Case Law Details
Diamond Cares Vs CIT (Exemption) (ITAT Kolkata)
Introduction: The Income Tax Appellate Tribunal (ITAT) Kolkata, in the case of Diamond Cares vs. Commissioner of Income Tax (Exemption), delivered a landmark ruling that significantly impacts trusts seeking approval under Section 80G of the Income Tax Act, 1961. This decision, dated January 10, 2024, underscores the tribunal’s interpretation of the application timeline for final approval under Section 80G(5)(iii) and its implications for trusts with pre-existing charitable activities.
Detailed Analysis
The core issue in this appeal was the rejection by the Commissioner of Income Tax (Exemption) (CIT(E)) of Diamond Cares’ application for final approval under Section 80G(5)(iii), citing the provision that requires such application to be filed within six months from the commencement of the trust’s activities. The CIT(E) deemed the application time-barred, basing this decision on the trust’s activities that commenced in the financial year 2020-21.
However, ITAT Kolkata, referencing its earlier decision in the case of West Bengal Welfare Society vs. CIT(E), Kolkata, clarified the interpretation of the proviso to Section 80G(5). It emphasized that the provision allows for an application for final registration after the grant of provisional approval, regardless of when the charitable activities initially commenced. This interpretation opens a pathway for trusts engaged in charitable activities prior to obtaining provisional approval to apply for final approval under Section 80G(5)(iii) within a stipulated timeframe after such provisional approval is granted.
The tribunal’s ruling highlighted that the primary eligibility criterion for final approval under Section 80G is the grant of provisional approval and the commencement of activities post such provisional approval. Therefore, the timeline for applying for final approval is contingent upon these two factors, rather than the initial commencement of charitable activities.
Tribunal’s Decision: ITAT Kolkata directed the CIT(E) to grant final approval to Diamond Cares under Section 80G(5)(iii), provided the trust met other eligibility criteria, effectively overruling the CIT(E)’s interpretation that precluded trusts from obtaining final approval if they had commenced activities prior to applying for provisional approval. This decision underscores a reasonable construction of Section 80G provisions, ensuring that trusts engaged in charitable activities can seek final approval under Section 80G, fostering a supportive environment for charitable endeavors.
Conclusion: The ITAT Kolkata’s ruling in Diamond Cares vs. CIT (Exemption) marks a pivotal development in the regulatory landscape for trusts seeking tax exemptions under Section 80G of the Income Tax Act. By clarifying the application timeline for final approval under Section 80G(5)(iii), the tribunal has ensured that trusts are not unjustly barred from obtaining such approval due to the timing of their charitable activities’ commencement. This decision reinforces the principle that regulatory interpretations should facilitate, rather than hinder, charitable activities, thereby contributing to the broader objective of promoting societal welfare through philanthropy.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Exemption), [hereinafter the “ld. CIT(E)”] dt. 28/06/2023.
2. The assessee is this appeal has agitated against the action of the ld. CIT(E) in rejecting the application of the assessee for final approval u/s 80G(5)(iii) of the Income Tax Act, 1961 (in short ‘the Act’).
3. Brief facts of the case are that the assessee trust has already been duly registered u/s 12A(1)(ac)(iii) of the Act for Assessment Year 2023-24 to 2027-28. The assessee trust has also applied for provisional approval u/s 80G(5)(iv) of the Act which was granted by the ld. CIT(E) for the period from 26/05/2022 to Assessment Year 2025-26. Subsequently, the assessee moved an application for final approval u/s 80G(5)(iii) of the Act on 30/12/2022. However, the ld. CIT(E) has rejected the said The ld. CIT(E) in this respect referred to the said clause (iii) of proviso to section 80G(5) of the Act, which reads as under:
(iii) Where the institution or fund has been provisionally approved, at least six months prior to expiry of the period of the provisional approval or within six months of commencement of its activities whichever is earlier.”
The ld. CIT(E) concluded from the above proviso that the assessee has already commenced its activities in the financial year 2020-21 and that as per Clause (iii) of 1st Proviso to section 80G(5) of the Act, the application for final registration was to be filed within six months from the commencement of its activities. He, therefore, held that the application of the assessee for final registration was time- barred.
