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Charities Update dt. 30/11/2021:

Section 13 - Denial of exemption

Illustration of situation in which section 13(2)(c) was held inapplicable

Reasonable salary paid to the interested party

The AO found that the assessee had paid excessive salary to its members and thus contravened section 13(2)(c). He disallowed a sum of Rs.46,75,933 paid to members towards salary.

The CIT(A) observed that

(a) the AO held that the payments made by the society on account of salary as unreasonable mainly on account of the fact that the persons were engaged in other activities and had their other sources of income.

(b) the total payments made by the society on account of salaries to these persons was less than 2.5% of the total expenditure incurred on account of salaries.

(c) these facts and figures were not considered by the AO before making the disallowance.

(d) no adverse material was brought on record by the AO to hold that services were not rendered by these persons and payments made to these specified persons were excessive and unreasonable.

Accordingly, the CIT(A) deleted the disallowance made by the AO. The Tribunal held that it did not find any infirmity in the order of the CIT(A)

[DCIT(E) v. C T Educational Society, 2021-TIOL-1853-ITAT-CHD]

Charities Update dt. 30/11/2021:

Section 13 - Denial of exemption

Illustration of a case in which section 13(1)(c) was held inapplicable (that is, no benefit to interested persons)

Duties of the AO

The AO has to place material on record to show how the salary paid by the assessee is unreasonable.

[DCIT(E) v. C T Educational Society, 2021-TIOL-1853-ITAT-CHD]

Charities Update dt. 30/11/2021:

Section 13 - Denial of exemption

Illustration of a case in which section 13(1)(c) was held inapplicable (that is, no benefit to interested persons)

Parameters for determination of reasonableness

Cost of salary to interested party as a percentage of total salaries could be relevant in justifying the adequacy of remuneration to an interested party.

[DCIT(E) v. C T Educational Society, 2021-TIOL-1853-ITAT-CHD]

Charities Update dt. 30/11/2021:

Section 13 - Denial of exemption

Illustration of a case in which section 13(1)(c) was held inapplicable (that is, no benefit to interested persons)

Advance for supply of goods

The AO found that the assessee society had made interest free advances to its members and transaction was covered under provisions of section 13(1)(c) and 13(1)(d) read with Section 13(3). It was explained by the Society that same were in fact not interest free advances, but were given towards consideration for purchase of land which, in fact was given by the members to the assessee for construction of building for educational activity of the assessee. The AO, however, made addition of Rs.1,98,48,600 on account of notional interest @ 12% per annum on such interest free advances.

The CIT(A) found that the members had agreed to sell their land for construction of building for activities of the assessee, which, as per its convenience, paid the sale consideration in installments, spread over a period. Ultimately the sale deeds were executed at the Collector rate. Accordingly, he deleted the addition of Rs.1,98,48,600 made by the AO on account of notional interest charged on the amount of advance paid by the society.

The Tribunal observed that it was duly proved that the payments were made to the members for the purchase of land and such payments were made at arms length price. In view of the above, the Tribunal did not find any infirmity in order of the CIT(A) and upheld it.

[DCIT(E) v. C T Educational Society, 2021-TIOL-1853-ITAT-CHD]

Charities Update dt. 30/11/2021:

Section 12A/12AA(3) - Cancellation of registration

Illustration where cancellation of registration under section 12AA(3) was held as not justified

The CIT(E) cancelled the registration granted under section 12AA on the ground that the donation received from two parties aggregating to Rs.70 lakhs were bogus to avail wrongful tax benefits by abuse of status of charitable trust. The assessee put forth several contentions, including the following, to assail the cancellation order

  1. The CIT(E) heavily relied upon the statement of the founder Director of the donor to question the bonafides of the activities of the assessee trust. The solitary allegation levelled by the CIT(E) was primarily based on assessment order under section 143(3) r.w.s. 147 of the Act passed by the AO.
  2. A vague and non-descript statement and that too recorded under section 133A does not carry any evidentiary value, in the absence of any tangible evidence to corroborate the assertions made against the deponent in the light of the decision in CIT v. S. Khader Khan Son [2013] 352 ITR 480 (SC).

iii. The activity of the trust of running the school was never doubted in the past nor the application or utilization of the fund was ever doubted by the CIT(E) in any of the year since inception.

  1. No single instance was recorded by the CIT(E) or by the AO that assessee trust was generating any unaccounted cash by any means, which has been allegedly transferred to the donor in lieu of receiving the donation. Pertinently in AY 2011-12, the assessee trust was eligible to receive the donation in cash.
  2. In the light of the judicial precedents, the additions to the extent of alleged ingenuine donations may, at best, be plausible in law and registration of the charitable trust per se cannot be withdrawn and cancelled on surmises and conjectures.

The Tribunal observed as follows:

(a) prima facie there was merit in the various pleas advanced on behalf of the assessee

(b) It is a settled principle of law that the onus lies on the person who alleges untruthfulness against the other persons. In the instant case, the allegation has been made on behalf of the Revenue for adversial conduct of the assessee. It is thus the duty of the Revenue to comply with the sacrosanct principles of natural justice and grant opportunity to the assessee for rebuttal of evidences in possession of the Revenue.

(c) The registration already granted cannot be withdrawn arbitrarily and in a light hearted manner giving retrospective effect.

(d) All pleas canvassed on behalf of the assessee require proper appraisal and disposal thereof in an objective manner.

(e) The order of the CIT(E) is required to deal with various pleas of the assessee

(f) The doctrine of legitimate expectations demands that the assessee should be made privy to the tangible evidences in corroboration of statement sought to be relied upon.

(g) Similarly, the cross examination of deponent's statement is incumbent to prevent miscarriage of justice.

(h) The CIT(E) while cancelling the registration appears to have wrongfully placed the onus of proving bonafides of donations on the assessee without showing reasons/evidence for drawing adverse conclusion on a registered trust.

Accordingly the Tribunal set aside the cancellation order and restored the issue to the CIT(E) to pass a speaking order in this regard after making objective analysis of the facts and circumstances of the case in its entirety and in accordance with law.

[Shree Jainarayan Hariram Goel Charitable Trust v. CIT(E), (2021) 130 taxmann.com 493 (Raipur Trib)]

Charities Update dt. 30/11/2021:

Section 12A/12AA(3) - Registration

Utilisation of funds

Registration of an institution cannot be denied merely on the ground that the assessee had incurred expenses which according to CIT(E) did not qualify as utilization for charitable purposes.

[Small Farmer Agri-Business Consortium v. CIT(E), 2021 (11) TMI 417 - ITAT CHANDIGARH]

Charities Update dt. 30/11/2021:

Section 12A/12AA(3) - Registration

For grant of registration, it is irrelevant that no activity or minimum activity has been carried out by the institution.

[Ashok Kiran Charitable Trust v. CIT(E), 2021 (11) TMI 380 - ITAT LUCKNOW]

Charities Update dt. 30/11/2021:

Section 2(15) - Charitable Purpose

Relief to small and marginal farmers in need of aid:

The assessee society was implementing the various new projects launched by the State Government as Crop Cluster Development Programme for Horticulture Clusters, which was to be implemented through Farmers Producers Organisation (FPO) and this programme was aimed at backward and forward integration by creating farm infrastructure the FPO, in turn, enabled the farmers in enhancing the productivity through efficient cost effective and sustainable resources. It also removed hurdles in enabling farmers access to the market both as buyers and sellers. Therefore, the main object of the assessee was to work for the benefit of the small and marginal farmers and to protect their interest which came under the definition of relief of the poor as clarified in Circular No. 11/2008 dt. 19/12/2008 issued by CBDT

[Small Farmer Agri-Business Consortium v. CIT(E), 2021 (11) TMI 417 - ITAT CHANDIGARH]

Charities Update dt. 23/11/2021:

Section 115BBC - Anonymous donations

Illustrations where donations have not been treated as anonymous donations

The activities of the assessee included running of medical college, running a hospital approximately 30 km from Indore in a rural area where the villagers and people at large were provided free medical facilities and free medicines. The assessee received donation towards corpus funds of Rs.14,06,75,754 and Rs.20,50,90,750 during assessment year 2013-2014 and assessment year 2015- 2016 retrospectively.

The assessee provided the complete list of 27746 persons for A.Y. 2013-14 who have given cash donation of Rs.14,06,75,754 and list of 38625 contributors to donation of Rs.17,23,85,000. It also gave details of PAN for donations of Rs.4, 35,00,000 containing details of the name and address of the person, age, gender and father/husband name. The AO however, was not satisfied with these details and questioned the genuineness of such donation because

(a) PAN was not given in most of the cases; or

(b) wrong/invalid PAN was cited; or

(c) incomplete/wrong address was given; or

(d) summons were returned unserved.

 

The Tribunal observed as follows:

(a) if a person receiving a voluntary contribution maintains the records of the identity of donor indicating name and address of the person making such contribution, then such voluntary contribution cannot be treated as anonymous donation.

(b) the AO has alleged that the assessee’s case falls under section 115BBC(3). However, for holding so the AO should have given a finding that the assessee had not maintained the record of name, address of the person giving such contribution.

(c) the assessee has prepared complete list of the donors giving voluntary contribution which included the name, gender/father’s/husband’s name, address and the amounts received and the same were duly accounted for in books of accounts regularly maintained and audited. A perusal of these details showed that donations were received from thousands of persons residing in the villages. It is a well-known fact that if in the address, name of village is mentioned, it does not a tantamount to show that the address is incomplete because in small villages consisting of a few 100 houses, the people are known by name. Normally, the small villages don’t have street no. or house no.; some small villages do not have even post office so there is no pin code number also. In such circumstances the AO ought to have taken positive view in totality of facts that the assessee was running 1200 bed facility hospital which was providing free of cost treatment to hundreds and thousands of the villagers and also giving them free medicines. There were several small villages in the close vicinity of hospital and there were no other good hospitals or medical facilities providing such type of voluntary charitable services. When a person is given free of cost good treatment and free medicines and there is no obligation on him for making any sort of payments than in such circumstances when such a person gets discharged from the hospital, he/she or his/her family members are happy to give some voluntary contribution at the specific counter provided in the hospital and a receipt for the same is also issued to them.

(d) the AO issued summons to many of such donors of people of which some were returned unserved but in many cases confirmations were received and the villagers have either signed or have put their thumb impression.

(e) around 200 confirmation were filed by the assessee before the AO

(f) the assessee’s accounts are duly audited and details of name and address of each and every donors was maintained and were produced before the Tribunal confirmations of many donors were also been placed on record.

 

The Tribunal held that looking to the totality of facts, the alleged donation could not be held to be an ‘anonymous donation’ as provided under section 115BB(3).

