City Hospital Charitable Trust Vs CIT (Exemptions) (ITAT Bangalore)
Income Tax Appellate Tribunal (ITAT), Bangalore Bench, has overturned an order by the Commissioner of Income Tax (Exemptions) [CIT(E)], Bangalore, and directed the grant of approval under Section 80G of the Income Tax Act, 1961, to the City Hospital Charitable Trust. The tribunal’s decision came in response to an appeal filed by the assessee against the CIT(E)’s rejection of their application for permanent 80G approval.
The City Hospital Charitable Trust, already registered under Section 12A of the Act since April 2022 and having received provisional 80G approval until Assessment Year 2024-25, applied for permanent approval on August 8, 2024. However, the CIT(E) rejected this application on February 17, 2025, citing several reasons.
Grounds for Rejection by CIT(E)
The CIT(E) had primarily based its rejection on four points:
1.Accumulation of Surplus: The trust reportedly showed a surplus every year, which was not entirely utilized for charitable purposes but accumulated in Fixed Deposits, generating interest income.
2. High Fee Receipts: The CIT(E) observed that the private institution was well-funded by high fee receipts and management fees, which increased annually but were not commensurately passed on in terms of tangible or intangible facilities.
3. Beneficiaries of 80G: The CIT(E) suggested that 80G benefits were more suitable for government-aided institutions or those in remote areas with limited infrastructure.
4. Nature of Fee Receipts: It was contended that fee receipts, forming part of the total receipts, did not fall under the purview of “donation” under Section 80G of the Act.
Assessee’s Arguments
The assessee’s representative argued vehemently against the CIT(E)’s decision, emphasizing that the CIT(E) had already been satisfied with the genuineness of the trust and its activities when granting registration under Section 12AB of the Act. It was contended that for 80G approval, the CIT(E) should primarily focus on the genuineness of the trust’s activities and its fulfillment of the conditions laid down in clauses (i) to (v) of Section 80G(5) of the Act.
Furthermore, the assessee clarified that fee receipts were revenue generated from regular activities and were not presented as donations for which 80G certificates would be issued. The trust also highlighted that the CIT(E) had overlooked capital expenditure applied during the year as an application of income and the permissible accumulation under Section 11(1)(a) of the Act.
ITAT’s Deliberation and Judicial Precedents
The ITAT, after reviewing the submissions and available records, found that the assessee trust’s registration under Section 12A and provisional 80G approval indicated prior satisfaction of the genuineness of its activities by the CIT(E). The tribunal underscored that the scope of inquiry for granting 80G approval is limited to verifying the genuineness of the activities and compliance with specific conditions outlined in Section 80G(5), rather than delving into the actual computation of surplus or application of funds. These aspects, the ITAT clarified, are typically examined during assessment proceedings under Sections 11, 12, and 13 of the Act.
Regarding the CIT(E)’s observation about accumulated surplus, the ITAT noted the assessee’s submission of substantial application of funds towards educational activities, which the CIT(E) appeared to have overlooked.
Addressing the point about high fee receipts not being commensurately passed on, the ITAT observed that these were merely “sweeping statements” by the CIT(E) without any corroborative evidence. The tribunal further emphasized that the CIT(E) had not identified any non-genuine activity of the trust.
On the crucial point of fee receipts not being “donations” for 80G purposes, the ITAT concurred with the assessee. The tribunal clarified that the fact of an educational institution receiving fees does not disqualify it for 80G approval, especially when it is established for charitable purposes under Section 2(15) and has already secured Section 12A registration. The relevance of whether tuition fees constitute donations is not pertinent at the stage of granting 80G approval.
The ITAT explicitly referred to Section 80G(5), outlining the conditions for applicability:
