By TIOL News Service

CHANDIGARH, DEC 30, 2016: THE ISSUE IS - Whether registration u/s 12A and the exemption u/s 10(23C)(vi) would by itself, entitle the concerned trust to the grant of exemption u/s 80G. NO IS THE VERDICT.

Facts of the case:

The assesseeis a Trust. It filed application for registration u/s 12A(a) which was granted. Simultaneously, exemption under Section 80G was also granted. Thereafter, the exemption u/s 80G continued to be granted year after year till the A.Y 2009-10. Subsequently, Assessee's application for exemption for A.Ys 2010-11 to 2014-15 was rejected by the CIT on the ground that the assessee was generating substantial surplus and was spending only a small percentage for charitable purposes. The Tribunal however allowed assessee's appeal.

On appeal, the HC held that,

++ The registration under Section 12A or the exemption under Section 10(23) and Section 10(23C) are only one of the factors, which make eligible an applicant for the grant of exemption under Section 80G. In addition to the registration granted to an institution under Section 12A or exemption under Section 10(23C), there are several other factors, which go on to determine the grant of exemption under Section 80G. These include the inquiry by the Commissioner into the genuinenessivities of the institution and the fulfillment of the conditions referred to in clauses (i) to (v) of Section 80G(5), which inter alia provide that for grant of exemption under Section 80G, where the institution derives an income, such income would not be liable to be included in its total income under provisions of Section 11 and 12 or clause (23AA) or clause (23C) of Section 10. However, where an institution 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;

++ The other condition, which is required to be looked into is whether the instrument, under which the institution has been constituted or the rules governing the institution do not provide for transfer or application at any time of the whole or any part of its income or assets for any other purpose than a charitable purpose; whether the institution has not been created for the benefit of any particular religious community or caste; whether the institution maintains regular accounts of its receipts/ expenditure and whether the institution is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 or under any law corresponding to that Act or under Section 25 of the Companies Act, 1956 or is a University established by law or is any other institution recognized by the Government or by a University established by law or affiliated to any University established by law or is an institution financed wholly or in part by the Government or a Local Authority. If substantial surplus is generated, but the same is found to have been ploughed back for building infrastructure/assets, which in turn are used for educational/charitable purposes, the institution would not lose its charitable character;

++ Assessee is registered under Section 12A and that it has been held entitled to the grant of exemption u/s 10 (23C)(vi) as per orders of this Court passed in C.W.P. No. 6031 of 2009, upheld by the Apex Court in Civil Appeal No. 9606 of 2013. It has further come on record that the assessee was granted exemption under Section 80G from the year 1997 till the passing of the impugned order. Further, the finding of the Tribunal that the assessee has never mis-utilized its funds, has not been assailed.The generated surplus having been ploughed back for expansion purposes also remains undisputed by the Revenue as no challenge to the same has been made. The assessee has utilized its surplus only for charitable purposes. The charges for its services were also extremely reasonable, highlighting the charitable character of the assessee.

(See 2016-TIOL-3151-HC-P&H-IT)