[DCIT(E) v. Mayank Welfare Society, ITA No.232/Ind/2017, dt. 29.10.2021]

Charities Update dt. 23/11/2021:

Section 13 - Denial of exemption

Illustrations of cases in which section 13(1)(c) was held inapplicable (that is, no benefit to interested persons)

A search and seizure action was carried out on the trustee group and certain loose papers were found. In the alleged loose sheets there was a summary of transactions for the period 01.04.2009 to 30.06.2010 including consolidated figures for assets expenses, liabilities source of funds etc. In the last line of the sheet, it was is mentioned that “shortage of cash, [V (Trustee)] as on 30.06.2010” and an amount of Rs.5,61,877 was mentioned against it.

The Tribunal observed that, it was not proved that Mr. V (Trustee) had taken money because in the alleged loose sheets only shortage of cash was mentioned as “V”. It nowhere indicated that the alleged sum of Rs.5,61,877 had been taken by from the society. Under these given facts and circumstances of the case, the alleged addition of Rs.5,61,877 had been made by AO merely on surmises and conjectures which deserves to be deleted.

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 12A/12AA(3) - Cancellation of registration

On the facts stated in para 2(a) above, the Tribunal observed that CIT erred in cancelling the registration under section 12AA(3) and 12AA(4) without placing any material evidence which could indicate that the assessee was not running for the charitable objects for which it was established and when no doubt has been raised about genuineness of the activities carried out by the assessee society with regard to imparting of education and carrying out charitable activities.

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 12A/12AA(3) - Cancellation of registration

Registration cannot be cancelled under section 12AA(3) on the ground that the section 13 would apply to the charitable institution

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 12A/12AA(3) - Registration

Application to CIT(E) by a charitable institution upon change or modifications of objects [Section 12A(1)(ab)].

Section 12(1)(ab) provides that application for registration is required when the modification in objects of a charitable institution do not confirm to the conditions under which the registration was granted. In this connection, the Tribunal has held as follows:

(a) a comparison has to be made between the objects in pre-amendment memorandum of association and the amended memorandum of association and unless there are significant variation between the two, the provisions of section 12A(1)(ab) will not be applicable.

(b) There is a vital distinction between ‘object’ and ‘power’ in deciding the claim of registration under section 12AA and application for registration under section 12A(1)(ab) is required only on modification of “objects” and not powers.

(c) Any modification undertaken pursuant to directions from the Supreme Court was not to be considered as “not in conformity” with the pre-amendment memorandum of association.

[BCCI v. PCIT, (2021) 132 taxmann.com 132 (Mum Trib)]

Charities Update dt. 23/11/2021:

Section 12A/12AA(3) - Registration

Proviso to section 2(15) is irrelevant in grant of the registration

[BCCI v. PCIT, (2021) 132 taxmann.com 132 (Mum Trib)]

Charities Update dt. 23/11/2021:

Section 11(4A) - Business income of a charitable institution

On the facts mentioned in para 2(c) above, the Tribunal held that the assessee had carried on systematic activities which were not incidental to the main object of town planning. Hence the assessee had carried on a business which was not incidental to attainment of objects of the authority.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 23/11/2021:

Section 11(2), Explanation to section 11(2) and section 13(9)

Section 11(2) is a beneficial provision; therefore, while considering such beneficial provision, the CIT(A) should consider the issue without going into technicalities or procedural lapses.

In the intimation under section 143(1), the AO cannot make adjustment to total income for non-submission of Form No.10 along with return of income.

Where there is no regular assessment proceedings under section 143(3), the assessee does not have an occasion to file necessary Form 10 before the AO; in such circumstances Form 10 can be filed during appellate proceedings before CIT(A)

[Ceylon Pentecostal Mission v. ACIT(CPC), 2021 (10) TMI 509 - ITAT CHENNAI]

Charities Update dt. 23/11/2021:

Section 11(1) - 11(1)(a) and section 13(7)

Addition on the basis of loose papers

On the facts stated in para 2(a) above, it was held that in absence of any corroborative evidence brought on record by both lower authorities and CIT (DR) there was no justification in finding of the CIT(A) sustaining the addition of Rs.8,47,694 on account of unrecorded fees of the assessee and the same was directed to be deleted.

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 11(1A) - Application of capital gains

No adjustment under section 11(1A) can be made in intimation under section 143(1).

[Ceylon Pentecostal Mission v. ACIT(CPC), 2021 (10) TMI 509 - ITAT CHENNAI]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

If any assessee is engaged in any activity with a desire to earn profits, the object of 'general public utility' will be only a mask or a device to hide the true purpose, and the proviso will become applicable.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Activities of a cricket association

The assessee, Board of Control for Cricket in India (“BCCI”), is conducting IPL matches. The PCIT held that the assessee was not entitled to registration.

The Tribunal noted that it did not have to decide whether the IPL matches were commercial in nature in deciding the claim of registration under section 12A. However, it observed that “on the face of it”, what is important is the object of promoting cricket and if IPL also can be said to be within the object of promoting cricket, which is the predominant object of BCCI, then, merely because IPL is more entertaining or more economically viable, it cannot be said that BCCI is not following the object of promoting cricket.

[Note: The observations appear to be in the nature of obiter and the Tribunal did not conclusively decide that the conduct of IPL does not result in trade, commerce or business within the meaning of the proviso to section 2(15) and that the said proviso does not apply.]

[BCCI v. PCIT, (2021) 132 taxmann.com 132 (Mum Trib)]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Activities of government agencies, statutory authorities

The assessee was a Board established under section 3 of Karnataka Housing Board Act,1962( hereinafter referred to as KHB Act) as a successor of Mysore Housing Board which was constituted in the year 1956. The State Government of Karnataka had passed the KHB Act with a view to satisfy the need of housing accommodation in the State of Karnataka. The AO was the opinion that assessee earned profit over a period of time in preceding years, ranging more than 10% and that it was involved in the systematic commercial activity in the nature of sale of sites, apartments, houses, most of which was through open auctions to the highest bidder. The AO thus held that, assessee was running its activities on commercial principles and denied exemption under section 11 for years under consideration.

The Tribunal observed as follows:

(i) the main source of revenue generated by assessee was from sale of sites and houses as compared to the income generated from housing schemes. Hence, the assessee had undertaken majority of activities which could not be construed to be charitable in nature since they were based on commercial principles.

(ii) The EMD/Registration fee forefited by the assessee could not be regarded in respect of a housing scheme floated for general public utility/interest.

(iii) the assessee consistently earned substantial profit in its activity. Therefore, the activity had been carried on with profit motive in the same manner in which a private builder would conduct his business. It cannot be said that such activities were incidental to the main object of the trust.

(iv) Apart from this, the activity of construction and sale of immovable property cannot be the object but only a mean to achieve the object of development of area in accordance with the plan. Therefore, while the object in a given case may be a charitable purpose, not involving profit, the activities undertaken by assessee in pursuance of the object, attained the colour of business.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Surplus

Mere surplus does not mean there is profit motive.

It is not necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on a "no profit no loss" basis or that the profit shall proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on, and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive.

Whether an entity is carrying on activity is in the nature of trade, commerce or business is a question of fact, which is to be decided based on the nature, scope, extent and frequency of the activity.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 23/11/2021:

Proviso to section 2(15) - Charitable Purpose

Addition on the basis of loose papers

The assessee society was registered under the M.P. Society Registration Act, 1973. The AO, based on loose sheets seized during search, held that the assessee had earned business income. The Tribunal observed as follows:

(i) Except for the alleged seized loose papers which only indicated some accounting figures that also for a particular period, nothing else had been brought it which could question the genuineness of the activity of imparting education being carried out by the assessee society.

(ii) All the discussion were only confined to the loose papers.

(iii) Revenue authorities had not disputed the fact that the colleges owned by the society were running regularly for imparting education under various streams for last many years, under the approval of related organization of Central Government.

The Tribunal held that under the given facts and circumstances, both lower authorities erred in treating income of assessee as business income.

[Shri Jairam Education Society v. CIT, 2021 (10) TMI 911- ITAT – INDORE]

Charities Update dt. 23/11/2021:

Section 2(15) - Charitable Purpose

Providing cheaper residential and commercial properties to the public is a charitable purpose.

Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It therefore, includes within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid.

[Karnataka Housing Board v. ADIT(E), 2021 (11) TMI 307 - ITAT BANGALORE]

Charities Update dt. 15/11/2021:

Section 12A/12AA(3) - Cancellation of registration

Circumstances in which registration of an institution can be cancelled

No cancellation when application is pending before Settlement Commission

When an application is pending before Settlement Commission for disposal, all powers of income tax authorities get exclusively vested with the Settlement Commission and not merely those powers for which the assessee is before the Settlement Commission. Hence, CIT(E) is not empowered to pass an order cancelling the registration granted to the assessee when the issue was still pending with Settlement Commission

[Rohilkhand Educational Charitable Trust v. PCIT(C), 2021 (10) TMI 1012 – ITAT Lucknow]

Charities Update dt. 15/11/2021:

Proviso to section 2(15) - Charitable Purpose

Charges for provision of infrastructural facilities to industrial units

The assessee was formed as a special purpose vehicle to upgrade infrastructure at three industrial units through the cluster development programme initiated by the Government of India under the Industrial Infrastructure Upgradation Scheme, 2003. Accordingly, the assessee received grant from Central as well as State government in addition to contribution from industrial units located within three industrial estates. The assessee entered into a MoU with TANSIDCO to carry out various activities as per the agreement which would include improvement of infrastructural facilities at these three industrial estates. To meet the running cost, the assessee was allowed to collect maintenance / other charges from beneficiary units. The AO treated these charges as commercial receipts and denied the exemption

The CIT(A) after examining the primary objects of the assessee as well as the purpose for which it was established, came to a conclusion that the primary objective was charitable in nature and collection of fees was not to earn profit. Therefore, the assessee did not cease to be charitable in character so as to render it ineligible to claim benefits under section 11 and 12.

The Tribunal concurred with the findings of the CIT(A).

[ITO v. Chennai Auto Ancillary Industrial Infrastructure Upgradation Company, 2021 (10) TMI 1051 - ITAT CHENNAI]

Charities Update dt. 15/11/2021:

Proviso to section 2(15) - Charitable Purpose

Activities of State Transport Corporation

The assessee was formed under the Road Transport Corporation Act 1950 (RTC Act) to provide economic and efficient transport system to the public. The AO came to conclusion that the assessee was involved in activities in the nature of business and was, therefore, not existing for charitable purposes as per proviso to section 2(15) of the Act for the following reasons:

(a) The assessee generated revenue from operations and miscellaneous income of Rs.1515,06,05,000 and Rs.150,92,67,000/- respectively and these incomes included income from streams which were commercial in nature.

(b) It was providing buses on hire for excursion, wedding, pilgrimage etc., to general public and collecting charges for such letting on commercial basis.

(c) It was providing advertisements on buses and charging substantial fees.

(d) It was carrying activities which were akin to business venture rather than charitable organization.

The Tribunal observed as follows:

(a) The assessee was a statutory corporation established under the RTC Act.

