Case Law Details
Indian Red Cross Society Vs CIT (ITAT Ahmedabad)
Introduction: Two appeals have been filed by the Indian Red Cross Society against the denial of registration under sections 12AB and 80G(5) of the Income Tax Act. The denial is primarily based on concerns related to compulsory transfers of donation funds, raising questions about whether they fall under the definition of voluntary donations and if they contribute to the trust’s objectives.
Detailed Analysis: The Indian Red Cross Society, registered under the Bombay Public Trust Act for charitable purposes, sought registration under section 12AB of the Income Tax Act in September 2022. During the process, the Commissioner of Income Tax (Exemption) issued notices requesting detailed information about the trust’s activities and certain documents.
The trust provided the required information in response to these notices. However, a subsequent notice dated 2nd January 2023 raised concerns about the adequacy of the information provided. This notice did not specify the particular documents required, and in response, the trust submitted its earlier acknowledgment of details submitted to the Commissioner.
Despite the trust’s efforts to comply with the notices, the Commissioner of Income Tax (Exemption) rejected the registration application. The Commissioner’s decision was primarily based on the observation that a significant portion of the donations received by the trust (30%) would be compulsorily transferred to the State/Union Territory Branch and the National Headquarters of the Red Cross Society. This was seen as a contractual or compulsory transfer of donation funds, which, in the Commissioner’s view, did not constitute voluntary donations as defined in the Act. The trust was also noted to have failed to provide clarification on this matter.
In response to this rejection, the Indian Red Cross Society appealed, citing several grounds of appeal, including the lack of a reasonable opportunity for being heard, the absence of specific deficiencies in the documents submitted, and the failure to provide clarity on the issue of compulsory transfer of donation funds.
The matter was brought before the Income Tax Appellate Tribunal (ITAT), and the trust’s counsel argued that the trust had not been given a proper opportunity to address the Commissioner’s concerns. It was contended that the trust believed the details already submitted were sufficient for compliance.
On the other hand, the Commissioner of Income Tax (Exemption) argued that the trust had been provided with opportunities as per statutory provisions but failed to submit complete details, justifying the rejection of registration.
The ITAT acknowledged that the Commissioner of Income Tax (Exemption) should have conducted an inquiry into the trust’s activities and verified its objects and the genuineness of its activities, as required by section 12AB of the Act. However, the ITAT found that the Commissioner had not indicated the exact deficiencies in the documents submitted by the trust and had not specified the nature of the clarification or explanation required. This lack of specificity in the rejection of the application, coupled with the absence of a proper opportunity for the trust to address the concerns, led the ITAT to set aside the rejection and provide the trust with another opportunity to present its case.
Conclusion: The ITAT’s decision to set aside the rejection of registration for the Indian Red Cross Society highlights the importance of affording organizations the opportunity to address concerns and provide clarifications. The case emphasizes the significance of procedural fairness and thorough inquiry in such matters, ensuring that charitable organizations can continue their valuable work without unnecessary hindrances. The ITAT has directed the matter back to the Commissioner of Income Tax (Exemption) to allow the trust to present its case more comprehensively and to make a reasoned decision regarding registration.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These two appeals are filed by the Assessee as against denial of registration under section 12AB and u/s. 80G(5) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide separate orders both dated 29-03-2023 passed by Commissioner of Income Tax (Exemption), Ahmedabad.
2. The brief facts of the case is that the assessee is a Trust registered under Bombay Public Trust Act for the object of charitable purposes. The assessee filed an application u/s. 12AB of the Act on 27-09-2022 in Form 10AB under rule 17A of the I.T. Rules. Before Ld. CIT(E), a notice dated 10-12-2022 was issued by CIT(E) through ITBA on the email address of the assessee, asking to furnish detailed note on the activities actually carried out by the Trust and certain documents. The assessee furnished the details on 22/12/2022. Another notice was issued by CIT(E) on 02-01-2023 wherein it is stated that the assessee Trust submitted part details, therefore one more opportunity given to the assessee to submit details/documents on or before 09- 0 1-2023. Since this notice does not specify specific documents as required by Ld. CIT(E), the assessee filed the earlier acknowledgment of details filed before Ld. CIT(E).
3. The Ld. CIT(E) rejected the application of registration u/s. 12AB observing as follows:
“….. 7. From perusal of copy of Trust Deed/Rules/Instrument of creation filed by the applicant/ assessee, it is observed that as per rules wrt application of fund are not voluntary but contractual or compulsive in nature, the said rules says “Donation received by the headquarter or any of the branches earmarked for a particular purpose for which the same is to be used, will be utilized by the receiving body for the purpose for which it was received, provided that in case of donations received by a District Branch and not earmarked for particular purpose, 15% of the same shall be payable to the State/UT Branch and 15% to the national headquarters and in case of donation received by any of the State/UT branch not earned for a particular purpose, 15% of the same shall be payable to the Headquarters.
From the above, it is evident the 30% of the total donations to be received by the applicant/ assessee will be transferred to the State/UT Branch and to the National Headquarters Of Red Cross Society. The aforesaid contractual or compulsive transfer of donation fund does not fall within the ambit of voluntary donation; therefore, said 30% of total donation (to be transferred to National/State/UT Branch as rules) cannot be treated as application of the fund towards the objects of the applicant/ assessee by the District branch i.e. the applicant, as per the provisions of the Act. The assessee/applicant has not submitted any explanation/clarification regarding the same. In absence of such clarification, the aforesaid point of contractual/compulsive application of fund remains unclarified and therefore the genuineness of activities of the applicant/ assessee AOP could not be ascertained.”
