Case Law Details
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:
- The institution or fund must be established in India for a charitable purpose.
- Its income, if any, should generally not be liable for inclusion in its total income under Sections 11 and 12 (with specific provisos for business income with separate accounts).
- The governing instrument must not allow for the transfer or application of income/assets for non-charitable purposes.
- It should not be for the benefit of any particular religious community or caste.
- It must maintain regular accounts.
- It must be constituted as a public charitable trust, registered under relevant Acts (Societies Registration Act, Companies Act Section 25), or be a recognized educational institution or government-financed institution.
The tribunal concluded that the CIT(E) had failed to bring any material on record to demonstrate that the trust’s activities were not genuine or that it failed to meet any of the stipulated conditions under Section 80G(5).
Conclusion
In light of these findings, the ITAT allowed the assessee’s appeal, directing the CIT(E) to grant the City Hospital Charitable Trust approval under Section 80G of the Income Tax Act. The order was pronounced on June 17, 2025. This decision reiterates the limited scope of inquiry for 80G approvals, focusing on the fundamental charitable nature and compliance with statutory conditions rather than detailed financial analysis typically reserved for assessment proceedings.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the order of the ld. CIT(Exemptions), Bangalore dated 17.2.2025 vide DIN & Notice No.ITBA/EXM/F/EXM45/2024-25/1073365935(1) rejecting the application filed for approval u/s 80G of the Income Tax Act, 1961 (in short “The Act”).
2. The assessee has raised following grounds of appeal:
1. On the facts and in the circumstances of the case the learned Commissioner of Income Tax (Exemptions) erred in denying the approval under section 80G(5)(iii) of the Income tax Act, 1961.
2. The learned Commissioner of Income Tax (Exemptions) erred in holding that the appellant had not furnished sufficient details or proof ()ithe activities of the trust/Institution within the meaning of section 2(15) of the Income tax Act, 1961 when on the same set of facts and material furnished the learned CIT(E) had granted registration under section 12AB of the Income tax Act, 1961.
3. The learned Commissioner of Income Tax (Exemptions) having satisfied with the genuineness of the trust and also having satisfied with the activities of the trust to grant registration under section 12AB of the Income tax Act, 1961 ought to have granted the approval under section 80G(5)(iii) of the Income tax Act, 1961 to enable the appellant trust to get donations for carrying out its objects.
4. The learned Commissioner of Income Tax (Exemptions) has failed to comprehend the fact that, appellant has not only having fees receipts it also has other than fees receipts, which are eligible for deduction under section 80G of the Income tax Act, 1961.
5. The learned Commissioner of Income Tax (Exerptions) has failed to comprehend the fact that, “fees receipts” is the revenue generated out of the regular activities carried by the Institution/Trust, which does not comes under the definition of Donation Received under section 80G of the Income tax Act, 1961.
3. The brief facts of the case are that the assessee trust is registered under sub-clause (i) of clause (ac) of sub-section (1) of section 12A of the Act vide Unique Registration No. (URN) AAATC4496JE20211 dated 06.04.2022 from Assessment Year 2022-23 to the Assessment Year 2026-27. Further, the assessee trust had been granted the provisional approval vide URN – AAATC4496JF20221 dated 07/04/2022 under clause (iv) of first proviso to sub-section (5) of section 80G from 07.04.2022 to assessment year 2024-25 in Form No.10AC by the ld. PCIT/CIT. The assessee trust thereafter applied for permanent approval as per clause (iii) of first proviso to sub-section (5) of section 80G of the Act in Form No.10AB on 08.08.2024.
3.1 The ld. CIT(Exemptions), Bangalore after granting opportunity of being heard rejected the approval u/s 80G of the Act on the following grounds:
i. The assessee trust reported surplus every year which is not utilized towards charitable purposes and they had been accumulated in FDs and received interest income.
ii. The private institution which is well funded by high fee receipts and management fee, which undergoes an increase every year does not commensurately passed on in terms of tangible or intangible facilities.
iii. It is the government aided school / colleges / institution and other institutions operating in remote areas with little or no infrastructure deserve the benefit of 80G.
iv. The fee receipts which are forming part of the total receipts do not fall under the purview of donation u/s. 80G of the Act.