(b) It was not driven by profit motive but was for providing transportation facilities to members of the public.

(c) The State Government fixed fares for travel by public.

(d) Buses plied in areas even where it is not economically viable.

(e) Section 18 of the RTC Act laid down duties of the assessee which was to provide, secure and promote efficient, adequate, economical and properly coordinated system of road transport services in the State of Karnataka.

(f) Section 22 of the RTC Act laid down that the corporation should act on business principles in the sense it has to recover the cost of services rendered to the public which means that it cannot provide service free of cost.

(g) Section 30 of the RTC Act provided how profits of the corporation shall be disposed and it laid down that the same shall be used only for road development.

(h) From the various provisions of the RTC Act it could be seen that the dominant and prime objective of the assessee was not profit making.

The Tribunal held that keeping in mind the above factual aspects and the provisions of the RTC Act and the principle laid down in the decision of the Hon'ble Delhi High Court in the case of India Promotion Organization, it was shown that the assessee was not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The proviso to section 2(15) was therefore not applicable to the assessee.

[Karnataka State Road Transport Corporation v. ACIT(E), DCIT(E) v. Karnataka State Road Transport Corporation, 2021 (10) TMI 728 - ITAT BANGALORE].

Charities Update dt. 15/11/2021:

Checklist for donation by a charitable trust to another charitable trust

Donation by a charitable trust to another charitable trust requires compliance with various provisions, non-compliance with which can entail onerous consequences for the donor trust. CIR now contains a revised checklist for giving such donations. We hope the subscribers will find it useful.

Charities Update dt. 15/11/2021:

Section 2(15) - Charitable Purpose

Providing economic and efficient transport system to the public by a statutory corporation is ‘advancement of any other object of general public utility’

[Karnataka State Road Transport Corporation v. ACIT(E), DCIT(E) v. Karnataka State Road Transport Corporation, 2021 (10) TMI 728 - ITAT BANGALORE].

Charities Update dt. 15/11/2021:

Checklist for donation by a charitable trust to another charitable trust

Donation by a charitable trust to another charitable trust requires compliance with various provisions, non-compliance with which can entail onerous consequences for the donor trust. CIR now contains a revised checklist for giving such donations. We hope the subscribers will find it useful.

Charities Update dt. 25/10/2021:

Section 12A/12AA(3) - Cancellation of registration

Irrelevant factors for cancellation of registration under section 12AA(3)

The CIT(E) cancelled registration on the ground that a trustee was paid remuneration although the trust deed had a clause to the effect that "the trustees shall not be entitled to any remuneration for their service put in by them in connection with the management of the trust". The Tribunal observed that the clause cannot be given much weightage and is not a ground to cancel the registration.

[The Education Renaissance Trust v. CIT(E), 2021 (10) TMI 447 - ITAT HYDERABAD]

Charities Update dt. 25/10/2021:

Section 12AB(4)/(5) - Cancellation of registration (w.e.f. 1-4.2021)

The word ‘subsequently’ in section 12AB(4)/(5) refers to subsequent to registration under section 12AB and not registration under section 12A/12AA. In other words, registration under these sections cannot be cancelled under section 12AB(4)/(5)

[S.R. TRUST v. PCIT, 2021 (9) TMI 1227 - MADRAS HIGH COURT]

Charities Update dt. 25/10/2021:

Section12A/12AB - Registration of an institution - New procedure for registration of a charitable institution under section 12AB

Once an application for registration under section 12AB is made in the prescribed form and manner by a trust/institution already registered under erstwhile section 12A/12AA.

(a) the PCIT or CIT has no discretion to call for documents or information or make enquiries.

(b) the PCIT/CIT does not have the power to satisfy himself about the objects or the genuineness of activities. The PCIT/CIT has no discretion either to grant or to reject the registration as sought for. He has to mandatorily pass an order in writing granting the registration [see section 12AB(1) which states that the PCIT/CIT ‘shall’ pass an order]. The reason is that if any adverse fact comes to the notice of the Tax Department, as against a registered trust (that it has allegedly violated any condition or provision of the Act), such issue can be dealt with separately after registration under section 12AB.

[S.R. TRUST v. PCIT, 2021 (9) TMI 1227 - MADRAS HIGH COURT]

Any subsequent registration would entail enquiries and satisfaction of the conditions mentioned for an institution where registration is due to expire [section 12A(1)(ac)(i) read with section 12AA(1)(b)]}.

Charities Update dt. 25/10/2021:

Section 11(1) - 11(1)(a)

Excess of earlier year’s expenditure (that is, deficit of earlier year) is application of income

Expenses incurred by trust for charitable and religious purposes in earlier years which are adjusted against income earned by trust in subsequent year will be regarded as application of income of trust for charitable and religious purposes in subsequent year.

[PCIT v. Karnataka Jesuit Educational Society, (2021) 128 taxmann.com 348 (Karn)]

Charities Update dt. 20/10/2021:

Section 13 - Denial of exemption

Parameters for determination of reasonableness

Contemporaneous comparative instances of interest paid by similar assessees is a relevant factor in determining adequacy or otherwise of interest paid by the assessee

[The Oxford Educational & Charitable Society v. CIT (E), 2021 (9) TMI 230 - ITAT AMRITSAR]

Charities Update dt. 20/10/2021:

Section 10(23C)

Quantification of aggregate annual receipts

Section 10(23C)(iiiad) being activity centric, the limit of ₹ 1 crore prescribed thereunder has to be seen only with reference to the fee and other receipts of the eligible activity/institution

Non corpus donations are not part of aggregate annual receipts

[Manas Sewa Samiti v. ACIT, 2021 (10) TMI 468 - ALLAHABAD HIGH COURT]

Charities Update dt. 20/10/2021:

Section 10(23C)

Approval can be withdrawn with retrospective effect

Approval can be withdrawn with retrospective effect from a particular date only if the withdrawal order indicates how the assessee had violated the conditions of its approval granted earlier in all the intervening assessment years from the said date wherein it had also been assessed without any violation of the approval's conditions.

To illustrate, suppose the approval was given with effect from 2009, and a search and seizure action took place in 2018. In such a case, the withdrawal of approval for the period prior to search action in 2018 is illegal if nothing is indicated in the withdrawal order as to how the assessee had violated the conditions of its approval granted earlier

[Aurora Educational Society v. PCIT(C), (2021) 128 taxmann.com 380 (Hyd Trib)]

Charities Update dt. 20/10/2021:

Section 10(23C)

The approval can be withdrawn only by the authority having jurisdiction. The withdrawal is not sustainable if it is effected by an authority not having jurisdiction

[Aurora Educational Society v. PCIT(C), (2021) 128 taxmann.com 380 (Hyd Trib)]

Charities Update dt. 20/10/2021:

Section 10(23C)

Approval by the prescribed authority

Approval under section 10(23C)(vi) cannot be denied on the ground that the assessee is not paying the sufficient salary to the teachers and thereby violating the CBSE guidelines by not paying the 6th pay commission salary

[The Oxford Educational & Charitable Society v. CIT (E), 2021 (9) TMI 230 - ITAT AMRITSAR]

Charities Update dt. 20/10/2021:

Section 2(15) - Charitable Purpose

Illustrations of activities regarded as ‘education’

The provision for transportation facility to students is sine qua non for, and is integral part of, imparting education.

[The Oxford Educational & Charitable Society v. CIT (E), 2021 (9) TMI 230 - ITAT AMRITSAR]

Charities Update dt. 20/10/2021:

Section 115TD to 115TF

Chapter XII-EB was inserted by the Finance Act, 2016 to provide for tax on accreted income of a charitable institution in specified situations. The existing note on the said Chapter in CIR has now been revised to make it comprehensive and to incorporate in it multiple computation as well as interpretational issues.

Charities Update dt. 04/10/2021:

Miscellaneous

Revision under section 263

The order passed by the AO accepting the return of income did not make any reference to any of the arguments put forward on behalf of the assessee and had merely accepted the return of income filed by the assessee. The High Could held that if the order of the AO does not disclose the basis of his conclusion, then jurisdiction under section 263 of the Act can be invoked.

[Marougen Edu Foundation v. PCIT, 2021 (9) TMI 1118 - ITAT BANGALORE]

Charities Update dt. 04/10/2021:

Section 11(1) - 11(1)(a)

An assessee engaged in providing education is entitled to basic exemption of 15% on its gross receipts, that is, fees and miscellaneous income.

[Bellary Educational Services Trust v. DCIT, 2021 (9) TMI 241 - ITAT BANGALORE]

Charities Update dt. 04/10/2021:

Section 10(23C)

  • The determination of the existence of educational institution solely for educational purposes is to be done on the basis of its activities.

[Baba Banda Bahadur Memorial and Educational Society v. CIT(E), 2021 (8) TMI 1158 – ITAT AMRITSAR, para 11]

Charities Update dt. 04/10/2021:

Section 10(23C)

  • Exemption under section 10(23C)(via) was not to be granted to the income of a hospital

(a) when remuneration was paid from the earnings of the Indoor Patients Department to the doctors, (some of whom were directors), although they were not working in that department.

(b) if the rates charged by the hospital were at par with other hospitals which ran on commercial basis

[Ashwini Sahakari Rugnalaya And Research Centre v. CCIT, 2021-TIOL-240-SC-IT]

Charities Update dt. 04/10/2021:

Proviso to section 2(15) - Charitable Purpose

The assessee was set up to promote, develop and protect the interests of trade and commerce and also to foster the feeling of unity and co-operation among the persons engaged in trade and commerce of all matters concerning their common good.

During the relevant years, the assessee inter alia, carried out the following activities:

(a) LBT Andolan: the assessee protested against the levy of Local Body Tax, which was detrimental to the interest of trade and commerce. For launching such a protest, it collected certain amounts and showed them under the head LBT Andolan revenue and incurred expenses under the head LBT Hatav expenses.

(b) Shop Act Andolan: The assessee carried out protests against certain clauses of the Shop Act for which it collected certain sums from its members and then spent it.

(c) The assessee organized certain campaign for the promotion of trade and commerce. The amount collected from the members was described as advertisement receipts and the amount spent on organizing such an event was described as advertisement cost.

(d) Similarly, the assessee organised cricket tournament for which it collected some charges and incurred some expenses

Apart from the above, there was minor interest income and some amount of membership fee.

The Tribunal observed that on going through the bifurcation of the revenue and the expenses for all the four years that were taken note of by the CIT(E), it became apparent that none of the activity was in the nature of trade, commerce or business.

[Federation of Trade Association of Pune v. CIT(E), 2021 (9) TMI 195 - ITAT PUNE]

FCRAR Update dt. 04/10/2021:

Extension of the validity of the registration certificate

FCRA registration certificates which are expiring during the period between 29th September, 2020 and 31st December, 2021 and which await renewal shall remain valid up to 31st December, 2021.

