Conditional approval under section 80G by PCIT is unsustainable

Lady Meherbai D. Tata Education Trust Vs CIT (ITAT Mumbai)

ITAT Mumbai held that granting of conditional approval under section 80G of the Income Tax Act by PCIT/CIT is unsustainable in the eyes of law.

Facts- The assessees M/s. Lady Tata Memorial Trust & M/s. Lady Meherbai D. Tata Education Trust being a charitable trust sought to grant the registration with effect from 23 .03.2022 to A.Y. 2024-25 u/s. 80G of the Income Tax Act, 1961 for A.Y. 2022-23 after complying with the requisite formalities. The Ld. PCIT vide impugned order accorded the registration under section 80G of the Act, however subject to the conditions to be complied with by the assessee which is under challenge before the Bench.

Conclusion- The role of the PCIT while according registration and approval under section 12A and 80G is only to make himself satisfied about the genuineness of the activities to be carried out by the assessee trust and compliance of such requirement of any other law for the time being in force by the trust or institution material to achieve its object and then to accord the registration and approval.

We are of the considered view that impugned order passed by PCIT/CIT is not sustainable to the extent of imposing conditions in para 10(a) to (j) of the impugned order in the eyes of law.

The approval granted by the PCIT/CIT under section 80G of the Act to the assessees is made absolute sans conditions of the impugned order. Hence, both the appeals filed by the assessee are allowed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

Since common question of law and facts have been raised in these inter-connected appeals, the same are being disposed of by way of composite order to avoid repetition of discussion.

 2. The appellants, M/s. Lady Tata Memorial Trust & M/s. Lady Meherbai D. Tata Education Trust (hereinafter referred to as ‘the assessees’) by filing the present appeals, sought to set aside the impugned order even dated 23 .03 .2022 passed by Principal Commissioner of Income Tax/ Commissioner of Income Tax, Mumbai [hereinafter referred to as the PCIT/CIT] qua the assessment year 2022-23 (grounds taken from ITA No.1 158/M/2022) on the grounds inter alia that:-

“1. The Learned Principal Commissioner of Income-Tax (PCIT)/ Commissioner of Income-Tax (CIT) grossly erred in issuing provisional order granting registration under section 80G of the Income Tax Act, 1961 (ITA) dated 23.03.2022 which imposed conditions on the basis of which the registration was granted, even though there is no provision in the ITA which permits the PCIT to grant conditional registration.

2. The PCIT failed to appreciate that there is no provision in ITA which permits withdrawal/cancellation of section 80G certificate/order.

3. The PCIT grossly erred in holding that the order granting registration is liable to be withdrawn in the circumstances specified in the order.

4. The appellant craves leave to add to, alter, amend and/or delete in all the foregoing grounds of appeal.”

 3. Briefly stated facts necessary for adjudication of the issue at hand are : both the assessees M/s. Lady Tata Memorial Trust & M/s. Lady Meherbai D. Tata Education Trust being a charitable trust sought to grant the registration with effect from 23 .03.2022 to A.Y. 2024-25 under section 80G of the Income Tax Act, 1961 (for short ‘the Act’) for assessment year 2022-23 after complying with the requisite formalities. The Ld. PCIT vide impugned order accorded the registration under section 80G of the Act, however subject to the conditions to be complied with by the assessee which is under challenge before the Bench.

4. The sole issue arises for determination in both the aforesaid appeals is :

“as to whether the Ld. PCIT is empowered to accord approval sought for by the assessee under section 80G(5) clause (iv) of first proviso subject to the conditions to be complied with by the assessee trust.”

5. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.

6. Undisputedly, the Ld. PCIT has granted the approval applied for by the assessee under section 80G of the Ac, however, subject to the conditions as under:

“a. No change in the deed of the applicant trust/society/non profit company or any of its bye-laws shall be affected without the due procedure of law and the approval of the Competent Authority as per provisions of law and its intimation shall be given immediately to Office of the Jurisdictional Commissioner of Income Tax and to the Assessing Officer.

b. Any change in the trustees or address of the applicant trust/society/non-profit company shall be intimated forthwith to Office of the Jurisdictional Commissioner of Income Tax and to the Assessing Officer.

c. The applicant trust/society/non profit company shall maintain its accounts regularly and also get them audited as per the provisions of section 80G(5)(iv) read with section 12A(l)(b)/10(23C) of the Income Tax Act, 1961.

d. Certificate of donation shall be issued to the donor in form no 10BE, as per the provisions of rule 18AB.

e. No cess or fee or any other consideration shall be received in violation of section 2(15) of the Income Tax Act, 1961.

f. The trust/society/non profit company shall file the return of income of its trust/society/non profit company as per the provisions of section 139(1)/(4A)/(4C) of the Income Tax Act, 1961.