4. Aggrieved by the said order of the ld. CIT(E), the assessee has come in appeal before us.
5. At the outset, the ld. Counsel for the assessee has relied on the decision of the Co-ordinate Bench of the Tribunal in the case of West Bengal Welfare Society vs. CIT(E), Kolkata in ITA Nos. 730 & 731/Kol/2023; order dt. 13/09/2023, wherein under somewhat similar circumstances, the Tribunal has held as under:-
“6. We note that the ld. CIT(E) has misconstrued the aforesaid proviso to section 80G(5) of the Act. As per the provision, an application for final registration cannot be filed until and unless an assessee/trust has been given provisional approval u/s 80G(5)(iv) of the Act. The assessee was granted provisional approval on 30.11.2022 only, and within a few days i.e. on 03.12.2022, the assessee applied for final registration u/s Clause (iii) of 1st Proviso to section 80G(5) of the Act. Though the assessee might have commenced its activities prior to grant of provisional registration but that does not mean that the assessee in that event will be precluded from applying for final registration even after the grant of provisional registration. The assessee as per statutory provision could not have directly applied for final registration without grant of provisional registration. The aforesaid proviso, therefore, is to be read as that after the grant of provisional registration, if the assessee has not commenced its activities, he may apply for registration within six months of the commencement of its activities or within the six months prior to the expiry of the period of provisional approval, whichever is earlier. In any case, the assessee is eligible to apply for final registration only after the grant of provisional approval. Therefore, we hold that there is no delay on the part of the assessee in filing application in the prescribed form for grant of final registration under Clause (iii) of 1st Proviso to section 80G(5) of the Act. However, since we have restored the matter to the ld. CIT(E) for decision afresh on merits on the application for final registration u/s 12A of the Act and since the registration u/s 80G(5) is dependent upon the registration u/s 12A of the Act, therefore, the application of the assessee for registration u/s 80G(5) is also restored to the ld. CIT(E) subject to the observations made above.”
6. As observed by the Co-ordinate Bench of the Tribunal in the case of West Bengal Welfare Society (supra) that though the assessee may have commenced its activities prior to applying for provisional approval u/s 80G(5) of the Act, but that does not mean that once the assessee has commenced its activities or already has been doing charitable activities and it has not opted for getting benefits under the Income-tax Act, then such an assessee trust/charitable institution is barred in future from applying from registration/approval under the relevant provision of the Income-tax. In the present case, the assessee might have commenced its activities in the F.Y. 2020-21 as observed by the ld. CIT(E), however, the assessee for the first time, applied for grant of provisional registration u/s 80G(5) of the Act from Assessment Year 2023-24 onwards only. The ld. CIT(E) taking note of the past activity of the assessee has granted a provisional registration. The assessee did not carry out any activity after the grant of provisional registration on 26/05/2022. The assessee for the first time started its activity after grant of provisional registration on 15/09/2022, on which date the trust received donation. The assessee made donation and the assessee trust thereafter applied for final registration on 30/12/2022 which was well within the period of six months from the commencement of its charitable activity after the date of provisional registration. If the view of the ld. CIT(E), under such circumstances, is considered to be correct then, any trust which is or has been already into charitable activities and has been granted provisional registration, the same will never be entitled for grant of final registration. Such an interpretation of the provisions of Section 80G(5) of the Act will defeat its purpose. Therefore, taking the reasonable construction of the said provision, the assessee is well within the prescribed limitation period to apply for the final approval u/s 80G(5) of the Act. The decision of the Co-ordinate Bench of the Tribunal in the case of West Bengal Welfare Society (supra) is fairly applicable in the present case. Therefore, the impugned order of the ld. CIT(E) is set aside and the ld. CIT(E) is directed to grant final approval to the assessee u/s 80G(5)(iii) of the Act, if the assessee is otherwise found eligible, irrespective of the date of application as discussed above.
7. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 10th January, 2024 at Kolkata.
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