[Public Notice No. II/21022/23(22)/2020-FCRA-III dated 30th September, 2021 issued by the Ministry of Home Affairs]

Thus, the application for renewal of registration by institutions covered by the abovereferred notice can now be made before 31st December 2021.

FCRAR Update dt. 13/09/2021:

The FCRAR has been updated with more questions including the following:

  • Renewal of registration - Whether names of all trustees need to be mentioned in FC-3 or only names of the smaller executive body be mentioned?
  • Renewal of registration - Is PAN / Aadhaar No. of a trustee / office bearers, etc. required for renewal of application?
  • Utilisation - Charitable institution registered / granted prior permission under FCRA receives foreign contributions - Within what period does it have to utilise the land or building acquired out of foreign contribution?

The FCRAR now has more than 390 questions.

Charities Update dt. 20/09/2021:

Section 80G

Irrelevant factors for grant of approval

Some objects or many objects were not pursued

Merely because the Trust's activities were confined to only a few objects, it could not be a ground for denying approval under section 80G.

[Sri Guru Nanak Devji Religious and Charitable Trust v. CIT(E), 2021-TIOL-1287-ITAT-Cuttack]

Charities Update dt. 20/09/2021:

Section 80G

Illustrations of cases in which the trust was not expressed to be for the benefit of a religious community or caste

Facts

(a) In addition to running a Gurudwar, the trust was also maintaining a park for all citizens of Puri and visitors/tourists/pilgrims on the land given by Puri Muncipal Corporation.

(b) It also served people during natural calamities such as flood, earthquake, cyclone etc.

(c) The Trust was serving humanity without any discrimination of religious status or caste or creed.

On above facts, the Tribunal held that the Trust was not working for the benefit of any particular religious community or caste, and hence, not hit by section 80G(5)(iii).

[Sri Guru Nanak Devji Religious and Charitable Trust v. CIT(E), 2021-TIOL-1287-ITAT-Cuttack]

Charities Update dt. 20/09/2021:

Section12A/12AA - Registration of an institution

Tribunal’s powers

In the appeal before Tribunal, the tax department cannot justify denial of registration on a ground not taken up by CIT(E) for refusal of registration.

[See Sri Guru Nanak Devji Religious and Charitable Trust v. CIT(E), 2021-TIOL-1287-ITAT-Cuttack]

Charities Update dt. 20/09/2021:

Section12A/12AA - Registration of an institution

Irrelevant factors for grant of registration

(a) The institution has generated surplus/profit (in the absence of any other circumstances)

(b) Day to day activities were entrusted to the President and Secretary and not to all 14 trustees

[CIT v. Angels Educational Trust, (2021) 129 taxmann.com 305 (Mad)]

Charities Update dt. 20/09/2021:

Section 2(15) – Charitable purpose

Medical relief need not be provided free of cost

Recovery of cost of providing ambulance services and generating nominal surplus does not mean the activity ceases to be charitable activity in the field of medical relief.

[Mahaveer Charitable Society v. CIT(E), 2021 (9) TMI 513 – ITAT Jodhpur]

Charities Update dt. 20/09/2021:

Section 2(15) – Charitable purpose

Illustrations of activities regarded as “medical relief”

The following activities constitute medical relief

(a) Ambulance services (even when the assessee was recovering the costs)

(b) Medical camps

[Mahaveer Charitable Society v. CIT(E), 2021 (9) TMI 513 – ITAT Jodhpur]

Charities Update dt. 13/09/2021:

Section 13 - Denial of exemption

Irrelevant factor in determining adequacy or otherwise of the salary to an interested party

The salary paid to employees of the trust cannot be used as basis for quantifying the benefit given to the trustees, when the quality of work rendered by the trustees on one hand, and that by the employees of the trust, (who are involved only in execution of the decisions taken by the management and other day-to-day activities), is totally different and there can be no comparison between the two.

[Mukat Educational Trust v. DCIT, 2021 (9) TMI 131 - ITAT CHANDIGARH]

Charities Update dt. 13/09/2021:

Section 13 - Denial of exemption

Parameters for determination of seasonableness

In order to justify reasonableness of remuneration to trustees in respect of services to a trust, it is not that in all cases, the fact of their having rendered services needs to be established with documentary evidence. At times, circumstantial and surrounding evidence is sufficient to demonstrate their services, especially when trust gone to strength to strength.

[Mukat Educational Trust v. DCIT, 2021 (9) TMI 131 - ITAT CHANDIGARH]

Charities Update dt. 13/09/2021:

Section12A/12AA - Registration of an institution

Registration cannot be denied merely because

(a) the charitable institution has charitable as well as religious objects;

(b) the assessee may not be able to claim benefit of exemption under section 11 and 12 in respect of certain income (which has to be examined at the time of assessment);

(c) the income of the charitable institution is from letting out properties.

[Brahman Sabha Karveer v. CIT(E), (2021) 126 taxmann.com 172 (Pune Trib), (2021) 188 ITD 474 (Pune)]

Charities Update dt. 13/09/2021:

Section 11(1) / 11(1)(a) - “Application of income”

Consistency has to be observed by AO in grant of exemption.

[Sanskriti KMV School v. ACIT(E), (2021) 127 taxmann.com 178 (Chd Trib)].

Charities Update dt. 13/09/2021:

Provisos to section 2(15) and section 13(8)

If the entire income from an activity of profit was utilized for various certain charitable purpose for which the appellant society was established it would fully satisfy the conditions laid down u/s 2(15) of the Act.

[Brahman Sabha Karveer v. CIT(E), (2021) 126 taxmann.com 172 (Pune Trib), (2021) 188 ITD 474 (Pune)].

[Note: There are decisions on the above aspect holding to the contrary]

Charities Update dt. 13/09/2021:

Extension of time line

The CBDT has extended the time lines for filing of Income-tax returns and audit reports for Assessment Year 2021-22 as follows:

(a) The due date of furnishing of Return of Income for Assessment Year 2021-22, which was 31st July 2021 under section 139(1) is further extended to 31st December, 2021;

(b) The due date of furnishing of Report of Audit under any provision of the Act for the Previous Year 2020-21, is further extended to 15th January, 2022;

(c) The due date of furnishing of Return of Income for Assessment Year 2021-22, which is 31st October 2021 under section 139(1) is further extended to 15th February, 2022;

(d) The due date of furnishing of Return of Income for Assessment Year 2021-22, which is 30th November 2021 under section 139(1) is further extended to 28th February, 2022;

(e) The due date of furnishing of belated/revised Return of Income for Assessment Year 2021-22, which is 31st December 2021 under section 139(4)/(5) is further extended to 31st March, 2022.

[Circular No.17/2021 dated 9th September 2021]

Charities Update dt. 13/09/2021:

Section 80G - Conditions to be fulfilled by a charitable institution for enabling a deduction to its donor - Conditions

Meaning of “total income” for the purposes of section 80G(5)

There are multiple views regarding the meaning of the term “total income” as used in section 80G(5B). In Shirmoni Gurdwara Parbandhak Committee v. CIT, 2021 (8) TMI 763 - ITAT AMRITSAR, the Tribunal compared the expenditure on religious activities with total expenditure to check compliance with the 5% limit.

Illustrations

The CIT rejected application filed under section 80G

The Tribunal noted as follows:

(a) SGPC was running various schools, cancer hospitals, general hospitals, shelter homes, sarai, langer (community kitchen), flood relief camps, pandemic relief camps etc. All these activities were being done by the assessee for the benefit of the all communities/religions, irrespective of caste, creed, religion sikhs etc.

(b) The teaching, administrative and even the other staff in the institutions run by the assessee had been given employment on the basis of professional qualification regardless of religion, caste, creed, color, sex, race etc.

(c) The admissions in the educational institutions were given on merit and not on the basis of religion, caste, creed, color, sex, race etc.

(d) Facilities of medical aid & OPD in hospitals run by the assessee were also provided to the public at large regardless of religion, caste, creed, color, sex, race etc.

(e) Aid during natural calamities in the form of food and other relief materials was provided to the public at large regardless of religion, caste, creed, color, sex, race etc.

(f) Humanitarian services like free medical aid, free oxygen, and free food during the current COVID-19 were provided to all needy persons.

The Tribunal held that

(a) the activities of the assessee could not be termed as being done only for the benefit of particular community/ religion;

(b) the activities would not be religious activities since the its total expenditure incurred on the religious activities was less than 5% during these years;

(c) accordingly, the assessee was entitled to the benefit of 80G (5).

[Shirmoni Gurdwara Parbandhak Committee v. CIT, 2021 (8) TMI 763 - ITAT AMRITSAR]

Charities Update dt. 13/09/2021:

Section 13 - Denial of exemption

Consequences of violation of section 13

If section 13 is violated, entire income of charitable institution would not lose exemption [Anwar Sultana Educational Trust v. CIT(E), 2021 (8) TMI 709 - ITAT AMRITSAR]

Charities Update dt. 13/09/2021:

Section 13 - Denial of exemption

Section 13(1)(b)

In order to decide whether the assessee is created or established for the benefit of any particular religious community or caste, its activities (and not objects) have to be seen [Shirmoni Gurdwara Parbandhak Committee v. CIT, 2021 (8) TMI 763 - ITAT AMRITSAR, para 29]

Charities Update dt. 13/09/2021:

Section12A/12AA - Registration of an institution – proviso to section 12A(2)

Illustrations of cases where registration granted

The CIT(E) denied registration to the assessee on the basis of the franchise agreement entered between the assessee and ZLL. However the running of the school, duly affiliated with the central board of secondary education was not denied by the CIT(E), while rejecting the application for registration of the assessee.

It was held that running of the school after affiliation with the CBSE Board, was a charitable activity within section 2(15) and merely because the assessee entered into franchise agreement with ZLL, it did not make the activity of the assessee non charitable. Accordingly, the CIT(E) was directed to grant registration to the assessee from the date of application.

[Sant Shri Mahesh Muni Ji Borewale Eductional Welfare Society v. CIT(E), 2021 (8) TMI 767 - ITAT AMRITSAR]

Charities Update dt. 13/09/2021:

Section12A/12AA - Registration of an institution – proviso to section 12A(2)

Genuineness of activities

Genuineness of activities would mean that activities are not camouflage, bogus, artificial and these are in accordance with the objects of the institution [Anwar Sultana Educational Trust v. CIT(E), 2021 (8) TMI 709 - ITAT AMRITSAR].

Charities Update dt. 13/09/2021:

Section 11(1) / 11(1)(a) - “Application of income”

Illustrations of payments not regarded as “application of income”

Investment in fixed deposit is not application of income [Ursuline Franciscan Congregation Generalate Somarpann Declaralakatte Mangalore v. ITO(E), 2021 (8) TMI 995 - ITAT BANGALORE].