3.1. Thus Ld. CIT(E) held that he is unable to arrive at the satisfaction of the genuineness of the activities of the assessee Trust , thereby registration u/s. 12AB was rejected.
4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
1. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Exemption) has erred in rejecting application for registration u/s 12AB of the Act.
2. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Exemption) has not provided reasonable opportunity of being heard as provided under Second Proviso to Section 12AB (1)(b) (ii) (B) of the Act.
3. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Exemption) has hurriedly rejected the claim of assessee by giving reason of no explanation on the issue of compulsive transfer of donation fund without giving show cause notice by pointing out specific deficiencies in the notice.
4. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Exemption) has hurriedly rejected the claim of assessee by concluding on that point of contractual/compulsive application of fund remains unclarified and therefore the genuineness of activities of the applicant/assessee AOP could not be”
5. Ld. Counsel Shri H.V. Doshi appearing for the assessee submitted before us a Paper Book running to 64 pages which contains the Form 10AB with attachments filed before Ld. CIT(E) and first notice issued by Ld. CIT(E), reply filed by the assessee Trust, Copy of the final show cause notice dated 02-01-2023 without mentioning specific details required by Ld. CIT(E). Ld. Counsel thus submitted that the Ld. CIT(E) vide his second notice dated 02-01-2023 did not raise any issue about clarification of compulsory application of fund by the assessee Trust, asking for specific details before rejecting assessee’s registration application. The assessee Trust was of the bona fide reasons that details already submitted is sufficient compliance and thereby Ld. CIT(E) has not given proper opportunity to the assessee to confront the details of transfer of donations to the State and National head quarters. Thus the Ld. Counsel pleaded one more opportunity be given to the assessee before Ld. CIT(E), so that the assessee undertake to file all the requisite details, documents and evidences in support of the case, for grant of registration under section 12AB of the Act.
6. Per contra, the Ld. CIT-DR Shri Akhilendra Pratap Yadav appearing for the Revenue submitted that Ld. CIT(E) as per section 1 2AB of the Act, has to conduct an enquiry about the activities of the Trust and to verify the objects as per the Trust Deed and genuineness of the activities of the trust and after satisfying the activities carried out by the assessee, the Ld. CIT(E) can grant registration u/s. 12AB of the Act. Though the Ld. CIT(E) provided opportunities to the assessee as per the statutory provision, the assessee failed to submit the complete details and therefore the rejection of Registration by Ld. CIT(E) is valid in law. Therefore the order passed by Ld. CIT(E) does not require any interference and the appeal filed by the assessee is liable to be dismissed.
7. We have given our thoughtful consideration and perused the materials available on record. As against the hearing notice, the assessee filed its reply vide letter dated 22-12-2022 vide Annexures-A to K. However Annexure-E & G were attached in subsequent response due to file size limitation for uploading in ITBA portal, the same were uploaded subsequently. It is seen from the second show cause notice by the Ld. CIT(E), there is no specific requirement about the deficit of documents or records filed by the assessee trust. In absence of the same, the Ld. CIT(E) could not have rejected the application on the ground that 30% of the total donation to be received by the assessee Trust will be transferred to the State/Union Territory Branch and National Headquarters of Red Cross Society is nothing but contractual or compulsive transfer of donation fund does not fall within the ambit of voluntary donation and cannot be treated as application of the fund towards the object of the assessee Trust. Consequently denying the registration u/s. 12AB of the Act. We find that Ld. CIT(E) has not indicated exact deficiency in the documents submitted by the assessee and exact nature of clarification, explanation required from the assessee, but rejected the registration application without confronting the issue and affording proper opportunity of hearing to the assessee Trust.
8. Therefore considering the facts and circumstances of the case, in order to prevent miscarriage of justice, we find it fit and proper to provide one more opportunity of being heard to the assessee in support of its case for registration of the trust u/s. 12AB of the Act. Therefore we dispose of this appeal by restoring this issue to the file of the Ld. CIT(E) with a direction upon him to provide further opportunity of being heard to the assessee and consider the documents, evidences which the assessee would file as per the notice issued by the Ld. CIT(E). Upon considering the entire set of documents and upon affording an opportunity of being heard to the assessee, the Ld. CIT(E) to dispose of the application for grant of registration of the Trust under Section 12AB of the Act with a speaking order. Needless to say if the assessee fails to co-operate with the Ld. CIT(E) as directed hereinabove, the Ld. CIT(E) would be at liberty to pass orders strictly in accordance with law.
9. In the result, the appeal filed by the Assessee is hereby allowed for statistical purposes.
ITA No. 363/Ahd/2023
10. In this case, registration of the assessee trust u/s. 80G(5) was rejected since registration u/s. 12AB was already rejected by the Ld. CIT(E). As we have already set aside the registration of the assessee trust u/s. 12AB back to the file of the Ld. CIT(E) vide order in ITA No. 359/Ahd/2023, following the same, this appeal is also set aside back to the file of Ld. CIT(E) and decide the case on merits by giving one more opportunity of hearing to the assessee.
11. In the result, both the appeals filed by the Assessee are allowed for statistical purposes.
Order pronounced in the open court on 11 -10-2023