3.2 In view of the above, the application filed by the assessee trust in form 10AB dated 08.08.2024 for approval u/s. 80G of the Act was rejected and accordingly, the approval was cancelled by the ld. CIT(E) vide Order in Form 10AD dated 17.02.2025.
4. Aggrieved by the order of ld. CIT(Exemptions), Bangalore dated 17.02.2025, the assessee has filed the present appeal before this Tribunal.
5. Before us, the ld. A.R. of the assessee vehemently submitted that the ld. CIT(Exemptions) erred in rejecting the grant of approval u/s 80G of the Act especially having satisfied with the genuineness of the Trust and also having satisfied with the activity of the trust and granted registration u/s 12AB of the Act. The ld. A.R. of the assessee also submitted that for grant of approval u/s 80G of the Act, the ld. CIT(Exemptions) should only be satisfied about the genuineness of the activity of the trust and fulfillment of the conditions laid down in clause (i) to (v) of section 80G(5) of the Act. Further, the ld. A.R. of the assessee submitted that the fee receipts are the revenue generated out of the regular activities carried on by the institution and they have not been issued any certificate u/s. 80G like any other donations. Lastly, it was submitted that the ld. CIT(E) grossly erred in ignoring the Capital expenditure applied during the year as application as well as accumulation u/s. 11(1)(a) of the Act.
6. The ld. D.R. on the other hand vehemently supported the order of the authorities below and submitted that the surplus of each year carried to the Balance Sheet and added to the General Fund were increased at higher rates which is not utilized towards charitable purposes. Further, the ld. DR submitted that the assessee cannot issue a receipt u/s. 80G for a receipt in the nature of fee receipts.
7. We have heard the rival submissions and perused the materials available on record. It is an undisputed fact that the assessee trust is registered under sub-clause (i) of clause (ac) of subsection (1) of section 12A of the Act vide Unique Registration No. (URN) AAATC4496JE20211 dated 04.2022 from Assessment Year 2022-23 to the Assessment Year 2026-27. We are of the considered opinion that the registration u/s 12A must have been granted only after the ld. CIT(Exemptions) calling for the document/information from the trust in order to satisfy herself about the genuineness of the activity of the trust or institution and compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its object. Further, we also take a note of the fact that the ld. CIT(Exemptions) has also granted the provisional approval vide URN – AAATC4496JF20221 dated 07.04.2022 under clause (iv) of first proviso to sub-section (5) of section 80G from 07.04.2022 to assessment year 2024-25 in Form No.10AC.
7.1 Now on going through the annexure to Form No.10AD dated 17.02.2025, we observed that the first contention for rejection by the ld. CIT(E) is that the assessee trust had reported surplus every year which was not utilized towards charitable purposes and they had been accumulated in FDs and received interest income. However, on the other hand the ld. AR of the assessee submitted that the ld. CIT(E) has grossly erred in ignoring the capital expenditure applied during the year as application of income u/s. 11(1) of the Act as well as accumulation of 15% of income from such property which shall not be included in the total income. On going through the Income & Expenditure A/c for last 3 years reproduced by the ld. CIT(E) we take a note of the fact that the assessee trust had applied substantial amount towards educational activities. We are of the considered opinion that the scope of enquiry by the ld. CIT(E) while dealing with the application for grant of approval u/s. 80G of the Act extends only to the satisfaction of the genuineness of the activities of such trust/institutions and the fulfillment of all the conditions laid down in clauses (i) to (v) of Section 80G(5) of the Act and not the actual computation of surplus. We are also of the opinion that the provisions of section 11 & 12 along with section 13 including application of fund by the charitable organization are to be examined during the course of assessment proceedings and not at the time of granting approval u/s 80G of the Act.
7.2 With regard to the observation of ld. CIT(E) that the private institutions like assessee trust are well funded by high fee receipts and management fee which undergoes an increase every year does not commensurately passed on in terms of tangible and intangible facilities, we are of the considered opinion that the ld. CIT(E) did not point out any specific circumstances under which the fees received had not been commensurately passed on in terms of tangible and intangible facilities. These are merely sweeping statement without any corroborative evidence. The ld. CIT(E) in her order did not even whisper about any activity of the trust to be non-genuine.