Charities Update dt. 13/09/2021:

Section 11(1) / 11(1)(a) - “Application of income”

Expenses incurred is allowable as application of income even if a sum earmarked and allocated for the purposes of trust is not paid before year end [Ursuline Franciscan Congregation Generalate Somarpann Declaralakatte Mangalore v. ITO(E), 2021 (8) TMI 995 - ITAT BANGALORE]

Charities Update dt. 01/09/2021:

Section 13 - Denial of exemption

Consequences of violation of section 13(1)(b)/(c)

Entire income of charitable institution would not lose exemption

[St. Xavier Educational Trust v. CIT(E), (2021) 128 taxmann.com 198 (Mad)]

Charities Update dt. 01/09/2021:

Section12A/12AA - Registration of an institution – proviso to section 12A(2)

Irrelevant factors for grant of registration

Registration cannot be denied on the ground that section 13 applies to the institution

[Federation of Democratic Voice v. CIT(E), 2021 (8) TMI 508 - ITAT BANGALORE, para 9]

Charities Update dt. 17/08/2021:

Section 2(24)(iia) - income

High Court had held in Thanthi Trust v. DIT(E), (2020) 121 taxmann.com 119 (Mad), that registration granted to assessee could not be cancelled where it was engaged in business of publishing newspaper and surplus of income from business was utilized for donation to a particular assessee-trust which was running educational institution, though assessee did not run any school or college. Special leave petition filed against impugned order is granted.

[DIT(E) v. Thanthi Trust, (2021) 128 taxmann.com 317 (SC)]

FCRAR Update dt. 09/08/2021:

1) The Ministry of Home Affairs has issued various clarifications on FCRA. These clarifications are changed from time to time. The FCRAR now incorporates all these FAQs as listed on FCRA website as on 15th July 2021.

2) The FCRAR now contains specimen letters from donors for different situations. They have been drafted considering the requirements of FCRA and the Income-tax Act, 1961.

Charities Update dt. 09/08/2021:

Section 12A/12AA(3) - Cancellation of registration

Circumstances in which registration of an institution can be cancelled

If the answers given to the questionnaire by the Managing Trustee of the Trust showed that the assessee was receiving bogus donations, then the authorities were justified in cancelling the registration under sections 12AA and 80G. This is because an entity which is misusing the status conferred upon it by section 12AA is not entitled to retain and enjoy said status

[CIT(E) v. Batanagar Education and Research Trust, 2021-TIOL-204-SC-IT]

Charities Update dt. 09/08/2021:

Section12A/12AA - Registration of an institution – proviso to section 12A(2)

(a) The provisos to section 12AA(2) are retrospective in operation and apply with retrospective effect from the date from which section 12A provided for registration under section 12AA as a pre-condition for applicability of section 11 and 12.

[Shri Vishwa Mitter Sekhri Charitable Society v. ITO(E), 2021 (8) TMI 59 - ITAT AMRITSAR]

(b) A proceeding for reassessment could be considered as an assessment proceeding.

[Shri Vishwa Mitter Sekhri Charitable Society v. ITO(E), 2021 (8) TMI 59 - ITAT AMRITSAR]

Charities Update dt. 09/08/2021:

Section 11(2), Explanation to section 11(2) and section 13(9)

The petitioner filed a writ with a prayer of granting leave to make an application before the CBDT for condoning the delay in filing Form No.10. The Court disposed of the writ by granting liberty to the petitioner to file an application before the CBDT under section 119(2)(b) within three weeks from date and directing the CBDT to consider and dispose of such application within four weeks from the date of receipt of such application on its own merit strictly in accordance with law.

[Tripura Cricket Association v ACIT, W.P.A. 8480 of 2020 dt. 26.07.2021]

Charities Update dt. 09/08/2021:

Section 11(1) / 11(1)(a) - Income of a wholly charitable / religious institution

Exemption under section 11 cannot be denied to an educational institution merely on the ground that it has charged exam fees, when no capitation fees were charged by it, and there was no profiteering.

[DCIT(E) v. Major Shiv Dayal Singh Chikitsa Trust, 2021 (8) TMI 30 – ITAT Delhi]

Charities Update dt. 09/08/2021:

Section 2(24)(iia) - income

Corpus donations for a charitable institution not registered under section 12A/12AA is not exempt under section 11.

[Veeravel Trust v. ITO(E), 2021 (7) TMI 1084 - ITAT CHENNAI]

Charities Update dt. 02/08/2021:

Miscellaneous - Assessment

Compliance with section 144B is required

Where assessee's declared income was varied but no show-cause notice cum draft assessment order was issued as mandated under section 144B, it was held that

(a) the stand of revenue was contrary to statutory scheme, as engrafted in section 144B.

(b) impugned assessment order, with accompanying notice of demand under section 156 and notice for initiation of penalty proceedings issued under section 270A were to be set aside.

[Smart Vishwas Society v. National Faceless Assessment Centre Delhi, (2021) 128 taxmann.com 278 (Del)]

Charities Update dt. 02/08/2021:

Section 13

Illustration of situation in which section 13 was held as not applicable

Two individuals were appointed consultants of the assessee for a period of 5 years with a specific task of helping it to establish new medical college. Interest free loans were given to them by the assessee pursuant to a contractual obligation. According to the AO, these two persons were tasked with setting up core team to explore changes that were taking place in respect of rules and regulations formulated by the Government. They were required to directly report to the Chairman for any of the policy decisions. Therefore, he opined that they were performing managerial functions of the Trust and hence, they came under the term manager as defined under section 13(3)(cc).

The Tribunal held that the two individuals could not be considered as managers of the Trust, who were involved in day to day managerial functions and hence they were not covered by section 13(3)(cc) of the Act.

The Tribunal also observed that the AO proceeded on the assumption that the assessee has lent the sum. However, the transactions between the trust and the consultants were under normal circumstances as a prudent businessman and hence question of charging interest or taking a security against such advance did not arise. Therefore, the loans given to two consultants did not result in any benefit directly or indirectly to interested persons so as to attract section 13(1)(c).

[Jaya Educational Trust v. DCIT, 2021 (7) TMI 773 - ITAT CHENNAI]

Charities Update dt. 02/08/2021:

Section 13

Transactions of preceding financial years are covered

A transaction would be covered in the ambit of section 13(2)(a) not only when it is entered during the previous year but also when it is entered in any earlier previous year and continues to remain in force during the relevant previous year. However, if the assessee trust had written off the amount, then legally the loans given would have been wiped out from the Trust balance sheet, and the Department could not have taken the plea of “continue to lend”.

[Jaya Educational Trust v. DCIT, 2021 (7) TMI 773 - ITAT CHENNAI, para 17]

[Note: The Tribunal has not discussed whether such write off could have resulted in benefit to the borrowers].

Charities Update dt. 02/08/2021:

Section 13

If assessee commits violation of section 13(1)(c), then its entire income would not lose exemption.

[Jaya Educational Trust v. DCIT, 2021 (7) TMI 773 - ITAT CHENNAI]

Charities Update dt. 02/08/2021:

Section 12A/12AA(3) - Cancellation of registration

Registration cannot be cancelled without fair hearing

If despite seeking time to file submissions on merits, the PCIT passes an order without affording any such opportunity, then it could be said that there is denial of fair hearing by the PCIT.

[Chandigarh Education Society v. PCIT(C), 2021-TIOL-1165-ITAT-CHD, para 10]

Charities Update dt. 02/08/2021:

Section 11(2), Explanation to section 11(2) and section 13(9)

Delayed filing of return of income for bona fide reasons should be condoned by the AO

The assessee had filed Form No.10 before due date under section 139(1). However, it had belatedly filed return of income within due date specified under section 139 (4). The Tribunal held that the reasons given by the assessee for not filing the return within due date specified under the Act for were bonafide and reasonable and therefore, the AO ought to have condoned the delay in filing return of income and should not have rejected exemption claimed by the assessee for accumulation of income under section 11(2).

[Jaya Educational Trust v. DCIT, 2021 (7) TMI 773 - ITAT CHENNAI]

Charities Update dt. 02/08/2021:

Section 11(1)(d) - Corpus donations

Corpus donations should not be included in income and expenditure account

Corpus donation cannot be included in the income and expenditure account of the trust but has to be shown on the liability side of the balance sheet.

[Apeejay Education Trust v. DCIT(E), 2021 (7) TMI 906 – ITAT KOLKATA, para 3.8] [in the context of section 10(23C)(vi)]

Charities Update dt. 02/08/2021:

Section 11(1)(a) - Application of income

Provision for gratuity payable (determined by way of actuarial valuation) constitutes application of income).

[Apeejay Education Trust v. DCIT(E), 2021 (7) TMI 906 – ITAT KOLKATA] [in the context of section 10(23C)(vi)]

Charities Update dt. 02/08/2021:

Provisos to section 2(15) - Charitable Purpose

Where industry or trade associations claim to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality.

[ACIT v. Gujarat Hira Bourse, 2021 (7) TMI 555 – ITAT SURAT, para 25]

Charities Update dt. 02/08/2021:

Section 2(15) – Charitable purpose

  • An amendment in trust deed operates prospectively[CIT v. Young Women’s Christian Association, (2021) 128 taxmann.com 105 (Mad), (2021) 432 ITR 397 (Mad), 2021-TIOL-435-MAD-IT]
  • A mutual association can be a charitable institution [ACIT v. Gujarat Hira Bourse, 2021 (7) TMI 555 – ITAT SURAT, para 25]
  • An institution set up with the object of promoting trade or commerce is a charitable institution since it promotes common good through enhancement of business [ACIT v. Gujarat Hira Bourse, 2021 (7) TMI 555 – ITAT SURAT, para 25]
  • Establishing and running hostels for students and staff of the educational institution is to be construed as ‘educational activity’ of the assessee [Durga Charitable Society v. JCIT, 2021 (7) TMI 905 – ITAT Delhi, para 7]

Charities Update dt. 19/07/2021:

Anonymous donation

The assessee could not have received identical cash donation of Rs.4501 from 4851 persons, especially when the notices to the alleged donors were returned unserved with remarks “Address incomplete/person not known”

The AO had brought to tax a sum of Rs.2,17,75,000/- being donations received during the year under consideration as "anonymous donations" under section 115BBC. According to him, the assessee had failed to prove the genuineness of the donations received as well as the identity and creditworthiness of the donors.

The Tribunal observed as follows:

(a) On random verification carried out by the AO under section 133(6), all the notices were returned un-served with remarks "Address incomplete/persons not known".

(b) The burden of proving the genuineness of receipt of donation is always on the assessee. This burden can be discharged by him by leading necessary evidence or from circumstantial evidence.

(c) In the absence of any positive evidence from the assessee, the AO as well as the appellate authority would be justified applying the test of human probabilities and can draw an adverse inference against the assessee.

(d) In present case, it was highly improbable that an organization could receive donation of identical amount of Rs.4,501/- from 4851 persons. Therefore, it was a fit case to apply the test of human probabilities.

