with charitable objective without any profit motive. The Ld.AR by placing reliance on the above objects of the Trust argued that unless there is a clear and demonstrable deviation from its stated objects, the assumption of business activities carried out by the Trust does not hold good.
5. The Ld.AR placed on record the paperbook containing 363 pages and took us to the relevant pages demonstrating that the objects of the trust are duly satisfied by the activities of the trust are indeed charitable in nature. The Ld.AR also demonstrated from the annual report of the assessee that the loans distributed by the assessee are also charitable in nature in implementing the specific schemes of the government for the downtrodden and argued these activities were also intrinsically linked to poverty alleviation and empowerment.
6. The Ld.AR also took us to each of the activities of the trust and submitted that the assessee had been providing educational support to hundreds of students and various other support to widows, unmarried women etc. It was also submitted that the assessee was enjoying the registration u/s.12A of the Act both under the old regime and under the new regime.
7. The Ld.AR further submitted by placing on record the financials of the assessee for the assessment year 2021-22 to 2023-24 that the assessee’s incidental surplus from the activities conducted by them are around 10% of the gross receipts thereby further establishing the absence of any profit motive from the activities conducted by them and argued that the Id.CIT(E) had not pointed out any commercial exploitation or profit maximization by the assessee trust and pleaded for directing the Id.CIT(E), Chennai to grant approval u/s.80G of the Act.
8. The Ld.DR on the contrary submitted that the assessee is acting as a business correspondent for the State Bank of India and is earning service charges from such activities and argued that the above activities of the assessee cannot be treated as charitable in nature and pleaded for dismissing the appeal of the assessee.
9. We have heard the rival submissions and perused the materials available on record and gone through the order of the Id.CIT(E) along with the paper book filed. We find merit in the arguments of the Ld.AR and we further note that the assessee was incorporated in the year 2003 and has been addressing the issues faced by the downtrodden people with an intent to ensure socio economic empowerment of such people.
10. The Income Tax Department had recognized the activities pursued by the assessee as charitable and granted the registration u/s.12A of the Act under the old regime on 30.11.2008. Similarly, under the new regime, the registration sought for u/s.12A of the Act was also granted by the Department for five years on 30.09.2021 by reckoning the activities carried out by the assessee as charitable. In this background, we find it deem fit to adjudicate the findings recorded by the Id.CIT(E) for rejecting the registration sought for u/s.80G of the Act.
11. The main reason given by the Id.CIT(E), Chennai for rejecting the grant of registration is on the ground that the activities of the Assessee are in the nature of Business Correspondent which understanding of the Id.CIT(E) is found to be unacceptable in the absence of any findings demonstrating the commerciality in the overall activities of the trust. The Trust Deed itself authorizes activities such as formation of self-help groups, micro-credit programmes and developmental initiatives, which necessarily involve interaction with financial systems, and therefore, any facilitative role played by the Trust in this regard cannot be divorced from its objects or characterized as an independent business.
12. Moreover, there is no material on record to demonstrate that the Trust is driven by a profit motive, or that it carries on systematic commercial operations with a view to earning profits. There is no distribution of surplus to trustees or members, and any income generated is wholly applied towards the objects of the Trust. In fact, from the perusal of the financial statements we find that there is no abnormal surplus or profit emanating and further we are of the view that the activities carried out by the assessee trust brought out in the annual reports placed on record (Page No.76 to 96) would fall within the ambit of relief to poor.
13. The absence of profit motive is a crucial factor which distinguishes a charitable activity from a business activity, and in the present case, the assessee had demonstrated that the activities carried out are not with the intention to make profit and the functioning of the Trust indicate that it operates in a not-for-profit framework, utilizing its resources for the benefit of the target beneficiaries.
14. In view of the above facts, we are inclined that the activities of the assessee Trust are purely charitable in nature, carried out in furtherance of its stated objects, and any incidental activity cannot alter the essential character of the Trust and various activities provided by the assessee would fall within the ambit of uplifting of poor, medical relief, education etc. which activities of the trust cannot be completely ignored for the purpose of granting approval u/s.80G of the Act.
15. It is also a settled position of law that at the stage of granting approval u/s.80G of the Act, the competent authority is required to examine only the nature of objects and the genuineness of activities, and not to sit in judgment over the application of income or to recharacterize incidental activities as business, in the absence of any evidence of profit-oriented conduct. Further, we are of the view that the provisions in proviso to Section 2(15) of the Act would not get attracted to the facts of the case since the activities carried out by the assessee trust falls within the ambit of relief to poor.
16. Accordingly, considering the charitable objects of the Trust and the genuineness of its activities which would fall within the ambit of relief to poor, the assessee Trust is held to be eligible for approval u/s.80G of the Act. The rejection of the application is therefore unsustainable and is set aside and the Id.CIT(E) is directed to grant approval u/s.80G of the Act.
17. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 07th April, 2026 at Chennai.
Author Bio
