The assessee Seth Paannalalji is a Trust created on 15.08.2001. It is registered under the M.P. Public Trust Act. It was also registered by the Income tax Department under Section 12A as well as section 80G of Income Tax Act, 1961, with the effect of 10.01.2003.
However, in terms of the amendments made in Income Tax Act, 1961, the Assessee is required to obtain re-registration under Section 12A as well as 80G.
Therefore, to comply with such requirements, the assessee filed two separate applications for registration under Section 12A as well as 80G of the Income Tax Act.
Acting on such applications, the registration under Section 12A of the Income Tax Act was duly granted with the effect of 24.09.2021, but, however, the registration under Section 80G of the Income Tax Act has been denied Aggrieved, the assessee has filed this appeal and now before the Tribunal.
The Commissioner of Income Tax [CIT(E)] has given two reasons for denying registration. First, the CIT(E) claimed that the assessee is not engaged in any charitable activities except for giving donations to various trusts/societies.
Second, the CIT(E) argued that the donations to trusts/societies were made from the interest earned on income accumulated or set apart in previous years, which is not allowed according to the Explanation to Section 11(2) of the Income Tax Act. These reasons are considered violations of Section 80G (5) (1)
Counsel for the assessee submitted that the assessee has given donations to other trusts in order to achieve its objects, which is very much evident from the captions “To Expenditure on the object of the Trust” prominently mentioned in the Income & Expenditure A/c itself.
He further argued that charitable activities can be carried out in two ways: directly by spending money on activities or by giving donations to other trusts and societies that undertake charitable activities.
The choice of method is up to the assessee (the individual being assessed for tax), and the revenue authorities cannot dictate the manner in which charitable activities should be conducted.
He also contended that the assessee-trust is not dormant or non-functional; on the contrary, it supports other trusts and societies in furthering its charitable activities. There is no wrongdoing, illegality, or malicious intent in carrying out charitable activities through donations to other trusts and societies.
Therefore, the allegation made by the Commissioner of Income Tax (Exemption) that the assessee is not engaged in charitable activities was held to be without merit and invalid.
Counsel for the assessee submitted the aforesaid audited Income & expenditure Accounts of three years of Assessment and demonstrated that the assessee has given the impugned donations not from “income accumulated or set apart” but from different sources such as dividend, interest, income from mutual funds and income of income that was accumulated or set apart; therefore the donations given by assessee are not hit by the provision of Explanation to section 11(2). He strongly contended that both of the objections raised by CIT (E) are baseless; therefore the denial of registration is unjustified.
The two member bench consisting Judicial Member Vijay Pal Rao and and Accountant Member B M Biyani observed that the assessee has clearly mentioned “To Expenditure on the object of the Trust” in Income & Expenditure A/cs and the auditors have audited those statements after due verification.
There are two ways of carrying out activities, one directly by spending moneys on activities and other by giving donations to other trusts/societies to enable them undertake charitable activities and it is for the assessee to decide which method or methods to be adopted so long the method adopted by assessee is neither illegal nor prohibited by statute.
The Tribunal further held that the assessee has given donations out of current year income consisting of dividend, interest and mutual funds and not out of income which was accumulated or set apart brought the bench to conclude that the twin-reasons assigned by CIT(E) for rejection of assessee’s application were not valid.
In result, Appeal filed by the assessee was allowed.
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