The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench held that contractual or compulsive transfer of donation funds did not fall under voluntary donation, which could not be treated as an application of funds towards the object of the trust. Therefore, after observing the above, the bench directed readjudication in respect of granting registration for the assessee trust.
The assessee, Indian Red Cross Society, is a Trust registered under the Bombay Public Trust Act for the object of charitable purposes. The assessee filed an application under Section 12AB of the Income Tax Act in Form 10AB under Rule 17A of the Income Tax Rules.
Thereafter, the CIT(E), through ITBA, on the email address of the assessee, asked to furnish detailed notes on the activities actually carried out by the Trust and certain documents. Subsequently, the CIT(E) rejected the application of the assessee due to a failure to furnish complete details in respect of the activities of the assessee and observed that 30% of the total donations to be received by the applicant/assessee would be transferred to the State/UT Branch and to the National Headquarters of the Red Cross Society.
Therefore, the aforesaid contractual or compulsive transfer of donation funds does not fall within the ambit of voluntary donation; therefore, the said 30% of the total donation (to be transferred to National/State/UT Branch as per rules) cannot be treated as an application of the fund towards the objectives of the applicant/assessee.
Aggrieved by the order, the assessee filed an appeal before the tribunal. H.V. Doshi, Counsel appearing for the assessee, submitted that CIT(E) issued two notices. In the second time of issuing notice, the CIT(E) did not raise any issue about the clarification of compulsory application of funds by the assessee Trust, asking for specific details before rejecting the assessee’s registration application.
Akhilendra Pratap Yadav, Counsel for Revenue, submitted that CIT(E) provided opportunities to the assessee as per the statutory provisions, but the assessee failed to submit complete details.
It was observed by the tribunal that the application could not have been rejected by CIT(E) on the grounds that 30% of the total donation that the assessee Trust would receive would be transferred to the Red Cross Society’s State/Union Territory Branch and National Headquarters. This is because the transfer of donation funds is contractual or compulsive, does not fall under the category of voluntary donation, and cannot be regarded as an application of funds towards the assessee Trust’s objectives.
Therefore, the CIT(E) rejected the registration application without confronting the issue and affording a proper opportunity of hearing to the assessee Trust. After reviewing the facts and records, the two-member bench of Annapurna Gupta (Accountant member) and T.R. Senthil Kumar (Judicial member) directs readjudication for granting registration under Section 12AB of the Income Tax Act.
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