g. The approval granted through this order shall apply to the donations received only if the applicant trust/society/non profit company, established in India for charitable purpose, fulfills the conditions laid down in section 80G(5) of the Income Tax Act, 1961 and the religious expenditure does not exceed the limit specified in section 80G(5B)of the said Act.

h. If the applicant trust/ society/ non-profit company derives any income, being profits and gains of business, it shall maintain separate books of account in respect of such business as provided in section 80G(5)(i) of the Income Tax Act, 1961. Further, any donation received by the applicant shall not be used, directly or indirectly, for the purposes of such business and a certificate shall be issued to every person making a donation to the effect that the applicant maintains separate books of account in respect of the business and the donation received by it will not be used, directly or indirectly, for the purpose of the business.

i. The applicant shall comply with the provisions of the Income Tax Act, 1961 read with the Income Tax Rules, 1962.

j. The approval and the Unique registration number has been instantly granted and if, at any point of time, it is noticed that form for approval has not been duly filled in by not providing, fully or partly, or by providing false or incorrect information or documents required to be provided under sub-rule (1) or (2) of rule 11AA or by not complying with the requirements of sub- rule (3) or (4) of the said rule, the approval and Unique Registration Number (URN), shall be cancelled and the approval and URN shall be deemed to have never been issued or granted.”

7. When we examine the questions raised by the assessee trust qua according of approval sought for under section 80G of the Act, granted by the Ld. PCIT subject to certain conditions in the light of the provisions contained in the scheme of Income Tax Act, 1961 consequent upon the registration under section 12A, approval under section 80G of the Act sought for by the assessee cannot be subjected to any condition as there is an “inbuilt mechanism” to be complied with by the assessee after getting registration/approval under section 12AA and 80G of the Act. Furthermore, compliance of the conditions for section 11 & 12 of the Act by the assessee is to be examined by the Assessing Office (AO) during the assessment proceedings. The role of Ld. PCIT while according registration and approval under section 12A & 80G is only to make himself satisfied about the genuineness of the activities to be carried out by the assessee trust and compliance of such requirement of any other law for the time being in force by the trust or institution material to achieve its object and then to accord the registration and approval.

8. The Ld. A.R. for the Revenue while supporting the impugned order passed by the Ld. PCIT relied upon the order passed by the co-ordinate Bench of the Tribunal in ITA No.2204/M/2021 & ITA No.2206/M/2021 order dated 29.09.2022 and drew our attention towards para 8 which is extracted as under:

“8. Moreover, assessee in this case has applied for approval under section 80G of the Act in form No.10AC as explained in column six of the impugned order i.e. 11-Clause (i) of first proviso to sub-section (5) of section 80G. Had the assessee moved to the PCIT under clause II & III of proviso 2 to section 80G then he would have been empowered to impose the condition. When in the instant case assessee has come up under clause I of sub section v of section 80G, no such condition can be imposed by the Ld. PCIT. So we are of the considered view that impugned order passed by the Ld. PCIT is not sustainable to the extent of imposing conditions in para 10(a) to (j) of the impugned order, in the eyes of law.”

9. The Ld. D.R. for the Revenue contended that the co-ordinate Bench of the Tribunal has held that “had the assessee moved to the PCIT under clause II & III of proviso 2 to section 80G then he would have been empowered to impose the condition”.

10. But this argument of the Ld. A.R. for the assessee is misplaced because when this “pointed out” sentence is read with the earlier sentence of the para 8 of the order passed by the co­ordinate Bench of the Tribunal (supra) it is categorically mentioned that it is referred to clause II & III by referring to proviso 1 to section 80G and not proviso 2 to section 80G. It is a clerical error. Rather order passed by co-ordinate Bench of the Tribunal in ITA No.2204/M/2021 & ITA No.2206/M/2021 order dated 29.09.2022 (supra) is applicable to the facts and circumstances of the case. So we are of the considered view that the impugned order passed by the Ld. PCIT/CIT is not sustainable to the extent of imposing conditions in para 10(a) to (j) of the impugned order in the eyes of law.

11. The Ld. D.R. for the Revenue also contended that when the assessee trust itself moved an application for granting provisional approval as form 10AC only talks about “provisional approval”, the Ld. PCIT/CIT was well within his right to impose the conditions. But we are unable to agree with the argument addressed by the Ld. D.R. because approval sought for by the assessee is for 3 years and merely by using the word “provisional” it will not oust the general scheme of Income Tax Act which provides sufficient in built mechanism to be complied with by the assessee after getting registration/approval under section 12AA or 80G of the Act, as the case may be, as necessary compliance is to be got executed by the AO while deciding the issue under section 11 & 12 of the Act.

13. Consequently, approval granted by the Ld. PCIT/CIT under section 80G of the Act to the assessees is made absolute sans conditions laid down in para 10 of the impugned order. Hence, both the appeals filed by the assessee are allowed.

Order pronounced in the open court on 30.11.2022.