Surplus and Fee Receipts Not a Ground to Deny 80G Approval: ITAT Overturns CIT(E) Denial [Read Order]

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) directed the Commissioner of Income Tax (Exemptions) [CIT(E)] to grant approval under Section 80G of the Income Tax Act, 1961 and held that the rejection based on surplus accumulation and fee receipts, was unjustified.

The Academy of General Education (assessee), a trust registered under Section 12A, applied for permanent approval under Section 80G(5)(iii) in Form 10AB. The trust engaged in educational activities which had previously received provisional approval under Section 80G from 04.04.2022 to Assessment Year 2024-25.

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The CIT(E) rejected the application citing: (i) annual surpluses accumulated in fixed deposits (FDs) not utilized for charitable purposes, (ii) high fee receipts from private institutions not commensurately passed on as tangible facilities, (iii) preference for government-aided institutions for 80G benefits, and (iv) fee receipts not qualifying as donations under Section 80G.

Aggrieved by the CIT(E)’s order, the assessee appealed to the ITAT. The assessee’s counsel argued that the CIT(E) erred in denying approval despite granting Section 12AB registration, which confirmed the trust’s genuineness.

The counsel contended that fee receipts were revenue from regular educational activities but not donations, and the trust issued no 80G certificates for such receipts. The counsel further submitted that the CIT(E) ignored capital expenditure and permissible 15% income accumulation under Section 11(1)(a) as valid applications of income.

The two-member bench comprising Prashant Maharishi (Vice-President) and Keshav Dubey (Judicial Member) observed that the CIT(E)’s rejection overlooked the trust’s substantial application of income toward educational activities, as evidenced in its Income & Expenditure Accounts.

The Tribunal held that the scope of inquiry for 80G approval is limited to verifying the genuineness of the trust’s activities and compliance with Section 80G(5) conditions, not assessing surplus computations, which are relevant during assessment proceedings.

The bench clarified that fee receipts, as revenue from regular activities, were distinct from donations eligible for 80G deductions, and the trust’s receipt of both did not disqualify it from approval.

The Tribunal held that Section 80G(5) requires only that the trust be established for charitable purposes in India, maintain regular accounts, and comply with specified conditions, all of which the assessee fulfilled. The Tribunal directed the CIT(E) to grant 80G approval. The appeal of the assessee was allowed.

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