(e) The appellant had failed to discharge the onus of rebuttal of the material with which he was confronted before the AO.

(f) in order to verify the genuineness of the claim, a remand report from the AO was called for pursuant to which the appellant had filed a new set of information different from what was filed at the time of original assessment proceedings.

(g) This conduct of the appellant suggested that the information filed during the original assessment proceedings was not correct or incomplete.

It held that on consideration of the totality of the circumstances of the case, the transaction of receipt of donation was a sham, a make believe story, a device adopted by the appellant to bring on record the undisclosed income of the appellant society.

[Ninaidevi Shikshan Prasarak Mandal v. ITO( E), 2021 (7) TMI 143 - ITAT PUNE]

Charities Update dt. 19/07/2021:

Section 11(4A) - Business income of a charitable institution

Meaning, interpretation of “incidental to attainment of objects”

  • If an activity is integral or subservient to the dominant object it is not covered by section 11(4A); however, if it forms incidental, ancillary or connected activity it is covered by section 11(4A).

If it is a business activity which is an integral and inseparable part of the main activity carried on by the assessee, then it is not covered by section 11(4A)

  • A business whose income is utilised by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is a business which is incidental to the attainment of the objectives of the trust or institution

[Daya Nand Pushpa Devi Charitable Trust v. CIT, 2021 (7) TMI 124 - ALLAHABAD HIGH COURT]

Charities Update dt. 19/07/2021:

Section 11(2), Explanation to section 11(2) and section 13(9)

If the appellant has filed Form No. 10 along with its return of income, and, after giving effect to the appellate order, there is any surplus income for the current year after set off of past deficit, then the AO has to consider Form No. 10 filed by the appellant and compute the income accordingly.

[DCIT(E) v. ADITYA BIRLA FOUNDATION, 2021 (7) TMI 440 - ITAT MUMBAI]

Charities Update dt. 19/07/2021:

Section 11(1) / 11(1)(a) - Application of income

Disallowance of payment as application of income

If the trustees have spent the income on a particular purpose not covered by the objects of the assessee but covered by charitable purpose [as defined in section 2(15)] or religious purpose in India, the assessee would be entitled to exemption under section 11(1)(a).

[DIT(E) v. Shanmuga Arts, Science, Technology & Research Academy (SASTRA), 2021 (7) TMI 178 - MADRAS HIGH COURT]

[Note: There have been contrary decisions of the Tribunal]

Charities Update dt. 19/07/2021:

Section 11(1) / 11(1)(a) - Application of income

Disallowance of payment as application of income

For establishing genuineness of payments, the AO would be entitled to ask, inter alia, to whom such amounts were paid, and for what purpose.

[See Alimaan Charitable Trust v. CIT(E), TS-505-ITAT-2021-Mum]

Charities Update dt. 19/07/2021:

Miscellaneous

Hybrid method of accounting cannot be followed

(a) The method of accounting provided under section 145(1) is either cash or mercantile and hence, it cannot be mixed or hybrid system.

(b) If the assessee is following mercantile system of accounting as per its audit report and accounts, it cannot be allowed to account only interest income on receipt basis.

[DCIT(E) v. ADITYA BIRLA FOUNDATION, 2021 (7) TMI 440 - ITAT MUMBAI]

Charities Update dt. 19/07/2021:

Miscellaneous

Applicability of section 68

For establishing genuineness of the donations received, the AO would be entitled to ask the following details from the assessee:

Name, Address & PAN of Donor Amount of donation

(Rs.)

Mode of Payment

(Cash / Cheque / DD No. & Bank)

Nature of donation (Corpus or Non-Corpus)

In respect of foreign contribution, he may ask for a copy of FCRA registration, Form FC-3 & audit report. Mere “Form FC 6” filed by the assessee without containing details of the donors or any correspondence of the assessee with them, would not suffice

[See Alimaan Charitable Trust v. CIT(E), TS-505-ITAT-2021-Mum]

Charities Update dt. 19/07/2021:

Anonymous donation

Burden of providing genuineness of donations is on the assessee

This burden can be discharged by him by leading necessary evidence or from circumstantial evidence. In the absence of any positive evidence from the assessee, the AO as well as the appellate authority would be justified applying the test of human probabilities and can draw an adverse inference against the assessee.

[Ninaidevi Shikshan Prasarak Mandal v. ITO( E), 2021 (7) TMI 143 - ITAT PUNE].

Charities Update dt. 19/07/2021:

Proviso to section 2(15) - Charitable purpose

The activity of maintaining a hostel by an educational institution in discharge of its statutory obligation did not fall within the meaning of "business".

[Daya Nand Pushpa Devi Charitable Trust v. CIT, 2021 (7) TMI 124 - ALLAHABAD HIGH COURT]

Charities Update dt. 19/07/2021:

Section 2(15) - Charitable purpose

‘Education’ in section 2(15) covers all types of education

The word "education" in section 2(15) is not qualified by any restrictions. It has been used in its widest amplitude and  is not confined to only “young” but covers any section or class of the society or any particular type or level of education.

[Daya Nand Pushpa Devi Charitable Trust v. CIT, 2021 (7) TMI 124 - ALLAHABAD HIGH COURT]

Charities Update dt. 19/07/2021:

Section 2(15) - Charitable purpose

Providing sports facilities to general public is covered by “charitable purpose”

Members of Delhi Police personnel constitute section of the public.

Promotion of welfare and recreational activities of the police personnel is regarded as advancement of general public utility.

[Delhi Police Welfare and Recreational Club Fund v. CIT(E), 2021 (6) TMI 988 - ITAT Delhi, para 7]

Charities Update dt. 19/07/2021:

Section 2(15) - Charitable purpose

Providing sports facilities to general public is covered by “charitable purpose”

Providing sports facilities to general public without restriction to any caste, creed, religion or profession or promotion or management of social intercourse or athletic sports and cultural and educational activities for its members constitutes object of general public utility

[ITO(E) v. The Pransukhlal Mafaltlal Hindu Swimming Bath and Boat Club Trust, 2021-TIOL-1071-ITAT-Mum following Tribunal decision in assessee’s own case in ITA No. 1039 and 1040/Mum/2016, dated 21.03.2018]

Charities Update dt. 02/07/2021:

Section 13 – Denial of exemption

Rent to interested parties could be on arm’s length basis

The assessee had paid rent to interested parties. The CIT(A) deleted the disallowance made by the AO. The Tribunal upheld the CIT(A)’s order on following grounds:

(a) the payment of rent was not doubted

(b) the AO did not bring any material on record to substantiate that the rent paid was excessive

(c) the specified persons to whom accommodation was provided had shown the valuation of the said properties as perquisites in their respective hands.

(d) the rent paid for the same accommodation has been accepted in the preceding years.

[Manav Mangal Society v. DCIT(E), 2021 (6) TMI 446 - ITAT CHANDIGARH, para 17.2]

Charities Update dt. 02/07/2021:

Section 13 – Denial of exemption

Interest to interested parties could be on arm’s length basis

If the rate at which interest was paid by the assessee to a bank was higher than the rate at which interest was paid to interested parties, then the interest cannot be considered as excessive

[Manav Mangal Society v. DCIT(E), 2021 (6) TMI 446 - ITAT CHANDIGARH, para 24]

Charities Update dt. 02/07/2021:

Section 13 – Denial of exemption

Consistency has to be followed

If the AO has allowed entire salary in a particular year, he cannot disallow portion of the salary in subsequent year on the ground that such salary is excessive, especially when the AO has independently not brought any evidence which can show how much salary person having similar qualification can fetch in the open market.

[Manav Mangal Society v. DCIT(E), 2021 (6) TMI 446 - ITAT CHANDIGARH, para 24]

Charities Update dt. 02/07/2021:

Section 13 – Denial of exemption

Documents required to justify adequacy of remuneration

The following documents/evidence/information could be required/relevant in justifying the adequacy of remuneration to an interested party:

(a) whether the salary has duly been reflected in tax return of the interested party and due taxes have been paid thereupon?

(b) growth in activities of the charitable institution after appointment of interested party.

[Manav Mangal Society v. DCIT(E), 2021 (6) TMI 446 - ITAT CHANDIGARH]

Charities Update dt. 02/07/2021:

Section 12A-12AA(3) – Cancellation of Registration

Donation to another trust settled by the author of the assessee is irrelevant for grant of registration

The fact that the assessee trust had given donation to another charitable trust registered under section 12AA, which was also settled by the author of the assessee and the donation was given out of interest bearing borrowings is an irrelevant factor for cancellation of registration under section 12AA(3).

[Bhai Hospital Trust v. DIT(E), 2021 (6) TMI 621 – ITAT Delhi]

Charities Update dt. 02/07/2021:

Section 12A-12AA(3) – Cancellation of Registration

Registration cannot be cancelled from inception of a trust, that is, even prior to the effective date of registration

Bhai Hospital Trust v. DIT(E), 2021 (6) TMI 621 – ITAT Delhi

Charities Update dt. 02/07/2021:

Section 11(1)

Sanctity has to be attached to registration granted under section 12A / 12AA

Though registration granted under section 12A / 12AA does not automatically entitle a trust/institution for availing exemption under section 11, some sanctity has to be attached to the registration granted under section 12A.

[All India Federation of Tax Practitioners v. ITO(E), ITA No.4940 and 4941/Mum/2019 (Mum) dated 07.05.2021]

Charities Update dt. 02/07/2021:

Section 11(1)

Accounting for grant

The appellant had received a revenue grant of Rs.15 crores towards publicity and an amount of Rs.6.09 crore was spent therefrom, during the year under consideration. The balance grant of Rs.8.91 crore was unutilized and, therefore, the same was shown under the head Current Liabilities in the Balance Sheet. The AO treated the entire revenue grant received as income of the appellant in the year of receipt and accordingly, made an addition of Rs.8.91 crores.

The Tribunal observed that policy of accounting for grant on receipt in current liability had been accepted by the Revenue in the earlier year. Having accepted the above policy earlier, on the principle of consistency, the AO's action was not justified without pointing out why contrary view from earlier year was being taken.

[DCIT v. Maharashtra Tourism Development Corporation Ltd, 2021-TIOL-1037-ITAT-MUM]

Charities Update dt. 02/07/2021:

Section 11(1)

Interest on unutilised grant-in-aid received by an institution which has to be treated as a part of grant itself does not constitute income under section 11(1)(a)

DCIT v. Maharashtra Tourism Development Corporation Ltd, 2021-TIOL-1037-ITAT-MUM

Charities Update dt. 02/07/2021:

Section 10(23C)

The word 'income' in section 10(22) includes deemed income under section 68

The word 'income' in section 10(22) [corresponding to section 10(23C)] includes deemed income under section 68 and hence, assessee entitled to exemption under section 10(22) could claim exemption in respect of income under section 68.