7.3 Now with regard to the fees receipts which are forming part of the total receipts, the ld. CIT(E) is of the view that these receipts do not fall within the purview of the donation u/s. 80G of the Act. The ld. AR on the other hand vehemently submitted that the ld. CIT(E) failed to comprehend the fact that assessee is not only receiving the tuition & hostel fee but also has receipts by way of donations / grants which are eligible for deductions u/s. 80G of the Act. The fee receipts are nothing but the revenue generated out of the regular activity carried on by the assessee trust and the assessee trust never granted 80G certificates on such fees receipts. We are of the considered opinion that mere fact of the assessee being an educational institution which received tuition & other fees along with hostel fees, the approval u/s 80G of the Act cannot be denied specially when it is established for the charitable purposes within the meaning of section 2(15) of the Act and the registration u/s 12A of the Act has already been granted after verifying the genuineness of the activities carried out by the Assessee trust. The issues, whether receipts in the form of tuition and other fees, hostel fees do not fall under the definition of donation are not at all relevant in the present case of the assessee trust.
7.4 We are of the clear opinion that, for the purpose of granting approval u/s 80G of the Act, the only relevant section is sub-sections (5). The ld. Commissioner (Exemptions) after receiving the application for granting approval u/s 80G of the Act shall call for such document or information and make such enquiry as he/she thinks necessary in order to satisfy himself/herself about the genuineness of the activity of such institution or fund and the fulfillment of all the conditions laid down in clause (i) to (v) as follows:
(5) This section applies to donations to any institution or fund referred to in sub- clause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose and if it fulfills the following conditions, namely:-
(i)where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 [* * *] [ Certain words omitted by Act 21 of 1998, Section 29 (w.e.f. 1.4.1999).] [* * *] [ Certain words omitted by Act 20 of 2002, Section 30 (w.e.f. 1.4.2003).] [or clause (23-AA) or clause (23-C)] [ Substituted by Act 11 of 1987, Section 35, for ” or clause (23-C)” (w.e.f. 1.4.1988).] of section 10:
[Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income, if-
(a)the institution or fund maintains separate books of account in respect of such business;
(b)the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and
(c)the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;
(ii)the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose;
(iii)the institution or fund is not expressed to be for the benefit of any particular religious community or caste;
(iv)the institution or fund maintains regular accounts of its receipts and expenditure; ][*] [ The word ” and” omitted by Act 32 of 1994, Section 24 (w.e.f. 1.4.1994).]
(v)[ the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under section 25 of the Companies Act, 1956 (1 of 1956), or is a University established by law, or is any other educational institution recognised by the Government or by a University established by law, or affiliated to any University established by law, ] [Inserted by Act 11 of 1983, Section 39 (w.e.f. 1.4.1984).][* * *] [ Certain words omitted by Act 20 of 2002, Section 30 (w.e.f. 1.4.2003).][or is an institution financed wholly or in part by the Government or a local authority; ] [Inserted by Act 11 of 1983, Section 39 (w.e.f. 1.4.1984).][*] [ The word ” and” omitted by Act 33 of 2009, Section 33 (w.e.f. 1.4.2009).]
7.5 In view of the above, we are of the opinion that at the time of granting of approval u/s 80G of the Act, the authority has to satisfy herself that the chartable institution is established in India for charitable purposes and the activities of the assessee trust are genuine and the assessee trust also fulfilled all the conditions as mentioned above. The ld. CIT(Exemptions) in our view has also not brought any material on record to show that the activities of the assessee trust are not genuine or the conditions as specified above are not fulfilled by the assessee trust.
7.6 In view of the above discussion, we allow the appeal of the assessee trust and direct the ld. CIT(Exemptions) to grant approval u/s 80G of the Act to the assessee trust as applied in form 10AB on 10.08.2024. It is ordered accordingly.
8. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 17th June 2025
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