[DIT(E) v. Raunaq Education Foundation, (2007) 164 Taxman 266 (Del), (2007) 294 ITR 76 (Del) appeal dismissed by the Supreme Court on the ground of low tax effect; DIT(E) v. Raunaq Education Foundation, (2021) 124 taxmann.com 566 (SC), (2021) 278 Taxman 186 (SC), (2021) 431 ITR 52 (SC)]

Charities Update dt. 02/07/2021:

Provisos to section 2(15) - Charitable Purpose

Subscriptions from members and sale of publications did not result in business, etc.

The main object of the assessee was as under:

“To spread education in matters relating to tax laws, other laws and accountancy.”

It earned income from following

(a) holding seminars, conferences, workshops, etc. disseminating knowledge on commercial law, tax laws and charging fees;

(b) obtaining subscription from member;

(c) sale of publications.

The Tribunal observed as follows:

(a) before applying the proviso to section 2(15), the dominant purpose test has to be applied.

(b) the dominant purpose of the assessee, as shown by its Memorandum of Association, was to carry out its object of general public utility and not to earn profit by engaging itself in any trade, commerce or business.

(c) while carrying out its charitable objects, if, the assessee incidentally earned some profit from any commercial activity to supplement its main object, it could not be said that the assessee had engaged itself in trade, commerce and business so as to attract the proviso to section 2(15).

[All India Federation of Tax Practitioners v. ITO(E), ITA No.4940 and 4941/Mum/2019 (Mum) dated 07.05.2021]

Charities Update dt. 02/07/2021:

Provisos to section 2(15) - Charitable Purpose

Consistency has to be followed

If there is no change in facts, then the principle of consistency may apply and the proviso to section 2(15) cannot be invoked, although while granting exemption in earlier as well as subsequent assessment years no scrutiny assessment was made.

[All India Federation of Tax Practitioners v. ITO(E), ITA No.4940 and 4941/Mum/2019 (Mum) dated 07.05.2021]

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

Commercial organization to provide employment to ex-servicemen

The appellant company was formed to provide reemployment to ex-servicemen. Its application for registration was rejected by the CIT(E). The Tribunal observed as follows:

(a) A perusal of Memorandum of Association (MOA) does not show any clause creating an interest in property in favour of the public for any of the object listed under section 2(15), which is sine qua non for creation of charity.

(b) The MOA permitted the company to distribute the profits in the form of dividend amongst its members

(c) The MOA did not set out a condition that the income earned by the company shall be deployed for the objects of the company.

(d) The company was therefore a commercial organization

(e) However, the view of the CIT(E) that the company was a commercial organization merely because it was generating huge revenue from year to year with mark-up on the cost of 10% to 12% could not be upheld.

In the interest of justice, the Tribunal remanded the matter to the file of the CIT (E) for de-novo consideration of application on the touchstone of law laid down in Ananda Social and Educational Trust vs. CIT, (2020) 272 Taxman 7 (SC)

[Maharashtra Ex-Servicemen Corporation Ltd. v. CIT(E), 2021 (6) TMI 811 - ITAT PUNE, para 9]

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

There must be an obligation created under the Memorandum of Association to spend the money exclusively and essentially on charity

See Maharashtra Ex-Servicemen Corporation Ltd. v. CIT(E), 2021 (6) TMI 811 - ITAT PUNE

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

Benefit to public is a prerequisite for satisfaction of definition of ‘charitable purpose’

A clause in the MOA creating an interest in property in favour of the public for any of the object listed under section 2(15), is sine qua non for creation of charity.

[Maharashtra Ex-Servicemen Corporation Ltd. v. CIT(E), 2021 (6) TMI 811 - ITAT PUNE, para 9]

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

Surplus from activity does not mean that the definition of charitable purpose is not satisfied

Maharashtra Ex-Servicemen Corporation Ltd. v. CIT(E), 2021 (6) TMI 811 - ITAT PUNE, para 9

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

Holding seminars, etc. on laws and accountancy and allowing free download of publications and periodicals was education

The main object of the assessee was as under:

“To spread education in matters relating to tax laws, other laws and accountancy.”

It, inter alia, carried on the following activities:

(a) disseminated knowledge on commercial law, tax laws by holding seminars, conferences, workshops, etc.

(b) conducted more than hundred webinars on tax laws and accountancy during the lockdown period arising out of the pandemic

(c) regularly conducted moot court competition amongst law students at All India level which immensely helped in building the skill set of the students in the field of law in becoming legal professionals.

(d) maintained a free website where all publications and periodicals were available on the website which could be downloaded free of cost.

On the above facts, the Tribunal held that the assessee was engaged in educational activity.

[All India Federation of Tax Practitioners v. ITO(E), ITA No.4940 and 4941/Mum/2019 (Mum) dated 07.05.2021, para 8, 9, 10 and 12]

Charities Update dt. 02/07/2021:

Section 2(15) – Charitable purpose

Publication of books, magazines, journals, depicting rich cultural heritage of India falls within the ambit of education

The assessee was engaged in publication and selling of

(a) books & CDs of various kinds;

(b) quarterly magazines journals containing serious information about various facets of Indian Art, the cultural events of India etc.

The AO concluded that the activities of the trust fell in the category of advancement of any other object of general public utility and not education.

The Tribunal observed as follows:

(a) The assessee trust in pursuance of its charitable objects had published various books, magazines / journals which depicted the rich cultural heritage of India together with its art, literature, science, history, architecture, archeology, theatre, cinema, dance, music etc.

(b) Various universities/private scholars had sought permission for using publications of the assessee trust as reference material.

(c) Articles from books published by assessee were used by various universities as part of their curriculum

(d) Various libraries, universities (both inland and foreign), museums, art galleries, government bodies and individuals had subscribed to the publications of the assessee

(e) Over the years, the assessee had published over 240 magazines and 120 books thereby making them a veritable encyclopedia of art and culture.

(f) The profile of the assessee revealed that their publications enjoyed a loyal readership and a very high reputation nationally and internationally, being read not only in the major cities, but also in remote towns in India and across 30 countries abroad. Their readers included Indophiles, connoisseurs and art dealers, executives, scholars, architects, designers, and students all over the world.

(g) For some publications of the assessee, grants were received from Ministry of Culture, Government of India.

The Tribunal held that

(a) the various publications of the assessee clearly fall within the ambit of the expression Classical Education which expression also falls within the ambit of Education;

(b) the activities of the assessee were charitable in nature not falling under the ambit of advancement of any other object of general public utility and hence proviso to section 2(15) of the Act did not apply to the assessee.

[The Marg Foundation v. ITO(E), 2021-TIOL-985-ITAT-MUM]

Charities Update dt. 02/07/2021:

Compliance extension

Government grants further extension to 31st August 2021

The application under Section 10(23C), 12AB, 35(1)(ii)/(iia)/(iii) and 80G of the Act in Form No. 10A/ Form No.10AB, for registration/ provisional registration/ intimation/ approval/ provisional approval of Trusts/ Institutions/ Research Associations etc., required to be made on or before 30th June, 2021, may be made on or before 31st August, 2021.

[Circular No. 12/2021 dated 25th June, 2021]

Charities Update dt. 17/06/2021:

Section 10(23C)

(a)    In the context of exemption under section 10(23C), the conditions as stipulated in section 13 are irrelevant.

(b)    Merely because the institution has surplus does not mean that it exists for profit and not solely for educational purposes, so long as the profit is not distributed to private individuals.

(c)    The surplus may be quantified on the basis of return of income and not income and expenditure account.

(d)    In determining the surplus capital expenditure has to be excluded

[The Sardar Partapsingh Education Society v. CIT(E), 2021 (6) TMI 401 - ITAT Mumbai]

Charities Update dt. 17/06/2021:

Section 13 - Denial of exemption

The assessee paid rent of Rs.24 lakhs per annum to interested party for lease of land for 60 years. The Tribunal observed / held that market value of the land was Rs.13,03,76,400/- as per the registered lease deed and the payment of lease rent of Rs.24 lakhs worked out to hardly 1.86% thereon. Hence, it could be safely concluded that the rent paid by the assessee trust to the trustees was not excessive or unreasonable [The Sardar Partapsingh Education Society v. CIT(E), 2021 (6) TMI 401 - ITAT Mumbai]

Charities Update dt. 17/06/2021:

Section 13 - Denial of exemption

The assessee being a religious society, was allowed exemption for all the preceding years and there was no material change in the activities of the assessee and the mischief of the provision of section 13(1)(b) was not attracted. The AO however, denied such exemption during the year under consideration, mainly on the ground that the assessee was a charitable society and there was a violation of Section 13(1)(b). The Tribunal held that a trust for religious purpose cannot be said to be an institution is for the benefit of a religious community/caste for the purposes of section 13(1)(b) [ACIT(E) v. Indian Evangelical Team, 2021-TIOL-917-ITAT-DEL]

Charities Update dt. 17/06/2021:

Section 12A/12AA - Registration of an institution

Some principles for inquiry by CIT(E) regarding compliance with material laws

(a) The CIT(E) can ask for compliance of only those laws which are material for fulfilment of the objects of the assessee.

(b) The scope and ambit of the enquiry under the Act is limited. The CIT(E) cannot look into whether the approval or permission under other law was rightly given or not. He cannot sit in judgment against such permission/ approval given under other law.

(c) The CIT(E) should keep in mind that it is not possible for the assessee to even apply and seek approval/permission at the stage of registration of the trust under section 12AA, as those approvals/permission can be granted only after the setting up or commencement of the charitable activities.

(d) The CIT(E) cannot raise vague questions

(e) If the CIT(E), is of the opinion that approval/permission are required from competent authorities, he should

(i) specify which are the relevant laws;

(ii) the reasons why such other laws are material; and

(iii) Authorities from which permissions/approval are required.

(f) It is incumbent upon the CIT(E) to seek a response of the assessee, after giving

(i) Show cause notice;

(ii) any opportunity of hearing

[Doctor Madan Lal Atri Charitable Trust v. CIT(E), (2021) 127 taxmann.com 636 (Agra Trib)]

[Note: This is the first reported decision on the provision and lays down very important and salutary provisions]

Charities Update dt. 17/06/2021:

Section 12A/12AA - Registration of an institution

For determining genuineness of the activities which the Trust proposed to carry on, the CIT(E) should restrict himself to examination of objects of the Trust in its Trust Deed [Doctor Madan Lal Atri Charitable Trust v. CIT(E), (2021) 127 taxmann.com 636 (Agra Trib)]

Charities Update dt. 17/06/2021:

Section 12A/12AA - Registration of an institution

Registration cannot be denied on the ground that corpus donations collected in the preceding financial years had escaped assessment to tax [Pramod Kiran Sevadham Foundation v. CIT, 2021 (6) TMI 100 - ITAT Pune]

Charities Update dt. 17/06/2021:

Section 12A/12AA - Registration of an institution

Registration cannot be denied on the ground that part of the income of the applicant is not exempt and that the applicant has not paid tax on such income [Shree Lakadipool Vitthal Mandir v. CIT(E), 2021 (5) TMI 801 - ITAT PUNE]

Charities Update dt. 17/06/2021:

Proviso to section 2(15) - Charitable purpose

The appellant is a statutory body formed under Maharashtra Housing Area Development Act 1976. The appellant built tenements and sold them. The Tribunal held that the appellant’s activity could not be held for the profit motive or for carrying out systematic business, albeit all its policy as well as conduct was to provide shelter to the needy and poor people in line with the mandate of Constitution of India [ITA No.6678/Mum/2013 vide order dated 04/06/2019 followed in Maharashtra Housing And Area Development Authority v. ACIT(E), 2021-TIOL-900-ITAT-MUM]

Charities Update dt. 17/06/2021:

Proviso to section 2(15) - Charitable purpose

Running a coffee shop and a restaurant did not mean that the assessee was involved in trade, commerce or business [ITO(E) v. India Islamic Cultural Centre, 2021-TIOL-945-ITAT-DEL]

Charities Update dt. 17/06/2021:

Section 2(15) - Charitable purpose

The assessee was a charitable trust engaged in imparting education in the field of classical music and light music based on the Gurukul Philosophy, where the student learnt by virtually staying with the Guru. The institution was founded in 1932 by Acharya Jialal Vasant and had 84 years of rich heritage. The institution had a repute for providing scientific training in Hindustani Classical Music and Light Music. It had a studio namely “Ajivasan Sounds” which was used for the purpose of training students in professional singing and also the same was made available to various artists for the purpose of recording. The Tribunal found that the gross receipts were only ₹ 16.72 lakhs which subsidized the fees of ₹ 33.01 lakhs for 785 students which worked out to ₹ 4206/- per student per year. It observed that

(a) teaching of Indian Classical Music is within the field of “education”

(b) the maintenance of studio was intrinsic and in pursuance of the object of the assessee which was education.

[Acharya Jiyalal Vasant Sangeet Niketan v. ITO(E), 2021 (4) TMI 113 - ITAT MUMBAI]

Charities Update dt. 17/06/2021:

Section 2(15) - Charitable purpose

Construction of approach road to a temple (although not mentioned in the objects clause of the trust deed) is permissible activity of charitable nature when the object of the trust included construction of temple [JCIT(E)(OSD) v. Subh Mangal Foundation 1, 2021 (6) TMI 246 - ITAT AHMEDABAD].

Charities Update dt. 17/06/2021:

Section 2(15) - Charitable purpose

Illustration of ancillary/incidental objects that were regarded as charitable

The main object of the assessee was to spread education. The Tribunal held that the following objects were incidental to the main objects:

(f) To purchase, construct, maintain alter, take on lease exchange hire or otherwise acquire movable or immovable property which may be deemed necessary or convenient for any of the purposes of the society.

(g) To print and publish any newspaper, periodicals, books or leaflets that the society may think desirable for the promotion of its objects.

(h) To subscribe to any charity and to grant donations for public purposes.

(i) To co-operate and federate and affiliate with organisation having similar objects

(j) To invest any moneys of the society, not immediately required for any of its objects in such manner as may from time to time be determined.

(k) To do all other thinks as are incidental or conducive to the attainment of the above objects or anyone of them.

[The Sardar Partapsingh Education Society v. CIT(E), 2021 (6) TMI 401 - ITAT Mumbai]

Charities Update dt. 17/06/2021:

Section 2(15) - Charitable purpose

Meaning of “ancillary / incidental or subsidiary objects”

In case of a society registered under the Societies Registration Act 1860, the Memorandum of Association may not explicitly distinguish between main objects and incidental objects for the attainment of main objects. However, inspite of this, depending on their nature, certain objects may be treated as incidental objects [The Sardar Partapsingh Education Society v. CIT(E), 2021 (6) TMI 401 - ITAT Mumbai]

Charities Update dt. 02/06/2021:

Section12A/12AA - Registration of an institution

Necessary registration not obtained under other statutes is irrelevant in grant of registration

The assessee association not registered with any competent authorities that is, Charity Commissioner/Registered Registrar of Societies/Registrar of Companies etc. is not relevant in grant of registration

[The Panchkuva Cloth Merchant Association v. CIT(E), 2021 (5) TMI 726 - ITAT AHMEDABAD]

Charities Update dt. 02/06/2021:

Section12A/12AA - Registration of an institution

Execution of a formal deed of trust is not necessary for grant of registration. The assessee has to produce constitutive and evidential documents which embrace within its fold all documents which afford a logical basis of inferring creation of the trust/assessee. These documents have to be verified and examined by the CIT(E) before rejecting the application for registration

[The Panchkuva Cloth Merchant Association v. CIT(E), 2021 (5) TMI 726 - ITAT AHMEDABAD]

Charities Update dt. 02/06/2021:

Section 10(23C)(iiiab) - Any university/educational institution wholly or substantially financed by the government

An educational institution cannot engage in commercial or profit making activities.

[DCIT v. JMJ Education Society, 2021 (5) TMI 381 - ITAT BANGALORE]

Charities Update dt. 02/06/2021:

Section 11(1) / 11(1)(a) - Income of a wholly charitable / religious institution

Exemption under section 11(1) is not available if there is commercialization of education, that is, by running the institutions, the assessee is carrying on a commercial venture. However, payment for liasoning which is now very essential (especially considering the number of educational institutions available and also the vast area from where the students come from) did not mean that the assessee was carrying on a commercial venture.

[DCIT v. JMJ Education Society, 2021 (5) TMI 381 - ITAT BANGALORE]

Charities Update dt. 02/06/2021:

Section 2(15) - Charitable Purpose

The primary object of District Bar Association was advancement of general public utility

The assessee is a society was formed by lawyers of District Bar Association, Barnala. As per its objects, it has to work for construction of chambers to its members, its allotment, besides environment protection viz. growing trees, and that of saving people from drug addictive disorder, to save and educate girl child and also to spread legal awareness among the general public. The assessee filed an application registration under section 12AA.

The CIT(E) was of the view that the main activity of the assessee was to construct and allot the chambers to the members of District Bar Association, and these activities and benefits restricted only to the members of District Bar Association, who were professionals and not general public. In other words, in the opinion of the CIT(E), the same could not be said to be activities carried out for the general public purpose. On this premise, the CIT(E) rejected the application of the assessee filed under section 12AA

The Tribunal held that the primary or dominant purpose of an institution such as the assessee was in the form of advancement of the object of general public utility.

[Building Committee (Society) Barnala v. CIT(E), 2021 (5) TMI 661 - ITAT CHANDIGARH]

Charities Update dt. 02/06/2021:

Section 2(15) - Charitable Purpose

An activity cannot be regarded as education if the assessee is carrying on a commercial venture.

No commercial activities are treated as charitable objects and that any activity for profit or for personal enjoyment or for avoiding tax is not regarded as a charitable purpose

[DCIT v. JMJ Education Society, 2021 (5) TMI 381 - ITAT BANGALORE]

FCRAR Update dt. 20/05/2021:

FCRA Account with SBI, New Delhi can now be opened by 30th June, 2021

Vide Public Notice dated 13.10.2020, the Ministry of Home Affairs required the existing FCRA account holders to open the “FCRA Account” at New Delhi Main Branch of SBI (NDMB) by 31.3.2021 or earlier.

The Ministry has now amended the said Public Notice to provide that the “FCRA Account” at NDMB may now be opened by 30.6.2021 and that such persons shall not receive any foreign contribution in any account other than the designated “FCRA Account” at NDMB from the date of opening of such account or 1.7.2021, whichever is earlier.

(Notice No. F.No.II/21022/36(58)/2021-FCRA-III dated 18th May, 2021)

FCRAR Update dt. 20/05/2021:

Validity of registration certificate extended to 30th September 2021

The Ministry of Home Affairs has issued a public notice to provide that registration certificates issued under the Foreign Contribution (Regulation) Act, 2010 and expiring / expired during the period between 29th September, 2020 and 30th September, 2021 shall remain valid up to 30th September 2021.

(Notice No. F.No.II/21022/36(58)/2021-FCRA-II dated 18th May, 2021)

Charities Update dt. 16/05/2021:

Taxation of donee - Deduction to assessees for contribution to charitable institutions

Deduction under section 80G is available even when the donations are made as part of the Corporation Social Responsibility.

[Allegis Services (India) Pvt. Ltd. v. ACIT, 2021-TIOL-344-ITAT-Bang]

Charities Update dt. 16/05/2021:

Section 68

The assessee had obtained loans from three parties. The Assessing Officer made addition under section 68. The Tribunal observed as follows:

(a)   If the assessee came into existence during the relevant previous year and it was the first year of charitable activities conducted by it, it is highly unbelievable that assessee would earn huge undisclosed income in the relevant assessment year.

(b)   The fact that there is a common director and common address in lender companies may not be relevant criteria to decide the issue under section 68.

(c)   Material gathered pursuant to enquiry conducted through Income Tax Inspector cannot be used in evidence against the assessee if the assessee has not been confronted with the said material or explanation of assessee has not been called for.

It held that no addition could be made against the assessee of such nature in assessment year under appeal particularly when the nature of the activities of the assessee were to run an educational institution.

[Society for Institute for Professional Studies v. JCIT, 2021 (3) TMI 220 – ITAT Delh]

Charities Update dt. 16/05/2021:

Section 11(1)(a) – Religious purposes

Construction of a building to accommodate sadhus, etc.

The memorandum of association of the assessee contained the following objective:

“1. To construct and primarily establish Geeta Bhawan with in the prescints of Mandi Barnala, to provide for the accommodation to learned Sadhus, Saints and Preists, for the propagation and dissemination of Dharmik Shiksha.”

The Tribunal observed as follows:

(a) the assessee established Geeta Bhawan to provide accommodation to Sadhus, Saints and Priests for the propagation and dissemination of Dharmik Shiksha.

(b) the accommodation was provided to those persons who were propagating and disseminating Dharmik Shiksha in the society as a whole and not to a particular community or religion.

(c) the said persons were also not related to a particular religion or community of the society.

In view of the above, it held that it cannot be said that the objects of the assessee were religious in nature for the purposes of section 80G.

[Om Sat Sanatan Geeta Bilawan Trsut v. CIT(E), 2021 (5) TMI 81 – ITAT Chandigarh]

Charities Update dt. 16/05/2021:

Proviso to section 2(15) - Charitable Purpose

An activity can be hit by the first proviso to section 2(15) in one year and the assessee may not qualify to be existing for ‘charitable purposes’, however, that very activity of the assessee may remain unaffected by the same disabling provision for another year. The reason is that it is not only the nature of the activity but also the level of activity which, taken together, determine whether this disabling clause can come into play.

[Ess Kay Foundation v. CIT(E), 2021-TIOL-664-ITAT-JAIPUR]